In 2019 a host of European Union (EU) member states introduced reduced VAT rates on e-publications. These rates have added complexity for digital businesses operating in the EU and here we explain why.
Generally, digital services are taxed at the standard VAT rate but there are exceptions for electronic publications (e.g. e-books and e-newspapers) that can benefit from reduced rates.
However, for digital businesses supplying electronic publications to customers it is important to understand the definition released by the tax authorities. In India, for example, a reduced GST rate applies only if a physical print book also exists. In Germany, it may also include databases that give access to the ebook.
Directive allowing reduced VAT rates on electronic publications
First, some background information. Back in October 2018, the European Council agreed - as part of the EU’s digital single market plan - that EU member states could apply reduced rates on electronic publications (e.g. e-books and e-newspapers) thereby aligning EU VAT rules for electronic and physical publications.
Under the previous VAT rules, electronically supplied services were taxed at the standard VAT rate whereas related physical publications (e.g. books and newspapers) benefitted from various reduced rates. The subsequent amended VAT directive allows member states to apply reduced VAT rates to electronic publications. Member states have been free to do so since December 4, 2018.
The introduction of this directive was prompted following a Court of Justice of the European Union (ECJ) decision rejecting France and Luxembourg’s argument that “ebooks should be considered a good rather than a service.”
The ECJ ruling stated that: “The court finds that the VAT Directive excludes any possibility of a reduced VAT rate being applied to ‘electronically supplied services’. The court holds that the supply of electronic books is such a service.”
After this ruling was issued calls for the EU to amend laws to take into account technological change grew louder. This has led to the amended VAT directive that now allows EU member states to apply reduced VAT rates on electronic publications.
EU member states amending VAT systems
During 2019 - as a result of the directive mentioned above - a host of EU member states amended their VAT systems to apply reduced rates to electronic publications. Here are some examples (in order of introduction date):
- Croatia: reduced rate of 5%, effective since January 1, 2019
- Ireland: reduced rate of 9%, effective since January 1, 2019
- Malta: reduced rate of 5%, effective since January 1, 2019
- Portugal: reduced rate of 6%, effective since January 1, 2019
- Belgium: reduced rate of 6%, effective since April 1, 2019
- Luxembourg: reduced rate of 3%, effective since May 1, 2019
- Finland: reduced rate of 10%, effective since July 1, 2019
- Sweden: reduced rate of 6%, effective since July 1, 2019
- Poland: reduced rate of 5%, effective since November 1, 2019
Note that Norway, a non-EU country, introduced a reduced VAT rate of 0% for electronic publications in July 2019.
This trend is continuing in 2020 with the following planned changes:
- Germany: reduced rate of 7%, effective from January 1, 2020
- The Netherlands: reduced rate of 9%, effective from January 1, 2020
- Slovenia: reduced rate of 5%, effective from January 1, 2020
- Austria: reduced rate of 10%, effective from January 1, 2020
Other EU member states such as the Czech Republic (new 10% rate effective from May 1, 2020) and Spain have revealed plans to introduce a reduced rate for electronic publications.