Vat

for those of us based in the EU

[Pengi]

If you are outside of the EU, or if you are not registered for VAT read no furhter (serious risk of brain death).

If you are registered for VAT in the EU and have already sorted your AdSense/Adwords VAT, then let me know if I have anything wrong. If you're not yet there then ...

I spent an enjoyable half on on the phone to a young lady [oops discrimatory] person at UK Customs and Revenue this morning, trying to seek clarification of how VAT relates to Adsense earnings - thought I'd share for the benifit of those who haven't been there yet.

I was initially told I would need pay VAT for my AdSense earnings - by deducting the appropriate percentage. I queried this - since howm come my income was deemed to include VAT and the unregistered Guy next door, or anyone outside the EU, did not have any VAT element in their income.

Eventually I received the confirmation I was seeking. There is no VAT due on AdSense income. This is because the service/product I supply is deemed to be Advertising space on my site. This space is supplied to Google AdSense. Since Google AdSense (my customer) is based outside of the EU, I do not need to charge VAT.
neither the location of the advertiser that Google actually puts on my site, nor the location of the visitor who actually clicks on the Ad, are not relevant. I sell to G, G is not in EU, therefore there is no VAT involved - end of story. I think the amount received should be included in the total value of sales figure (box 6)

For AdWords expenditure, on the other hand, I am invoiced from Google Adwords based in Ireland. The provision of AdWords services, within the EU, is subject to VAT at the standard rate. However, since I have provided my UK VAT registration number to Google, the VAT is deducted at source (rather than charged to me and recovered within my VAT return). On my VAT return, my Google AdWords expenditure needs to be included in the "Total Value of purchases excluding VAT", and "Total value of acquisitions from other EC member states" boxes 7 & 9.

P
Luckily I make money from VAT - legally - or it would be really annoying :)

[mzanzig]

In short:

Adsense payments (revenue for you) - you do not need to transfer VAT to the taxman, because your Adsense contract is with a US based company, based on a US contract. You get that cash net. However, please note that you still have to declare that in your income tax statement at the end of the year!

Adwords payments (cost for you) - your contract is with the local Google office (most likely), so they are charging you the amount including local VAT. Let's assume you are spending 11.60 Euro in Germany on Adwords. They have a VAT rate of 16%, i.e. your net Adwords cost is 10.00 Euro (=11.60/1.16), and your VAT is 1.60 (=11.60/1.16*0.16). The VAT is what you get back from the taxman immediately (well, sort of). The Adwords cost is just this - cost to you. This will go into your income statement at the end of the year.

Let's further assume that you made 30.00 Euro revenue this month on spendings of 11.60, then your calculation goes like this:

Revenue 30.00 net (from Adsense)
- 10.00 net (cost for Adwords)
= 20.00 net profit (for income statement)

1.60 Euro (VAT on 10.00 net from Adwords) will be transferred to you directly.

Let's see whether this works out OK:

You start with nothing (i.e. balance 0.00 Euro) :-)

-11.60 for Adwords (cost)
+30.00 from Adsense (revenue)
+1.60 from taxman (VAT adjustment)
= +20.00 income

This works fine with my taxman; however, if you are unsure, please contact your tax advisor (again). :-)

Luckily I make money from VAT - legally - or it would be really annoying :)

Actually, you don't "make" money from VAT. It's basically neutral to any of the calculations.

[Pengi]

Thanks.

I make money on VAT currently, by earning interest on the VAT I have collected (from other activities) until I pay out the VAT to the taxman each quarter - may not be much but it's still income I would not have had.

Also, were I not registered, I would not be able to claim back the VAT I pay out on other items - maybe not "earnings", but nevertheless, money I would not otherwise have.

[swa66]

Since the customer (Google Inc.) is outside the EU, it's by definition no VAT.

It becomes more troublesome if and when they use an European location in the equasion:

- In principle you have to charge local VAT rates (and your customer has to pay, and try to claim back from _your_ government) on *SERVICES* delivered to customers inside the EU. [Utterly ridiculous, but true]

- On *PRODUCTS* sold outside your country, you don't have to collect VAT if your customer provides you with a VAT number if (s)he is inside the EU.

- Inside your country you always charge VAT. Of course.

- But there are dozens of exceptions to this. (Yeah, they need a backdoor or two it seems):
E.g. Amazon's european sites (.de .co.uk .fr) operate out of a Luxembourg based company and as such they'd have to pay all EU based affiliates VAT and try to get it back from all the EU goverments. But Amazon claims there is an excemption for them: "the marketing services provided by EU associates established outside Luxembourg are subject to VAT in the country where the recipient of the service is established (refer article 9(2)(e) of EU Directive 77/3888/EEC)."

[Disclaimer: INAL, And I've never needed to explain it to the VAT office yet, and worst of all: I've never found that directive.]