Sunday, February 24, 2013

German VAT (sales tax) or "Kevin, why do you have 2 prices?"

Recently there appears to be some confusion regarding the prices shown for my products and who pays which price.

Let me clear this up right now.

Most readers will be familiar with the term "sales tax." In the USA sales tax is governed by state and/or municipal laws. This is why the sales tax rate in Nevada may be different from the sales tax rate in New York City. One state in the Union may have a rate of say 8.25% and another might levy 9%.

Normally, if you reside in one state and order a product that is shipped to you from a dealer in another state, you don't have to pay sales tax on the purchase. I hope folks are following me so far.

Right now Europe is organized in something called the European Union where a bunch of countries like Germany, France and Italy, et al (check Wiki for complete details) got together and created a new currency called the € Euro which most members of the European Union (EU for short) have adopted. The member countries all share some laws and regulations designed to improve trade and expedite ... something, anyway Big Business and Politicians got together... you get the picture.

The thing is, in the EU sales tax is regulated on a national level, not a local or state level. In Germany the sales tax rate is 19% nationwide. In the United Kingdom they call sales tax Value Added Tax (VAT for short) and the rate is 20%. Other member countries have their own tax rates.

I show 2 prices for each product because the higher price includes 19% German VAT and the lower price excludes 19% German VAT. EU law stipulates that buyers from any EU country must pay German VAT while buyers from non-EU countries do not have to pay German VAT.

IMPORTANT: If you live in a country within the EU and purchase a product from a dealer located in another EU country and have it shipped to your home, you have to pay VAT at the rate charged by the country where the seller is located.

Example: A guy in England buys a knife from me and has it shipped to his home in Manchester. He has to pay 19% German VAT just like if he personally bought it from me in Germany so he is charged the higher of the 2 prices shown.

Example: A guy in the USA orders a knife from me and has it shipped to his home in Kansas. He will pay the lower of the 2 prices shown for the product because he does not have to pay German VAT.

ALL of my prices are in Euro. I do not accept payment in any other currency because the tax consequences from doing so are a Royal Pain in the Ass. There are strict laws controlling the conversion rate for the payment into Euro for income tax purposes and paying the accountant to work all of that out for a long list of small transactions is not worth the cost. So I only accept payment in Euro.

I hope I have answered any questions readers may have. If not, please contact me directly and I will try and set you straight.