UK VAT on software downloads? A couple of questions.

Factual Questions
1

I’m just in the middle of purchasing a game online. The way these computer games work is I download their software, pay them for the games and then they send me an activation code. So far so good.

But just before clicking ‘pay’ I noticed that they were charging me VAT (value added tax) which is applicable to UK imports. The reason they know I’m in the UK is that they require an address field to be completed before progressing through the payment process.

My questions are: Why is VAT required for a software download? And how do I know that this extra charge will actually go to the UK government instead of remaining in the coffers of this American company? I will add that I don’t mind paying the VAT - its less than £3 - but I’ve downloaded games in the past and have never come across the requirement to pay VAT before.

2

I run a small software company in the US that sells software worldwide over the Internet; about half my sales come from foreign (to me) sales, most of them to the EU.

I use Kagi as my credit card processor and store. About three years ago, they started charging VAT on european purchases; their web site for suppliers indicates that it is, in fact, required even on purely-digital goods.

How do you know they aren’t keeping it? Your government will take care of it for you, same as with any sales tax. If you can prove you paid it, they’ll go after the company if it doesn’t show up (assuming they find out about it). Sure, it could be a scam, but it’s unlikely that it could work for long.

The EU keeps a lot of tabs on foreign (to you) companies. Part of the right to do business in the EU means following some of their rules. The two biggies are VAT (which we have to charge to places that have it) and privacy protection rules (EU privacy rules are the best in the world, which cause us US companies headaches because we have a much more lackadaisical attitude toward protecting this stuff.)

3

Thanks Timewinder. It had never occurred to me that a software download would be viable for taxation but after thinking about it - why not!