had an email conversation recently about a very typical VAT question for U.S. based sellers of software. I am reprinting it here – apologies for the longish post, which has been edited for easy reading.
“We are a small software company that manufactures a product called “X” that we sell to design professionals (not typically individuals). We are expanding our business to the UK and plan on selling online and shipping to the UK as well as doing a few trade shows in there and plan on selling the software on site. The price of the software in the US is $1495, so I’m guessing we will sell it for a comparable price in £.
From what we have read online, it appears that we do not have to register for VAT if we sell less than £81,000? Obviously, this may take us a little while to establish this. Is there no need to register for a VAT number until we reach that amount? Therefore, we do not charge VAT until that time? We are also not sure if there are differences in how VAT is collected whether the software is delivered via courier service (DHL/UPS), electronic download, or in person (at a trade show).”
“This is actually fairly straight-forward, as long as you only sell to businesses.
For online sales, no VAT is due because the recipient is required to self-assess VAT – this is somewhat similar to self-assessing use tax here in the US.
For sales of the software on a CD via courier, you will need to make sure that you instruct the courier that the recipient is the so-called importer, which means that the recipient is responsible for import duties, fees and also for the VAT that is due on imports. If you fail to do that, the courier will assume that you are the importer, and he will send the VAT bill to you (which is at least a 20% additional cost!). This applies to all countries outside the US, not just the UK.
For sales on trade shows, VAT would be chargeable. The registration threshold only applies to EU-resident sellers – so you can’t use that facility.
If you think that the sales on trade shows will be significant, you could register for VAT in the UK and account for the VAT on the local (trade show) sales. You could also refer trade show attendees to your website and limit your sales to online downloads with potentially shipments from the US of the CDs.
VAT wise I would recommend against selling CDs on tradeshows – you could hand out demo / trial CDs where the customer needs to download a license code online and avoid the compliance / invoicing burden of VAT.
Entirely separate from this, some of the VAT on expenses that you incur while in Europe may be refunded. Happy to provide you with referrals to service providers that can help you with that.”