European VAT changes and European Ebook Royalties.

After the first of this year, VAT taxes on ebook sales in the EU will depend on the country of the buyer rather than the seller. That typically means the VAT on them goes from 3% t(everyone was pretending to sell in Luxembourg) to over 20% for all countries of purchase but Luxembourg (3%) and France (5.5%), which both set lower rates for ebooks.

If I read the material I got from Amazon right, it’s defaulting to adjusting all ebook prices upward, so royalties remain essentially the same. In the future, however, that roughly 20% increase in the tax bite will need to be taken in account when you set the price of a new book. With that large jump in taxes that take a bite out of the retail price, you can no longer just convert your dollar price to Euros or British pounds.

Apple is doing the opposite. No retail prices will be changed by them. With the exception of the two countries I mentioned above, that means that both Apple’s 30% and an author’s 70% will now be divided up not from the retail price less 3%, but the retail price less an amount that is excess of 20% for most countries.

Note too that Norway (VAT 25%) and Switzerland (VAT 8%) are not in the EU, so their rates won’t change.

I did some rough calculations and it seems that, if you want your income per sale to remain roughly the same, you’ll need to raise the dollars to Euro/pounds conversion price between 20% and 25%.

Your options include:

  1. Do nothing and see your European income decline by about 20%.

  2. Raise your prices to reflect these changes by raising all of them except perhaps low ebook tax Luxembourg, France and Switzerland, to closely reflect these increased taxes. (Those countries reflect the range of sales taxes people in the U.S. pay.) Germany has a VAT of 19% so raise that price 19%. In Denmark, it’s 25%, so raise the price by 25%.

  3. Pick a flat rate, perhaps between 20% and 25% and raise all prices by that amount, again perhaps excepting those countries with lower taxes on ebooks. That has the advantage of being simpler and of keeping most of your Euro prices the same.

The choice is yours. I’d strong suggest you not take #1 with that heavy hit on your income. My inclination is to go with #2. That’ll drive home to European readers that their tax rates on ebooks vary substantially from country to country (3% to 27%). That should encourage those countries and the EU to follow France and create a common and lower ebook VAT across Europe. Digital files move so easily across borders, it’s crazy to have such a wide variation in tax rates.

Issues this raises include:

  1. Are Apple and Amazon going to let us move away from X.99 pricing, so we can more closely calibrate our prices to reflect these wide variations in tax rates.

  2. Is Amazon or Apple going to get upset if the messiness of all this and the differences in how each is adjusting for VAT means than a Kindle and iBookstore price differ?

–Michael W. Perry, co-author of Lily’s Ride, a great Christmas gift for a teen girl.

The idea of our mad politicians is that with higher prices, they will collect more tax (to finance their caviar and champagne meals). Truth is that higher prices lead to decrease sales. It’s a basic rule, well tried during the latest years, that they continue to ignore.

In Italy, where I live, VAT is 22% and will be 25% sometimes next year. Sale of ebooks is extremely low. I guess this is the end of the market in the peninsula.