By now anybody who has published a book through Kindle Direct Publishing (KDP) will have received a long and very detailed email explaining the new pricing process for books sold within the EU to take into account the new sales tax (or VAT) laws that come into effect from January 1st 2015. I’ve seen a number of confusing comments on this on Twitter and via blogs so I thought I should try to capture the key points.
1. When you set up a price in KDP from January 1st it will be the price including VAT
In the past authors set up a list price and Amazon would then add the appropriate tax rate (at the time, 3%). This often led to confusion as authors would be unaware of this, put in a list price of £2.99 and see a sales price once live of £3.08.
Now when you set a price of £2.99 the customer will be charged £2.99, taking the guess work out of hitting a price point.
2. The sales tax laws have changed so goods are taxed in the country of the customer
This means that if a book is purchased from amazon.co.uk and sent to a customer in the UK, it will be taxed at 20% (not the 3% as in the past). If it is bought by a customer in Ireland it will be taxed at 23%. This, potentially, could have a big impact on author margins. Let me show you an example:
In the past an author would set a list price – tax of £2.90
The customer price would be £2.99 (£2.90 + 3% sales tax)
The author would earn commission (70%) on the list price – tax of £2.00
Under the new system the author sets a list price including tax of £2.99
Amazon would then remove the sales tax (e.g. 20% in the UK) leaving a list price – tax of £2.29
The author would earn commission (70%) on the list price – tax of £1.60
So by keeping the same list price as before, we authors would have to absorb a 20% drop in earnings!
3. All list prices for existing books will go up in a one-off price increase on January 1st 2015
Every book listed for sale in the EU will have a one-off price rise on January 1st 2015. The amount of the price rise will depend on the Amazon store as local sales tax rates are different (20% UK, 19% DE, 5.5% FR, 21% ES, 22% IT etc.). This will be your new list price including sales tax. You can then change it to any price you want but the new price will always include sales tax, like the examples above.
So, if you have a book for sale in the UK at £2.99, Amazon will increase that price by 20% (UK sales tax) to £3.59.
4. The minimum 70% commission level will go up
Because the new list prices are inclusive of sales tax, the minimum price to receive a 70% commission will also rise. The new price points are:
For ebooks less than or equal to 3 megabytes, the new minimum list price requirements are £ 0.99 and € 0.99
For ebooks between 3 and 10 megabytes, the new minimum list price requirements are £ 1.49 and € 1.99
For ebooks equal to or greater than 10 megabytes, the new minimum list price requirements are £ 1.99 and € 2.99
5. Testing times
Clearly, this will be a testing time for self-published authors. Will customers accept a significant price increase in the markets with high sales tax, or will we have to accept a reduced margin in order to maintain our expected sales volumes. Only time will tell.
**Update: I’ve had a little more time to think these through and I have a couple more points to add below **
6. Amazon want you to pass on the price increase
This tax doesn’t just affect you as a writer, it also has an impact on Amazon (which was the intention). Because Amazon take their 30% from the list price – tax, they too will receive 20% (or more) less income). This is why they have increased the minimum level to hit 70% commission.
7. There may be more cross-border purchases
If authors decide to pass on the price increase there will be different price points in different European countries for the same book. This may lead to readers buying ebooks from the country with the cheapest price (because they have the cheapest sales tax).
8. This may not be the last we hear of tax increase
With the introduction of this new tax law, e-books are being taxed more heavily than paper book (which are taxed at 0% in many EU countries). There are already petitions on change.org asking the EU to tax e-books at the same rate as those in paper. The hope is that the e-book tax will be reduced. My guess is that the paper book tax rate will increase. We shall see.
If you have anything to add to this post, or if you believe I’ve made a mistake or misrepresented the information, please don’t hesitate in letting me know in the comments below.