Mobile Apps Development and VAT

VAT Sep 2, 2012

Selling online is complex because once you reach a certain turnover in a foreign jurisdiction, you are required to register for VAT in that jurisdiction, start collecting VAT at the local rate and then pay VAT to the local jurisdiction (rather than HMRC). The threshold depends on the country and is either €35,000 or €100,000 (see full list there). Setting up the right infrastructure for distance selling requires that you are able to identify the location of your foreign clients and bill them appropriately. It is not always an easy task especially if you sell virtual goods or if you rely on a third-party distribution platform such as the ones provided by mobile app vendors. Especially since each platform behaves differently. Here is a quick summary of what you need to know:

Apple AppStore

You supply your products to Apple, who then market and supply them to consumers. Apple charges VAT to the consumers based on their location. Apple’s commission is a markup to the price, which they then add VAT to. Because of this, under HMRC rules this isn’t deemed to be a supply of “agency services” from Apple to you. So, you can account for VAT on your supply to Apple as normal. Because you are supplying software to Apple’s EU subsidiary, and because the subsidiary is based in Luxembourg, you can zero rate the VAT. You will have to report the sales onto an EC Sales List however. As with many things Apple, this model is very slick!

Google Play/Android Market

Here the situation is quite different: the transaction happens directly between the developer and the end client. Therefore, it's the developer's responsibility to collect the proper VAT depending on the location of that customer. Up until recently prices on the store were even shown before VAT. The situation has improved slightly as now Google calculates the VAT for you (in most jurisdictions). But the brunt of the tax pain still sits on the developer's shoulders. It's a serious design flaw and it has prevented many developers from offering paid apps on Google Play. Hopefully, Google will come to its senses and adopt a model similar to the one from Apple. In the meantime, going to an ad supported model or using a third party publisher might just be the answer!

Other stores

New stores are cropping up every day but unfortunately, most of them are adopting the Google model – because it's easy to implement. That's the case of the Amazon Appstore and the Facebook Credits system.


Franck Sidon

With over 15 years of experience as a Managing Director at TaxAssist Accountants, I have helped thousands of businesses and individuals achieve their financial goals and optimize their tax efficiency.