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.
Suffolk Scribblings 
Thank you for explaining it all so well. I find the whole marketing aspect daunting, but I know I need to keep track of all these issues.
The main point to take is that from the 1st January 2015 the price you list your book at is the price the customer pays. Then their local government will take a cut (20% in the UK). What you are left with is what Amazon will use to calculate your commission.
I don’t make a huge amount in royalties from Amazon (about £3 this year I think) but I expect to be putting more out next year so I am a little concerned about how all this is going to work out.
Absolutely rubbish decision to penalise digital media providers in this way. Naturally, I signed the petition the other week. I doubt anything will change before the election, if at all.
I’m not against the principle that Amazon should pay VAT to the country where the customer lives. I do have an issue with ebooks being taxed at a different rate to those made from paper. This is a nonsense.
As for everybody who sells any digital product having to be vat registered, that’s a terrible idea (but not applicable in the above example as it’s Amazon who are doing the selling).
Indeed, thank you for explaining.
You’re more than welcome
Good stuff Dylan. Officially a brainiac! You need to get out more!!
I really do need to get out more, that’s true 🙂
Oh lordy, another bit of nitty-gritty to get my head around! I think VAT on books of any kind is an iniquitous thing anyway. But what will be, will be.
While I don’t like eBooks being subject to VAT, I can understand why they are taxed as digital media not books.
The VAT situation is even worse if you sell eBooks directly. On one interpretation of the changes (HMRC and other tax specialists are unclear on how exactly the changes apply), if you could sell to an EU country outside your own, any EU country has the right to demand two pieces of documentary evidence that you have not sold any digital media in that country in the last ten years. So – if someone can access your site from another country convincing a browser you are somewhere else is almost trivial, so almost certainly people can) – you have to be able to prove every transaction in the last ten years was carried out in the same country as you were.
If it didn’t cause so much damage to major eRetailers’ models too, it would be easy to see it as the big sellers using lobbying to force individual sellers to put all their business through a retailer instead of their own shop-front.
Even worse than direct eBook sales is the impact on online services: proof-readers, editors, cover designers, and anyone else who currently provides services at a distance could also be facing the same issue.
I agree about the crazy vat laws if you sell direct. I didn’t talk about them here because I didn’t want to confuse the two issues (despite being created by the same piece of legislation) but you are right, many businesses will stop trading because of them.
I got stuck on the idea of a 20% tax on any kind of book, e- or otherwise. Ouch! I hope this does not affect those of you in the UK too badly. 😦
I personally agree, Sue, but at the very least they should be taxed the same. This will affect all authors who sell books through amazon stores in the EU, not just those authors based in the EU (although many of us have proportionally more sales in Europe than through other amazon stores).
Thanks for the clarification, Dylan. And yes, I agree that it needs to be applied equally. There was a time here in Canada where we had no tax on books at all. I really miss those days.
Your point 7 shouldn’t work, as Amazon will be trying to identify customers’ home country accurately (and might be penalised if it doesn’t). Though of course some people will try to find ways round it.
Hi Tim, thanks so much for your comment. I believe point 7 will be applicable because the price is set at amazon store level and the tax at the customer’s country level.
So, if you have a book priced 1.00 euro before the tax change.
On Jan first your price goes up to 1.05 on amazon.fr and 1.22 on amazon.it to account for the tax.
A customer in Italy sees the book is cheaper on amazon.fr and buys it at 1.05.
Amazon sees the customer is in Italy and taxes off 22% tax.
The author and amazon then split the price after tax of 0.82 cents.
Amazon cannot stop a customer in Italy buying from another EU amazon store due to the free trade agreement.Therefore it will be the author and amazon who will take the hit.
According to the advisory I received Amazon are setting a single Euro price which is VAT inclusive: so list price on all EU (ex. UK) markets will be the same and the VAT deduction will be different.
The author and Amazon still take the hit, but customers have no incentive to buy in Luxembourg (where VAT is lowest), because they pay the same price on all EU sites.
Hi Dave, I’m not sure what you’ve said is correct. On the email I received it said the following when talking of the automated price increase:
Please note, if an author had set a consistent VAT-exclusive list price for all Euro based Kindle stores, those prices will now be different due to varying VAT rates for the primary country of each Kindle store. For example, if an author had previously provided a €6.00 VAT-exclusive list price for amazon.de, amazon.fr, amazon.es, and amazon.it Kindle stores, the list prices including VAT will be €7.14 (19% VAT), €6.33 (5.5% VAT), €7.26 (21% VAT), and €7.32 (22% VAT) respectively.
This means amazon will not impose a single euro price point across Europe. It will continue to calculate a single price point if the author has asked the prices to based on another currency (e.g. the US its price) but that’s not a price point imposed on the author.
You are right: Amazon aren’t imposing the same price on every EU market, they are only moving over to VAT-inclusive.
I got it conflated with the email I had suggesting authors set the same price across markets.