Following the introduction of the European Union’s new VAT-MOSS regime, as reported by Chris Meadows, Amazon has now issued details on the implementation of VAT collection for Kindle Direct Publishing, and KDP authors like me have received a lengthy email from the Kindle Direct Publishing Team covering the new regulations. It begins as follows:
On January 1, 2015, European Union (EU) tax laws regarding the taxation of digital products (including eBooks) will change: previously, Value Added Tax (VAT) was applied based on the seller’s country – as of January 1st, VAT will be applied based on the buyer’s country. As a result, starting on January 1st, KDP authors must set list prices to be inclusive of VAT. We will also make a one-time adjustment for existing books published through KDP to move from VAT-exclusive list prices to list prices which include VAT. We’ll put these changes into effect starting January 1st; you may always change your prices at any time, but you do not need to take any action unless you wish to do so.
In other words, it appears that all you KDP authors out there will have to take VAT into account for any future publications, but for existing titles, Amazon will do the work for you – though you may want to tweak the results later to hit an attractive price point. “We will add the applicable VAT based on the primary country of the marketplace to the VAT-exclusive list price provided,” states Amazon. “For example, if an author had previously set £5.00 as the VAT-exclusive list price for amazon.co.uk, the new VAT-inclusive list price will be £6.00 because the applicable VAT rate in the UK is 20%. Please note, if an author had set a consistent VAT-exclusive list price for all Euro based Kindle stores, those prices will now be different due to varying VAT rates for the primary country of each Kindle store.” More details are available online here.
Royalties will remain more consistent, but not on a basis that will give authors much comfort against the changes in their list prices. As Amazon explains, “Royalties will continue to be calculated based on the list price without VAT. The amount of VAT applied depends on the country where the customer is located. Consider a book with a £6.00 VAT-inclusive price on Amazon.co.uk, for sales to customers in the UK we would apply the UK’s 20% VAT rate and the price we use to calculate royalty would be £5.00. The 23% Irish VAT rate will apply to purchases from Ireland, so a customer buying from Ireland would still see £6.00 but, applying the 23% Irish VAT rate, we would calculate royalty based on the VAT-exclusive list price of £4.88.”
As for American authors and in general “for those authors who set their EU marketplace prices automatically from their US list price, we will convert the US list price to local currency and that will be the list price that includes VAT. For example, if an author sets the US list price to be $10.00, then we will convert that price to Euros for the German marketplace, and assuming the exchange rate is 0.8, the Amazon.de list price including VAT will be €8.00. For purchases in Germany, we would deduct 19% VAT and calculate royalty on a VAT-exclusive list price of €6.72.”
“We think that respecting your VAT-exclusive list prices and keeping books in their chosen royalty plans offers the best experience for authors,” Amazon concludes. Well, at least they have the EU regulators to blame if KDP authors disagree.