Etsy will begin collecting VAT on seller fees from European sellers later this year. VAT stands for Value Added Tax. Etsy is apparently required to collect the tax on seller fees but had chosen initially to pay sellers’ VAT itself.
The company announced on Thursday, “In the middle of 2016, Etsy will begin charging VAT on listing fees, transaction fees and Promoted Listings fees for eligible sellers and remitting it to the appropriate EU tax authority.
“Depending on your location and whether you have submitted a VAT ID to Etsy, this may result in an increase in your monthly Etsy invoice. Your VAT rate will be determined by your country of residence.”
Etsy has been subsidizing VAT on seller fees because, “until now, we didn’t have the capability to charge VAT on seller fees through the Etsy platform.”
Etsy will not charge VAT for sellers who have submitted a VAT ID. The marketplace advised its sellers, “If you have a VAT ID, but haven’t yet submitted it to Etsy, we strongly recommend that you do so as soon as possible.” It referred sellers to the European Commission website for more information about VAT rates within the EU.
Many sellers who commented on the announcement post appeared to be confusing what it is exactly Etsy would start collecting from sellers. It is collecting VAT only on sellers’ fees, including commission fees – but not the VAT on the sale of items.
As one seller noted, this impacts sellers even if they list items but don’t see any sales, since Etsy is required to charge VAT on listing fees – “the VAT will be applied by Etsy to their fees (does not impact your sales – only your costs).”
Another seller noted, “Lots of professional sellers do not have a VAT number because their turnover is less than the VAT threshold (82,000 pounds in the UK). Every small business and private Etsy seller in the EU who have a small turnover will effectively have a fee increase of 20%.”
Etsy also announced that starting immediately, it will begin providing downloadable VAT invoices to sellers who are based in the European Union outside of Ireland and have submitted a VAT ID number to Etsy. “Each monthly VAT invoice will contain contact and VAT registration information for both your shop and Etsy, along with a breakdown of any VAT-eligible seller fees, including listing fees, transaction fees and Promoted Listings fees, billed in the previous month. Your invoice will indicate that you were not charged VAT on these fees due to your business-to-business status with Etsy.”
VAT is a complicated issue. Be sure to read the full details about VAT on seller fees on the Etsy website.
You can learn more about how VAT works on Etsy on this Etsy help page.