Random Friday

so, Smashwords chimed in with the European Union VAT thingy:

December 2, 2014 – (updated) On January 1, new VAT (Value Added Tax) rules go into effect in the European Union.  In the past, retailers were able to locate their European headquarters in Luxembourg, and the VAT imposed on ebooks was based on the VAT rate for the country in which the retailer was based.  In Luxembourg, the VAT was only 3%, a rate that was practically neglibible.  Effective with the new EU rules that start January 1, VAT is charged based on the customer’s geographic location.  This means that effective January 1, myriad tax rates will be applied to your ebooks when sold at Smashwords retailers such as Apple iBooks, B&N, Txtr and Kobo.  What Smashwords authors need to do to prepare:  At present, nothing.  Smashwords has always distributed books through our global retailers at a VAT-inclusive price.  This means that VAT for European sales was deducted from the sales price, and only then did the retailer take their cut before sending the remaining proceeds to Smashwords.  With the new VAT rules, the VAT tax will range from 15% to 25%.  The average across all the countries is 20%.  The UK, a large market for ebooks, is 20%, even though the VAT rate for printed books is 0% (yes, ZERO).  As one Smashwords retailer told me recently, “we’re all getting hit with the same stick.”  It’s a painful stick.  Authors and publishers are left with a difficult decision.  Raise prices on consumers to make up for the tax bite, or eat the higher taxes to preserve low prices?  The VAT change comes at a time when, as I wrote recently in a post at the Smashwords blog, the ebook market is facing slower growth and many indies are facing increased competition and lower sales.  And here’s something I haven’t heard anyone talk about:  This VAT change also comes at a time when the US dollar is reaching multi-year highs in the currency markets.  Since Smashwords books are originally priced in dollars before we calculate currency conversion rates, it means that dollar-denominated books have already been getting more expensive to European customers since their Pounds and Euros don’t stretch as far as they once did.  If you’re contemplating holding the line on your prices, you can take some solace that the strong dollar will mitigate some of your pain.  Long term, however, indies will be forced to make that difficult decision:  eat it or pass it on to reader?  We’re not contemplating any immediate changes at the Smashwords retail store, though we’re investigating options and obligations.  For the time being at least, your highest margins will be at the Smashwords store.

Which means if you’re in Europe, grab all your ebooks for Xmas, because come the new year, the party is over! 😉

Now heading back to the book fair, looking for more news… ya never know, they might discuss that during these 4 days! 🙂 Will keep you posted… Have a great weekend!

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