EU VAT Rules and Affiliate Marketing

Affiliate Marketing Expert Johannes Stockburger

The MOSS System

Since the beginning of this year new rules for sales to customers in another EU country are in force: if you are an EU business person and sell to a customer in another EU country you have to apply the tax rate of the customer’s country and to pay the tax to the customer’s country. With the MOSS system this is doable. And the change deserves some credit because some funny regulations to determine the tax regime have expired. If your customer is outside the EU there is no longer a need to determine whether you have sold to a business or a private person.

Determine Your Customer’s Location

In fact the need to determine the customer’s location is helpful to us. Now that we have to prove the customers location it should be allowed to acquire this information and keep it on file. Earlier filing such information was a kind of privacy problem.

Who Is a Customer?

But if you think about it: these new Value Added Tax rules do not apply only to transactions with end customers. If you do affiliate marketing and promote other peoples products or services you get a commission for it. The marketer who pays you a commission is also your customer. And if this marketer is an EU person, you may have to apply the VAT rules on these commissions.
You have to determine the location of every marketer who pays you a commission. If it turns out that this marketer is a EU person, you have to either pay the VAT rate for your commission to the government of your customer’s country, or you have to collect and file his VAT number as proof that he is a business person.

The Solution for Affiliate Marketing

An easy workaround could be to promoting only products which are handled by services like Clickbank. With Clickbank the marketer sells the product to Clickbank. They in turn sells to the final customer and pay commission to affiliates. As they are a US business, VAT does not apply if you sell to them. But this could be quite limiting your choices as an affiliate marketer. You will be able to promote only a fraction of the products on the market.
A better solution is to collect and file the address and phone number of every business whose products you promote. In case you find yourself promoting stuff for an EU business, you need to determine and file also his VAT number.

Show Your Affiliates that You Care

If you sell your product through affiliate marketing receiving payments directly from the customers and paying your affiliates directly: provide your address and VAT number (if applicable) on your affiliate site. This gives you a distinct advantage to find good affiliates. You make it easy for your affiliates to follow the rules and avoid a tax bill eating – depending on your location – 20% or more of the commissions you pay. And, by the way you save a lot of work answering support tickets.

Disclaimer

I want to emphasize that I am not a lawyer, nor a professional accountant or tax advisor. This article is strictly for educational purposes and is in no way professional advise. But I strongly suggest that you ask your tax advisor these questions if you are an EU person.

2 thoughts on “EU VAT Rules and Affiliate Marketing”

  1. Hi Johannes

    I was under the impression that if VAT has been already paid by the vendor then the affiliate is in the clear. If what you;re saying is true, then surely VAT would be paid twice on the same product, or have I read what you said wrongly?

    Kim

  2. Hi Kim,
    thanks for the question. VAT is not like a sales tax which is charged only if the end consumer buys a product for personal use. Contrary to that, if you are a business, you still get invoices for the value of your product plus value added tax, which you pay to your supplier. Your supplier has to send this money to tax authorities, and if you are a VAT registered business and purchased something for use in that business you can demand a refund for the VAT you paid from the tax authorities.
    This sounds complicated, and it is. But tax authorities can use this system to find out when someone cheats with VAT. If you claim the VAT you paid for your business related purchases, they can easily confirm in an audit whether the business issuing the invoice with the VAT paid that amount. So one business is the tax detective providing information to tax authorities about the other one.
    In case of international purchases you can supply your VAT number to the vendor of the product or provider of the service. If he received this VAT number he cannot add the VAT to his invoice. Because he does not receive VAT in this case, he does not need to hand it over to tax authorities.
    Now in the context of affiliate marketing the affiliate provides a service to the vendor of the product or service sold in the campaign, and gets paid for that service through the affiliate commission. In a domestic setting, if you are not an VAT extempt mini business, you would send an invoice to the business, which has to pay a commission to you. The invoice contains the commission amount plus the applicable VAT. The product owner, whose producs you promote, then can claim back from tax authorities this VAT amount you invoiced.
    In a cross-border intra EU context this would be also possible with the new rules, but it is a whole mess because you have to collect this amount from the seller of the product, send it to your government, your government sends it to the foreign (product owner’s) government and then the product owner/seller claims it back from his government. But with a cross-border intra EU sale to a business you can just push aside this whole mess. Instead you collect the VAT number from your foreign business customer. If you have this number on file you do not need to collect VAT money from the business with the respective VAT Number, and there is nothing to pass on to any government.
    Important to know is that you still have to pay the VAT amount to your government, or possibly to another EU government, if you should have collected VAT from your customer, but you failed to do so.
    Because of all the red tape involved, most product vendors in the context of affiliate marketing will just decline your request to pay an extra amount of VAT to you and then to reclaim it from their government. So there is a good chance that you will have to pay it to the product owners government, but he will neither pay it to you nor demand it back from his government. Tax authorities will smile, but you suffer.

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