Sales tax on digital products is the consumption tax a government charges when someone buys an ebook, a course, a template or a download. Depending on the country it is called VAT, GST or sales tax. The seller collects it from the buyer at checkout and passes it on to the tax authority. It is not your money, even though it goes through your account.

It concerns every creator who sells online, because digital products cross borders in one click. A $29 Notion template can be bought from Paris, Toronto and Texas in the same hour, and each place may have its own rule. This page gives general information to help you understand the landscape. It is not tax advice. Rules change and depend on your situation, so confirm your obligations with an accountant or your local tax authority.

What is sales tax on digital products?

It is an indirect tax on the sale of goods and services delivered electronically. Three big families exist:

  • VAT (value added tax): used in the European Union, the United Kingdom and many other countries. For digital services sold to consumers, the rate is generally the one of the buyer's country, not the seller's.
  • GST (goods and services tax): the equivalent in countries such as Canada, Australia, New Zealand, India and Singapore, often with similar rules for foreign sellers.
  • US sales tax: set by each state and sometimes each city. Some states tax digital products, others do not, and the definitions differ from state to state.

Useful vocabulary:

  • Place of supply: the location that decides which tax applies. For digital sales to consumers, it is usually where the buyer lives.
  • Nexus or registration threshold: the level of sales in a place above which you must register and collect tax there.
  • B2B and B2C: sales to businesses often follow different rules, such as the reverse charge in the EU, where the business buyer accounts for the VAT.
  • Tax-inclusive and tax-exclusive prices: in Europe consumer prices usually include VAT. In the US, tax is usually added at checkout.

This tax is not income tax. Income tax is charged on your profit. Sales tax is charged on the buyer's purchase and collected by you on the government's behalf.

Why it matters

Getting it wrong costs money in two directions: tax you should have collected but did not, and prices that quietly lose margin.

Take a creator selling a course at €197, VAT included, to consumers in France, where the standard rate is 20%.

  • Price paid by the buyer: €197.
  • VAT inside that price: €197 / 1.20 × 0.20 = about €32.83.
  • Revenue for the creator before other costs: about €164.17.

If the creator thought of €197 as their revenue, they overestimated it by 20% of the net. On 300 sales a year, that is about €9,850 of VAT owed to the tax authority. If they were required to collect it and did not, it may be due anyway, out of their own pocket, possibly with penalties.

The same course sold to a buyer in Germany would generally carry German VAT at 19%, and to a buyer in Hungary, 27%, once the seller is above the relevant thresholds. With a tax-inclusive price, each rate changes what you keep.

How it works

The general mechanism, which your accountant can adapt to your situation:

  • Identify where your buyers are. The checkout collects the country, and sometimes the postal code, of each buyer.
  • Check thresholds. Many places only require registration once your sales there pass a threshold. In the EU, for example, a single threshold of €10,000 a year applies to cross-border sales of digital services to consumers across all member states combined. Several US states use thresholds based on sales in the state.
  • Register where required. In the EU, the One-Stop Shop (OSS) lets a seller declare VAT for all member states through one quarterly return in their home country.
  • Collect the right rate at checkout. Your store applies the tax based on the buyer's location, with prices shown including or excluding tax.
  • Keep the evidence. Keep proof of the buyer's location, such as the billing country, for each sale.
  • File and pay. Declare the tax collected for each period and pay it to the authority, usually monthly or quarterly.

Benchmarks and examples

Rough standard rates at the time of writing, which change and have exceptions for some products:

  • EU VAT: between about 17% and 27% depending on the country, with 20% in France and 19% in Germany.
  • UK VAT: 20%.
  • Canada GST: 5%, with provincial taxes on top in some provinces.
  • Australia GST: 10%.
  • US: no federal sales tax. State rates range from 0% to around 7%, plus local taxes, and not every state taxes digital goods.

Typical situations:

  • A French creator selling ebooks mostly in France collects French VAT, unless covered by a small business exemption, and handles other EU countries through OSS once past the EU threshold.
  • A US coach selling a $500 program mainly checks the states where they have nexus and whether coaching or courses are taxable there.
  • A designer selling $12 templates worldwide with small volumes per country may consider a merchant of record service to avoid registering in many places.

Common mistakes

  • Treating tax as revenue. VAT collected is owed to the authority. Budget and report without it.
  • Using your own country's rate for everyone. For consumer digital sales abroad, the buyer's rate often applies once past thresholds.
  • Forgetting that thresholds are counted over a year. A single successful launch can push you over in a week.
  • Not keeping location evidence. Without it, you cannot justify the rate you applied.
  • Assuming a platform handles it. Unless the platform is the merchant of record, you are responsible.

Best practices

  • Talk to an accountant early. One hour of advice before launch costs less than correcting a year of returns.
  • Decide on tax-inclusive or tax-exclusive pricing. Tax-inclusive is expected by European consumers. Tax-exclusive is standard in the US.
  • Set up tax rules before the first sale. Configure rates by country or region in your store so the checkout shows the right total.
  • Track sales by country each month. You will see a threshold coming before you cross it.
  • Separate the tax money. Move the tax collected to a separate account so it is there when the return is due.
  • Review the rules once a year. Rates and thresholds change, and new places start taxing digital products.

In Roctify

Roctify is not a merchant of record. Payments go directly to your Stripe or PayPal account, you are the seller, and you are responsible for collecting and paying VAT or sales tax. Roctify gives you the tools to do it: VAT and tax settings for your store, prices in several currencies, and orders that keep their tax amounts and the buyer's country.

On the Pro plan, reports and exports make it easier to prepare returns or hand the numbers to your accountant. Roctify does not file returns or register you with tax authorities, and this page is general information, not tax advice.

FAQ

Do I have to charge VAT on a course I sell online?

It depends on where you are based, where your buyers are, your sales volume and whether a local exemption applies. In many countries online courses sold to consumers are taxable at the buyer's rate once you pass the thresholds. Check with an accountant or your tax authority before you set your prices.

What is the EU One-Stop Shop?

The One-Stop Shop (OSS) is an EU system that lets a seller declare and pay VAT due in other member states through one return in a single country. It avoids registering separately in each country where you have customers. You still apply each buyer's national rate.

Does a payment provider collect the tax for me?

A payment provider moves money, it does not become the seller. Some offer tax calculation tools, but the obligation to register, collect and file stays with you unless you sell through a merchant of record. Read the terms of every service you use.