Sales tax and VAT

Is all of EUR 4.99 ours?

A player in France buys Hyper Shards from our website for EUR 4.99. Stripe, the payment provider that takes card payments on our website, keeps its fee, and the rest is ours, right?

Not quite. Part of that price is tax that belongs to the French government, and our studio has to collect it and pass it on. Every studio that sells digital games across borders meets this. Getting it wrong can mean paying the missing tax later out of our own money, plus penalties.

Sales tax, VAT and GST

A sales tax is a tax on things people buy. The buyer pays it, the seller collects it, and the seller hands it to the government. Many countries use a kind called VAT (value-added tax). Others call it GST (goods and services tax).

For digital goods like games, many places, including the EU, the UK and Australia, tax the sale based on where the buyer lives. So a sale to Germany uses German VAT (19%) and a sale to France uses French VAT (20%), at the time of writing. In the US, each state sets its own rules, and some don't tax digital games at all.

Included, or added on top?

In Europe, the UK and Australia, the price shown to players must already include the tax. In the US, sales tax is usually added at checkout.

When tax is included, here is how to find it. With 20% VAT, the price is 120% of the amount before tax. So the tax part is the price times 20, divided by 120. For EUR 4.99, that is about EUR 0.83, and EUR 4.16 is ours before fees.

A common mistake is taking 20% of EUR 4.99. That is too much, because the tax is already inside the price.

The merchant of record

• Google Play and the App StoreThe store is usually the merchant of record. The player legally buys from the store, which works out, collects and pays VAT or GST in many countries before paying us.
• Our own website with StripeWe are the merchant of record. Stripe moves the money, but working out, collecting and paying the tax is our job.

The merchant of record, also called the seller of record, is the business that legally sells to the buyer. Its name is on the receipt, and it is responsible for the sales tax, refunds and consumer law.

Stripe Tax and registering

On our website, Stripe Tax, a paid Stripe add-on, can do the hard maths. It works out where each buyer is, picks the right rate and adds the tax at checkout. In code it is one setting in the request that opens Stripe's payment page: automatic_tax: { enabled: true }. It also shows where our sales may mean we must register.

Registering means signing up with a country's tax office to collect its tax. Some countries require it from a foreign seller's first digital sale, others only above a sales limit. The EU's One Stop Shop lets a business file one VAT return covering every EU country.

Records, and another way to sell

Tax offices can ask, years later, how each sale was taxed. So for every website sale we keep the date, price, tax charged and the buyer's country, with proof such as the billing address and the card's country. For EU digital sales, the rule is ten years. Stripe stores much of this, and we export copies.

Some services act as merchant of record for websites, such as Paddle, or Stripe's own Managed Payments option. They sell in their own name and handle tax worldwide, for a bigger fee than Stripe alone. Convenience against cost: a real choice for a small studio.

Who files, and what is next

Registering for tax and filing tax returns are legal duties of the company. An adult signs them, and many small studios pay an accountant, a money expert who knows the rules in each country. Your part on the team is just as real: clean records, prices set with tax in mind, and asking "who is the merchant of record here?" before choosing where to sell.

Bolt says: Next lesson: refunds, disputes and fraud, for the times a payment goes wrong.