Today Envato’s Platform team is rolling out a small change in our work on tax compliance, which is applying EU VAT to the cost of support extensions and renewals.
As many of you know we have been applying EU VAT to the purchases of individual items themselves and the six months of support bundled within those items. Applying EU VAT to support items is the next step in this body of work
What will customers see?
Customers will be notified throughout the purchase process that the display price doesn’t include VAT, however once they arrive at the checkout, VAT will be applied to the price of the support services in exactly the same way as it is applied to the price of the item.
Exactly, you are not mistaken - we consider support as a service, but looks like they don’t. @Matthew, please provide more information, because now it looks like a scam. As well as included support, when author doesn’t provide support.
Another Question: If Envato now collects VAT on these purchases because its necessary: what happens to all the extended support purchases of the last year? If it really is necessary I guess it would have been from the beginning, or am I wrong?
You have a point. After I have received this announcement through email, I was thinking it as well. Anyway, it won’t affect our revenue, but it may have an impact on us because buyers might complain on us.
Just going to jump in here and answer the questions
Like @OsamaSayegh has said. There won’t any impact on current support revenue for authors. Only items sold to buyers in EU will have VAT applied by Envato on behalf of the authors.
@uouapps, @Dream-Theme and @Kopyov all asked good questions about whether or not VAT should be applied to item support as it’s technically a service:
This is a curly one to explain. Item support sits in a different category as it’s not, strictly speaking a standalone service from the perspective of the EU. Because the purpose of item support is to ensure that the buyer is able to use the item they have purchased, the definition changes to a service associated with an item and therefore shares the tax treatment of the item itself.
A good point of contrast would be customisation services on Envato Studio, which aren’t associate with a specific product. A studio service provider might work on an item, but the item was not necessarily an item they sold themselves and therefore doesn’t result in EU VAT being applied to the services.
It’s all a process. Because EU VAT is Envato’s responsibility, we’re always talking with the tax authorities with a view to updating the way we do things.
Good question! Unlike many other taxes which focus on the seller as being the party responsible for dealing with taxes, the EU is a little different in that Envato (the platform) is the party responsible. We’re registered for VAT, and as such the onus is on us to handle all the remittance
As noted above, the EU is a little unique. In the EU, we (the platform) are the ones responsible for the collection and management of VAT, however outside the EU, that responsibility shifts back to the the sellers themselves (which is the norm). So whilst we’re the ones who manage VAT for buyers inside the EU, outside the EU, managing VAT (or HST, as it’s known in Canada) is a sellers responsibility.