Kickstarter Lesson #212: Calculating and Paying Value-Added Tax (VAT)

19 January 2017 | 73 Comments

Over 3 years ago, we introduced the idea (and the logo you see on many Kickstarter campaigns) of projects being “EU friendly.” I’m going to focus on the EU region today–specifically in terms of VAT–but you could feasibly replace the word “EU” with other regions and this information will still apply.

Before I begin, I need to emphasize that I am not an accountant or a tax expert by any means. Far from it. I’ve fulfilled 7 EU-friendly Kickstarter projects and I’ve talked extensively to various creators and accountants about VAT, but this is still second-hand information. Also, this information is subject to change over time, so if you see something here that is inaccurate or outdated, please comment so I can fix it.

What Is EU-Friendly Shipping?

A reward must meet one of the following qualifiers if it is to be called “EU friendly”:

  1. The total amount paid for the reward by a backer (including shipping) must by less than 22 Euros. If that is the case, it doesn’t matter where it’s shipped from. [Update: The €22 amount may vary by country. See comments by Nicolai and Nick.]
  2. The reward is freight shipped to a fulfillment center in Europe and fulfilled to European backers from there. If that is the case, the reward price doesn’t matter.

Why Does “Friendly” Shipping Matter?

“Friendly” shipping matters because if it’s not a possibility, the cost to the backer can be significant. Say that someone in the EU backs a $40 reward and pays $30 in shipping from the US to the EU (we’ll assume that the reward includes a built-in shipping subsidy of $10 so that the creator can say that there’s “free” US shipping). Legally, the declared value must be the reward price plus shipping.

When the courier delivers the package to the backer, the backer must pay VAT (~21%, depending on the country). So a $40 reward could end up costing the backer nearly $85. Sometimes there’s even an administrative fee on top of that.

With EU-friendly shipping, the shipping fee is lower in the first place (because the goods are shipped from within the region) and the creator pays for VAT when the goods enter the country so that backers don’t have to (at least not directly). This is not necessarily the normal or standard way to handle VAT, but it’s what my definition of the “friendly” label is referring to.

What Is “VAT”?

VAT stands for “value-added tax.” Specifically, for Kickstarter creators accepting pledges from European backers, it refers to an approximate 21% tax.

How Is VAT Calculated and Who Pays It?

If the creator ships the rewards in bulk to a fulfillment center in Europe, they will pay VAT on the declared value (reward and freight shipping cost) at port.

So if I have a $40 reward that costs $20 to ship from Spiral Galaxy in the UK to Germany, accounting for a built-in shipping subsidy of $10, a German backer would pledge $50. Say that reward costs $2 to freight ship from my manufacturer to the UK. That puts the declared value at $52. With a 21% VAT, I would pay $10.92 when the reward enters the EU.

As Doug notes in the comments, some products (like books) interact differently with VAT and duties.

How will this change when the UK is no longer in the EU?

I have no idea. I’m guessing that the UK will have its own VAT, so creators will pay VAT twice if they use a fulfillment center in the UK to send to backers in the EU. If that’s correct, it will result in creators no longer using fulfillment centers in the UK. That’s unfortunate, because Spiral Galaxy is awesome.

How Does VAT Affect Shipping Fees on Kickstarter?

Basically, like everything else, you need to budget for VAT. In the example above, you would add about $11 to your Germany shipping fee if you wanted to pass that fee on to the backer (which is a perfectly reasonable thing to do if you want to treat all backers equally. Otherwise your margins significantly change for a subset of backers).

What About Retail Backers?

You will need to issue a commercial invoice to retail backers in the EU that shows the 21% VAT included in the amount they paid. They’ll still have to charge VAT to rewards they sell to their customers, but the invoice gives them the opportunity to get a refund on the second VAT payment.

Are There Any Loopholes?

First, I should emphasize that whenever a backer asks you to mark a reward as a “gift” or list a lower declared value, they are asking you to break the law (even if they don’t realize it).

Second, according to Eurocrowd.org (credit to Jordan at Scofflaw Games for finding this) if your reward price is higher than the MSRP of the reward, you don’t have to pay VAT. I think that might be a typo, though, because I’m pretty sure that situation just allows you to charge VAT on the MSRP (i.e., if the MSRP is $30 but you charged the backer $40).

Third, you may have heard (including from me) that the declared value is based on the manufacturing cost of the product, not the reward price. This was once true, at least in the sense that it wasn’t clearly defined by any official organization. Remember, crowdfunding is a relatively new thing, and Kickstarter has always emphasized that they are not a store. Backers make “pledges” to assist with the creation of something, and that may result in them receiving a reward. However, despite this gray area between a donation and a purchase, governments around the world are starting to officially view pledges as sales transactions. So use such alternate calculations at your own risk.

If you want to dig deeper, I’d recommend reading the European Commission’s paper on the VAT treatment of crowdfunding (courtesy of Robert Zimmerman of Logistico).

Does the US Not Charge VAT?

There are very minimal import taxes for bringing goods into the US. Instead, the US uses a sales tax system, so US creators must charge sales tax to backers in the same state as your business. I don’t think non-US creators pay US sales tax.

***

I hope this helps! If you have any questions or if you’d like to offer any clarifications, please do so in the comments.

Also read: Shipping and Fulfillment and (if you’re in the UK or EU) read Mateusz Rakowski’s detailed comment.

Leave a Comment

73 Comments on “Kickstarter Lesson #212: Calculating and Paying Value-Added Tax (VAT)

  1. So, Jamey, if I sell a small card game that is priced (reward level) at $9 – my backers will not be charged any fees for shipping to the EU?

    Thanks so much!

  2. Am I understanding the difference between duties unpaid and duties paid correctly?
    I crunched some numbers for an example but don’t know if I’m doing it right:

    Duties Unpaid:
    selling for $35
    charging $10 shipping
    19% VAT is on $45
    customer pays $8.55 VAT
    total cost to customer is $53.55
    my total income before expenses is $45

    Duties Paid:
    selling for $35
    charging $18 shipping (to cover VAT)
    19% VAT is on $53
    I pay $10.07 VAT
    total cost to customer is $53
    my total income before expenses other than VAT is $42.93

    I see in the posts below that people suggest not including the VAT portion of the duties paid shipping cost in the declared value, or maybe that there’s an option for specifying that it is a VAT subsidy when declaring. In my example above I’m just paying higher VAT on the artificially higher declared value, eating the extra VAT cost and giving the EU a bit of free money. If there actually is a way to avoid doing so that would be great.

    I’m also seeing in the posts below that the VAT would predictably be charged in 2 steps (what with being value-added and all), which in my example I’ve simply lumped together since I’ll probably have Happyshops or whoever’s doing the fulfilling handle it and send me a single bill.

    Is anything about my example not accurate to how it actually works, and are there any other import fees I should know about?

  3. Hi Jamey,

    with Cephalofair deciding to charge VAT to their backers separately, while still using the “friendly shipping” logo you introduced and defined hereabove, I think it is important that to correct an information that I think is wrong in the above. People refer to this article a lot, so it should reflect the facts correctly. By the way, THANKS for your ever outstanding work of trying to bring clarity to this market.

    What do I think is wrong? The section on How is VAT Calculated and Who Pays It. I will quote it here:

    “How Is VAT Calculated and Who Pays It?

    If the creator ships the rewards in bulk to a fulfillment center in Europe, they will pay VAT on the declared value (reward and freight shipping cost) at port.

    So if I have a $40 reward that costs $20 to ship from Gamesquest in the UK to Germany, accounting for a built-in shipping subsidy of $10, a German backer would pledge $50. Say that reward costs $2 to freight ship from my manufacturer to the UK. That puts the declared value at $52. With a 21% VAT, I would pay $10.92 when the reward enters the EU.”

    I will now state how I understand it REALLY works.

    a) If the creator ships the rewards in bulk to a fulfillment center in Europe, they will pay VAT on the declared value (MANUFACTURING and freight shipping cost at port. The VAT rate will be based on the country of import. This is a tax WITHHOLDING, it is a cash outlay for the creator, but not a cost.

    b) Furthermore, the creator is required by law to declare and pay VAT on each pledge, as each pledge is considered a sale (there were previously semantics about KS being about donations, but that’s been waived by legislators). The VAT rate depends on the country the backer lives in, EXCEPT if the creator sells less than ~30k euros to that country, in which case he could use the tax rate of the fulfillment center’s country. The VAT applies on PLEDGE VALUE and intra-european shipping costs.

    The creator is then required to pay the collected VAT tax to the given countries’ tax authorities, after discounting the withholding tax they paid on import.

    The tax authorities therefore charge on the ADDED VALUE only, the difference between MANUFACTURING + FREIGHT SHIPPING and PLEDGE VALUE + INTRA EUROPEAN SHIPPING.

    So if I have a $40 reward that cost $8 to produce in China and $2 to freight ship to Happyshops in Germany, the creator would pay 19% (german VAT rate) on $10, i.e. $1.90.

    On that $40 reward, the creator is further required by law to charge VAT to their European backer. Say it costs $10 to ship the reward within Europe (subsidized), and the backer lives in France (20% VAT rate), the creator would be required to charge the backer 20% on $50, i.e. $10.

    The creator will then forward the $8.10 to the French tax authorities, i.e. the $10 they charged, deducting the $1.90 they paid on import.

    As a creator, I have the following options:
    a) hide / include the VAT charge of $10 in the shipping fees.
    b) subsidize the VAT charge and not charge it to the backer. In that case the creator in above example would declare to the French tax authorities a pledge + shipping value of $50 INCLUDING tax, i.e. $41.66 + 20% VAT. He would subsidize each product by $8.44.
    c) openly charge the backer the VAT of $10.

    Common practise for board game projects on Kickstarter has been a) and b) or a mixture of both.

    Is my understanding incorrect?

    1. Daniel: I appreciate your note, but I’ve heard from multiple sources that VAT is not calculated based on the manufacturing cost–it’s based on the price paid by the backer. But you’re welcome to pursue the strategy that is best for you. :)

      1. Jamey: thanks for your swift answer! You are a hero to the boardgaming industry, and deservedly so :) I will still insist on trying to correct what I believe is incorrect, not to prove you wrong, but for the benefit of the many people reading your posts.

        Maybe you could get a person you trust to dig into this to understand and verify, I know you won’t change any of your post based on a single input from me ;) And you have better things to do than worrying about taxes too much.

        My post states that there are 2 different types of VAT declarations.

        Type 1 is based on manufacturing cost (the VAT the creator has to pay on importing the product into the EU).

        Type 2 is based on the price paid by the backer (the VAT the creator has to charge backers for the sale and forward to the respective countries, after deducting what they paid on type 1).

        If your multiple sources have assured you that VAT is calculated on the price paid by the backer, they are right, if they refer to the VAT applied on the sale. But have they told you what kind of VAT they are talking about? Are they aware there are 2 types?

        Your answer seems to imply that this point hasn’t come across, that you still think of VAT as being a single item. It is not, I fear, and it would help other creators to understand that, it’s a question of legal necessities, not of strategy. (sorry, not trying to blame you for anything, I know you are not a tax expert and are trying your best to guide everyone).

        Your statement “If the creator ships the rewards in bulk to a fulfillment center in Europe, they will pay VAT on the declared value (reward and freight shipping cost) at port.” is not correct. It mixes up VAT type 1 (on import) with VAT type 2 (due on sale).

        Again, THANKS for all your hard work.

      2. Hi Jamey-
        Curious who those multiple sources might be? We’re looking for a VAT expert to assist with our KS campaign (now live), and having trouble. Even our distro partners don’t have 100% clear answers. Thanks!

    2. This is how I understand it as well… Very clearly explained. The only two questions I have are:

      1) If I bake the VAT in the shipping fee, and so the total pledged amount is $50, can’t I say to EU tax authorities that the actual pledge + shipping is $41.67 and VAT is $8.34 ? In other words, why do my customer has to pay VAT $50 if I state it includes VAT?

      2) I’m launching a campaign myself and I’m considering to either bake VAT into the shipping fee or to charge for it separately in BackerKit. Given your experience, what would you think will result in the least resistance / highest amount raised?

      Obviously charging for shipping and VAT after the campaign is cheaper as we don’t have to pay Kickstarter, Stripe, any marketing agency you’re hiring, etc. But if that reduces conversion or gives you a lot of headache with people asking for a refund etc..

      I like how https://www.kickstarter.com/projects/frosthaven/frosthaven has clearly outlined the shipping fees and VAT/ Sales Tax they will be charging after the campaign. My only concern is that there will be people not reading everything properly and

      Thanks for your feedback!

      1. @Jamey, I am not sure if having a conversation with someone else is considered hi-jacking of your post, please let me know and I will refrain from doing so with potential future answers, only offering my email address for further discussions. For now, I will answer this one, in the interest of fellow creators asking themselves the same question.

        @Seb, if you bake in the VAT in above example, it looks like this:
        Pledge: $40
        Real shipping: $10
        VAT baked into shipping: $10 ($8 from the pledge + $2 from the shipping)

        Final backer fee: $60 ($40 pledge + $20 “baked shipping”)

        You will declare these $60 as $50 + 20% tax, passing on the $10 to the tax authorities. The backer will have paid his full tax, and you will get your full $50, all good so far.

        Problem is that with higher pledge values (and reality on KS is that pledge values can easily be around $100) you need to bake in a LOT of VAT into the shipping cost, which then seems very high to European backers and may result in them staying away or complain.

        Another problem is that you want to group countries into just a few shipping groups, for example, all central Europe the same shipping price. If you do so, you will not reflect reality, though, because each country’s VAT rate may be different.

        The solution carried out by Cephalofair is a lot more transparent, its applaudable. It results in the same amount of complaints, though, maybe even more. European backers have been used to apparently not paying VAT on KS, as most creators didn’t bake in the full amount into the shipping (mostly out of ignorance about the VAT issue) and so the European backers have been getting away with a better deal in most of the campaigns so far.

        Hopefully the industry will move to being transparent as a whole, following Cephalofair and some other creators’ example. But the BEST solution would of course be if Kickstarter itself allowed creators to define the pledge prices on country level, in that case you could show each backer exactly what they will need to pay.

        1. Thanks for your fast reply!

          My main pledge value will be around $45 + $7 shipping. So VAT will be another $10 approximately. However, I will offer multi-packs and initial research has shown a healthy interest in pledges of $120 and above as well…

          As I see it there are three sensible options:

          1. Paying for VAT myself entirely as most campaigns do. I estimate this will cost me about 7% margin on the whole project (assuming about 25-30% backers from EU)

          2. Raise shipping fees a little for EU countries in order to partly offset the VAT and save a few % margin (but might cause an overall drop revenue due to increased shipping)

          3. Charge for VAT after the campaign based on each country’s VAT rate. Whilst definitely the fairest for backer, my biggest worry is that EU backers aren’t used to this… The question is whether this will drop demand too much OR give me a lot more complaints after the campaign when they are asked to pay for VAT in BackerKit. On the flip side this will allow me to properly explain why I’m doing this (i.e. none if this money goes into my pocket…)

          I definitely don’t think including the entire VAT in the shipping fee is an option as it will raise the shipping fee by too much, deferring even more EU customers…

          What’s your view on this? :) If you were in my shoes, what would you do?

  4. Hi Jamey! I feel like I remember you posting at some point (maybe on a blog or maybe Facebook) about having an accountant outside of the US, but I can’t find this source now. I assume your company is VAT registered. Do you have any advice for becoming VAT registered from the US and hiring someone to do one’s taxes in the UK?

    1. Renee: Thanks for your question. The VAT signup process is pretty simple–there’s a website for it. I currently don’t have an accountant to handle it (I’ve been submitting our reports).

  5. Hi Jamey, thanks that’s reassuring to know. It looks like the threshold for import duty to the US is $800 as opposed to £135 for the UK. I’m still trying to get my head around the US sales tax system. I asked on facebook and had 2 fantastic responses:

    https://www.simplyduty.com/import-calculator/?fbclid=IwAR3lQ5zdJYPpQ08WOJs6-4SlpIutAw6vk8WVdbh0aFz9m3aryqKboVYR9Qo

    https://www.easyship.com/countries?fbclid=IwAR2pJck7w5tF3_rrIElpOMgjT2YVXtmLuwWIKWayUqRjoPuzNdI-kK1tnlc

    These helped clarify it for me and have links for other countries too. Thanks for all the advice, everyone on facebook said to ask you first.

  6. Hi Jamey, as a UK based Kickstarter games designer I’m finding it extremely difficult to pin down the level at which a reward would trigger charges when being shipped/imported into the USA. My first project was £10 and didn’t cause any charges for backer but the next game will be £15-20 and I really need an official source on calculating the import tax to the US from outside the US. Any help would be fantastic from you or any of the people who have left comments! Thanks.

      1. Thanks for getting back to me. I managed to find a US customs page which states that import duty is charged for things that US citizens buy while abroad on holiday and then carry into the country or have shipped in for them. The level at which this tax is charged is very high (over $800 or so) but it does make me concerned that there is a level at which import tax is charged on items that are shipped into the US from abroad. It seems like the charge is so high it shouldn’t effect single units but I just wanted to check before setting the prices. I don’t want to pass on extra hidden costs to backers. Do you pay import tax on the games you have manufactured from China? Maybe I’m being overly cautious? I just like to know even if the tax is $800+ so I have all the bases covered. Thanks!

        1. Jenny: I recall seeing something like when traveling back into the US from abroad. $800 is a high threshold, so I don’t think that should be a concern.

          When I import thousands of games from our manufacturer in China into the US, we pay some fees and taxes, but nothing compared to VAT in other countries.

    1. Here’s how I talk about it in this article: “Crowdfunding is a relatively new thing, and Kickstarter has always emphasized that they are not a store. Backers make “pledges” to assist with the creation of something, and that may result in them receiving a reward. However, despite this gray area between a donation and a purchase, governments around the world are starting to officially view pledges as sales transactions. So use such alternate calculations at your own risk.”

      1. It doesn’t matter if its called a donation; it’s a sale and everyone knows it.

        A Kickstarter backing of something tangible that will be shipped is a sales transaction in the accounting books; it looks just like any other sale to the EU.

        Using a third party importing service changes nothing – there is still only 1 transaction. Declaring a retail sale as a cost transaction is clearly wrong.

        The correct customs declaration is merchandise declared at the amount paid by the buyer. It’s wrong to declare otherwise on shipments.

        Undervaluing a transaction is not legal; any audit of the shippers sales records would show the intent was to help backers avoid paying a legally required tax.

        Certainly we don’t play such games with our US state sales taxing authority. Collect and remit is a possible improvement to the customs import hassle; yet when I see advertised as EU friendly it suggests it will be tax-free.

        Am I missing something?

        1. It’s not a donation. It’s also not a sale. It’s a pledge.

          Anyway, the entire point of what I wrote is that you should do what you think is right. It doesn’t matter what others think. It sounds like it’s very important to you to do it a certain way, so do it that way.

  7. Yes thats been our experience which we just reshipped out. But not with duties, didn’t have an issue with that but I read comments that some backers felt they shouldn’t pay those so I thought I’d raise that, thanks.

    So with regards to the impact of shipping costs on the campaign target based on our notional pledge value we’d need to set our goal lets say it was £1000 at approx 50% plus this goal so £1500 to allow for the impact of shipping costs on the total raised.

  8. From past experience, we are considering to charge P&P on top and send everything tracked as either a flat rate or . We know the rough weight and size so we propose to charge a flat fee of £7. This is slightly more than the cost to ship UK and less than required for EU, US, AU, NZ for example but on those destinations we offset the cost from the lack of VAT applicable.
    Customs charges at the local end will be the buyers responsibility, no refund for purchases if backer refuses goods due to customs charges, these are local fees outside our control. Duty if applicable is nominal normally and either WTO tariff or part of a trade agreement as applicable between the UK/EU and the destination.
    I mention the no refund as I have read where Backers have refused to sign for goods, because they don’t expect to pay local duties, or want the items listed as a gift/ below their pledge value to reduce or eliminate duty charges.
    For example £20 reward level ( includes VAT +packaging) but requires +£7 del (tracked and signed for) UK
    Actual shipping cost is £4.40 (UK) (£9.35 EU) total pledge is £27

    USA might be £16.66 actual value of product inc packaging without VAT £3.34 .
    VAT element + £7 del = £10.84 shipping value. (actual shipping cost is £11.55 to us)
    AU is same but cost is £11.90 to us)

    So we lose on Europe, gain on the UK and lose on the rest the world. If we stay 50% UK and 50% rest of world the net difference is 0 less UK to ROW then we lose, more UK we gain but it is pennies.
    Failing that we make the UK rewards delivery at £4.40 and the correct value for each region. £7.61 US and £7.91 for AU

    Which is best, in a capitalist society the latter I presume?

    I can understand why KS won’t want to separate shipping from pledge value, as they would come under pressure not to take a cut of shipping fees, so a reduction in revenue to them. But it would be simpler. However there is a lot KS could do to the backend and don’t, so pointless hoping for nothing in my opinion!

    1. Julian: Normally I wouldn’t recommend a flat shipping fee, but it looks like you’ve figured out a way to normalize that fee for most areas. I wouldn’t suggest putting yourself in a position where you’re losing money on shipping, though.

      1. Thanks Jamey for your response.. on reflection I think this time around we will go with the latter option of price per region less any VAT aspect. Then everyone pays the same and I don’t have any freight headaches. The other issue is compensation of the goods in transit lost. do you self insure or use a basic cover?
        Also;
        Have you had any issues with backers refusing a delivery of a pledge because of duties charged locally to the Backer btw?

        1. Julian: You’re going to have a small number of goods that are either lost in transit or go missing upon successful delivery. If a backer gave you the wrong address or didn’t give you a secure address, I typically suggest that they pay for postage for the reshipment.

          I haven’t had issues with backers refusing delivery due to duties. Just make they’re aware of it up front during the campaign and remind them via updates before shipping happens.

  9. Thanks for the thoughts Jamey. I’m wondering how many international backers have a US address they could ship to? I think I’d have to have a specific address they could use like the packaging/assembly company the games are coming from or the Fedex shipping HUB address where all the games will be shipped through, or the address of the international forwarding company. Thoughts?

  10. Thanks for the idea Jamey! So, in that scenario, would I have a different pledge level for International backers? Or could I just have the same pledge level for US and International backers with the note: that if you live outside the US, you will be contacted afterwards about additional shipping cost? And if I do have a separate pledge level for international backers, would I just leave out the shipping? I’m not sure how Kickstarter works in terms of leaving out the shipping…do you know? Thanks again.

    1. Denny: It would be one reward for all backers, with US shipping as the only option. Backers would be required to provide a US address, but you would have a recommended forwarding service prominently featured on the project page. Any additional payments would be handled between the backers and that service.

  11. Some great thoughts and information on EU shipping and VAT. I’m starting to think maybe international shipping for our upcoming Kickstarter campaign (Kingdoms Lawn Game) is out of grasp….at least for now. The initial international shipping quotes I’ve gotten for EU alone, is about 150.00 USD. on average due to the size and weight of the game. That cost does not include VAT, Duty, or other taxes.

    With the game already being costly (we plan on offering the game for $125 to US backers), I’m worried that a price tag of $250-300 for EU backers would scare away most, if not all, potential backers from that area…thus, making my campaign look bad or weak. On the flip side, if I have a ton of EU backers, than that’s a ton of my funding goal going toward shipping and not toward the product itself.

    So…at this moment, I’m entertaining the idea of only shipping to the U.S. Thoughts? Ideas? Thanks.

    1. I generally think that backers don’t like being told that they can’t buy something just because of where they live, no matter the cost. But I see what you’re saying about the funding goal. Here’s my suggestion: There are some companies in the US who specialize in routing packages overseas. I’ve never used them, so I’m not familiar with them (I don’t even know their names), but I’ve heard from backers that they exist. What if you found one of those companies with good reviews and put it on your project page for international backers to use? That way you only ever have to calculate shipping to a US address, and if international backers want it, you’ve shown them that you’re not outright saying “no” to them.

  12. Hey guys, Thanks for all the information. We are about to start shipping our game from China and it seems ALL the information I find on EU Vat Thresholds is different. Some say shipping DOES NOT count in the threshold and others say shipping DOES COUNT. Does anybody know if there is a website that gives the actual thresholds for the EU? I can find the VAT rates all over the place, but can’t seem to find any site where it lists the THRESHOLDS where VAT is NOT charged. Trying to figure this out is a NIGHTMARE!

    Thanks!!!

  13. US sales tax is interesting. My understanding (as a brit) is that it’s down to each individual in the US to declare all international and out-of-state purchases on their tax return and pay sales tax on them. And that absolutely no-one actually does this, and it’s just a huge tax loophole that everyone takes advantage of. And that equates for a large portion of the differences in European and US board game prices.

  14. Great article and great comments! Thanks for all the insight. It’s very helpful. I am currently in the process of creating a crowdfunding campaign with my partner and we will be based in Portugal. Crowdfunding in Portugal is not very known, so there is very little information that we can find in regard to sending shipments worldwide and how we can calculate the taxes, if any. Our products are papercraft kits that people get in paper pieces that are pre-cut and pre-machined so that they get to assemble the models themselves. It’s some kind of mix between origami, lego and puzzles. Anyways, our reward packages’ weight are from 0.2 to 2kg max and we will produce our designs in house. The thing is that we want to ship worldwide from Portugal, but we really can’t seem to find a lawyer or an accountant that can tell us how the crowdfunding is regulated and if we should include some kind of tax (like VAT) when we start shipping out the products after the campaign. This is important because we need to determine the pricing of rewards accordingly. Do we have to use a fulfillment company for this, or we can ship the packages on our own manually from the national post office (as a business)?

  15. Hi Jamey,

    As someone who is about to launch his first Kickstarter for The City of Kings, a 6kg~/13lb~ game this has been the toughest part to get right.

    I have spent weeks talking with shipping and fulfilment companies and have lined up EU/US/CA/AU friendly services but getting the correct numbers of taxes has been the biggest challenge.

    The scary thing for me is most companies don’t seem to mention them in their pricing and assume you will be aware of them.

    For instance I will get a quote saying $2 packing fee, $15 shipping, $3 storage after x days and we can arrange shipping for $3000 and that will be it. When I question are there any other fees they respond “no”. When I follow up with are there any taxes I need to be aware of they will then raise them.

    It concerns me that a lot of first time creators wont even know import taxes and VAT are a thing and I strongly urge anyone getting quotes to always ask for information on import taxes and VAT.

    With all my learnings building up to my KS I can’t stress enough how much people need to understand these taxes and not depend on others to tell them.

    1. Hi Frank, I hope you are doing well with your project! I agree that import taxes and VAT are one of the most stressful things and it’s vital to know all of them quite well! What I think is good to have a professional company doing all the shipping and clearing out all the import taxes etc.

      1. Hey Mateusz,

        I agree having companies sorting it can be great, my concern is often companies I talk to don’t mention them and they are left as after thoughts. To them they are very well known values in every day life whilst to us they are new things. So I strongly urge people to always ask for security.

        I’ve been following a similar model to Jamey looking at OTX for shipping and then Gamesquest, Starlit Citadel, Fun again games and Unicorn games. I’m still trying to confirm Asia but it’s coming together!

    2. Frank: Thanks for bringing up these concerns about getting accurate estimates from fulfillment companies. I think it’s probably because those companies view taxes as an external expense–they’re not generating tax, unlike postage, handling, etc. But I agree that it’s really important for creators to mention it early on in those conversations.

  16. Hi Jamey! Great primer on V.A.T. for your readers! As a licensed US customs broker and international trade advisor, AND someone who’s in the process of publishing their first game, it’s something that’s been on my mind quite a bit lately. I spend most of my days working with multi-billion dollar corporations on how to conduct international trade, and I spend my nights tinkering with tabletop games.

    Opinions and politics aside, there are some very serious implications about the future state of importing into the United States. While it is true that the US currently does not have a V.A.T. and all goods under HS heading 9504 (where games are classified) currently have no import tax into the US, this could very easily change under the US’s current administration. Right now, it’s important–especially for US-based publishers who have their games made in China–to understand the “what-if” scenarios. At the very least, my advice is to research the difference between tariffs and border adjustment taxes, what House Speaker Ryan’s proposed plan might mean for your income tax deductions, how the president’s proposed 5%, 10%, and even 35% or 45% across-the-board import taxes could affect your business costs and the prices you set for your games, and what could happen if a trade war suddenly erupts and you’ve got a shipment inbound from China, for instance. Quite literally any number of scenarios could happen in the US today, tomorrow, or a year down the road – all with varying degrees of check-and-balance from other other branches of government and the WTO.

    In a nutshell, it could–and likely will–become more expensive for US-based publishers to manufature in China. The problem right now is, there are so many potential policies being proposed that it’s difficult even for trade professionals to predict exactly what will wind up happening.

  17. In the eurocrowd.org link, I suspect the statement Jamey thinks is a typo is in fact just an inaccurate summary of the actual rule.

    It’s possible what’s actually happening there is that only the reward – the value of the actual good being “purchased” – is subject to VAT. So if someone pledges $1k for a book + a bunch of non-tangible rewards, like a convention game and a character named after them – that only the cost of the book would be taxed.

    1. As I see this passage:

      “However,when the open market value of the good or service supplied by the project owner to the backer is lower than the financial contribution and the benefits deriving from such good or service are negligible or totally unrelated to the amount of the contribution, in this case the transaction can be treated as a donation and therefore not taxable.”

      It seems it’s more about “material thank yous”, like a bookmark or sticker from a charitable association and stuff like that, in which cases “the benefits deriving from such good or service are negligible or totally unrelated to the amount of the contribution”.

      I hope you are also right about the non-tangible rewards; it would be good to know if anyone ever had to pay VAT for those.

  18. Long-time lurker, first-time poster.

    Thank you so much Jamey for your continued efforts to support the entire games industry (and others, really). I’m constantly in awe of your tireless dedication. You’re a marvel.

    This post is especially helpful. VAT and related fees are such an opaque topic, especially to Americans who aren’t used to the system. A quick and dirty tutorial has been direly needed for some time, and the links included here are incredible.

    Please keep up the great work!

      1. As can be seen from the above, VAT is a complicated tax and also an unforgiving tax. It is something you should talk to your accountant about BEFORE you do something, otherwise, the chances are you are stuck with whatever situation you have ended up in and facing a large tax bill which could have been avoided or mitigated if some planning had occurred beforehand.

  19. Ah, the joys of VAT and customs charges. I’ve been hit by them a few times recently, and they seem to be constantly changing too.

    In the UK, how VAT is calculated is slightly different (and more complicated) from how you’ve described it: The VAT *threshold* is calculated based on the declared item value only *not including shipping*, and must be £15 or under to avoid VAT (so €22 used to be about that value, but post-Brexit-vote, £15 = around €17 now due to exchange rates). Once over that threshold though, VAT is calculated at 20% on the declared cost *including shipping*. So a £15 game that cost £50 in shipping would be free of VAT, but a £16 game that cost £50 shipping would incur £13.20 VAT, and you’d also get charged an £8 handling fee by Royal Mail or Parcelforce (whoever picks up the package from customs “on your behalf”). Often customs will waive items only just over the threshold, provided the shipping cost was low, but there’s obviously no guarantees there.

    It’s also worth noting that, even if you mark something as a gift, if it’s over £39 declared value (n/i shipping) you’ll get charged VAT anyway.

    And if the declared value is over £135 (and that *includes shipping*) you’re liable to be charged customs duty (at 2.5% of the total value incl shipping), if the customs duty ends up as being over £7. And this is AS WELL as paying VAT, and the VAT will THEN also include the charges for that additional customs duty too. So a £200 ‘gift’ with £80 shipping will cost you an extra £7 customs duty + £57 VAT + £8 handling fee = £432.

    And that’s if customs even calculate it correctly. Which, in my experience, they often don’t. And who knows what exchange rate they use for currency conversion.

    Confusing? Yep, sure is.

    1. Not sure your maths is right, think your total should be £352.
      Also, it should be noted that Customs Duty is not a flat 2.5% if the item (eg kickstarter reward) is not a gift, it then depends on the category of the goods as to the percentage of duty charged when the goods are not a gift and valued over £135. From memory (as they have removed the searchable list and seem to want to make you call them) games tended to fall in the 10% bracket.

      1. Oh yes, my math was wrong. :) Still a lot. And thanks for the note about customs duty. I just quoted pretty much verbatim from the government’s customs website so not surprised it’s not all correct – the rules seem to change every time i check it, and they never have complete information. Nightmare!

        1. The new Gov.uk website is information-lite, you really have to trawl through to get to the nuts and bolts. VAT is my day job and I find it a pain to get information from at times.
          Yeah, either which way round it is a lot of money.

  20. He Jamey

    It’s good to know this stuff.
    I’d like to add some info; however, I’m not a professional in this matter so double check it for your sake.

    I’ll write about VAT in the UK. Of course; there can be some differences in other EU countries, but generally should be quite similar.

    1. You don’t have to be VAT registered in EU even if you are EU based company.
    If you are UK based company, you don’t have to register to VAT. You only have to register if:
    – your VAT taxable turnover is more than £83,000 (the ‘threshold’) in a 12 month period
    – you expect to go over the threshold in a single 30 day period

    That means you don’t have to charge VAT on your products, but you still have to pay VAT when you are buying things! If you buy stuff in EU with VAT in the price, you have to pay it, and you won’t get a refund.

    2. How to minimise VAT
    To be honest, VAT is quite a nasty thing, and I was thinking how I can minimise bad consequences of this tax. Here’s my tip for EU-based companies (for those with registered VAT as well):

    If a company X is UK based business and it is VAT registered in the UK, the company have to sell their goods with 20% VAT (if you sell a game for £20 you have to add to the price £4 of VAT what makes £24 total) but only in the EU. But if you’re VAT registered, you can zero-rate the VAT on most goods you export to non-EU countries. So selling is not that bad actually.

    So when you have to pay VAT on production costs:

    – When you use UK based manufacturer, you have to pay 20% VAT on production costs.

    – When you print games abroad and then import the games to the EU territory, then you have to pay VAT as well.

    However, VAT can be refunded if you “collect” more VAT from your customers than you “paid” to others (like production costs); however, remember that you are collecting VAT from EU customers only.
    So why it’s not okay:
    – it’s an upfront cost you want to avoid
    – if you don’t sell enough games in EU with VAT added you would get a partial refund only.
    – if you are not VAT registered, you won’t get any VAT refund.

    Even if you are UK (or EU) based business, you pay VAT only if the product is in EU territory.

    So the plan to avoid VAT:

    a. Print games outside the EU

    b. Ship games straight to fulfilment centres over the world.

    c. Ship to the EU territory only games you going to sell in the EU.

    In this scenario, games don’t come to EU territories, so VAT doesn’t have to be paid on production costs and sales. Only VAT will be added to products delivered to EU fulfilment centre – then you will be charged VAT for manufacturing cost and then when you sell your games in EU you have to add VAT to the price.

    I am planning to write an article on that subject :)

    NOTE: please, remember that all info is for the EU countries. It doesn’t apply to businesses outside the EU. For example, I think that EU manufacturer doesn’t have to add VAT on manufacturing costs when the customer is from abroad.

    3. When finally UK leave EU there will be no problem with double VAT. There are agreements between countries, and there is no point of being afraid.

    4. “Second, according to Eurocrowd.org (credit to Jordan at Scofflaw Games for finding this) if your reward price is higher than the MSRP of the reward, you don’t have to pay VAT. I think that might be a typo, though, because I’m pretty sure that situation just allows you to charge VAT on the MSRP (i.e., if the MSRP is $30 but you charged the backer $40).”

    I would be extremely careful with that! Especially every country interprets the law differently, etc.

    Please, let me know if I got something wrong!
    Thanks Jamey!

    1. “However, VAT can be refunded if you “collect” more VAT from your customers than you “paid” to others (like production costs); however, remember that you are collecting VAT from EU customers only.”

      You have that the wrong way round, the VAT you collect from your customers is VAT that you must then pay to the government. The VAT you pay on your costs you can (generally) reclaim from the government, and to make things simple of course you can use that to reduce the amount you pay over, you are in effect a frontline tax collector.
      If you are getting a refund from the government of your VAT, you are either selling a lot of your goods outside the EU or to other VAT registered businesses as a genuine business to business transaction. If neither of these are the case, your costs are higher than your income and you won’t be in business long.

        1. I just realised an error in my reply, it should read “you are either selling a lot of your goods outside the EU or to other non-UK EU (or non-‘other EU’ country that is not the one you are trading in e.g. non-French if you are in France) VAT registered businesses as a genuine business to business transaction”
          Sorry, this language gets complicated, such is the nature of tax and governments

  21. I remember the confusion I have run into for vat before, I was trying to research the rules for importation as a manufacturer, rather than as a creator, it seemed to point to it was based on the cost of materials, not the finished product. If anyone has an answer for that, I would love it.

  22. … and as for the UK leaving EU, then it will depend on the deal they strike wiht EU. If they remain a part of the Internal Market (https://ec.europa.eu/priorities/internal-market_en) they are good to go. That said, this is likely to be one of the hot topics and one that EU will most likely play hard to get.

    On the page given above, there is an interesting link to another topic called “Action Plan on VAT” – https://ec.europa.eu/taxation_customs/business/vat/action-plan-vat_en – which may or may not have an influence on things down the line.

  23. Unfortunately the threshold of €22 is not entirely valid for Denmark.

    If the value of the item(s) sent is higher than DKK 80 (apr. €10.5) then you are required to pay VAT.

    I accept having to pay VAT. The big benefit for me in terms of EU-friendly shipping is that I can forego the DKK 160 (€21) fee to Danish Post.

  24. *glances at paper*

    …I’m guessing that’s why I now get charged VAT on patreon pledges I make…

    It’s not the tax I object to for inporting stuff, that equates to what I’d be paying in VAT if I purchased from a UK store; it’s the £12.50 handling fee, which is flat rate and means that if I’m buying a $10 game with $20 shipping on Kickstarter that doesn’t have EU friendly shipping, I could wait and buy it from my FLGS for around… Assuming marked down by a little and it’s a bit more expensive in the UK due to our higher cost of living… Lets say £15+VAT for around £17 which works out to about $21… Or I could instead get it now, paying $30 plus that 20% VAT ($36) plus an £8 ($10 or so) handling fee for $46 – Around a 50% increase, ignoring the much higher rate due to shipping compared to waiting.

    …Not that I’d likely be willing to pay $20 shipping for a $10 purchase to start with… For a $100 purchase including shipping, that $10 handling is much less bothersome…

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