Selling software on the internet

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leahcim

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Hi All.

I need to get some advice about how to handle revenue from software I am planning on selling on the internet.

I am planning on using the shareware model for selling my software.

The basic idea is that the software can be downloaded by any potential purchaser. It will be setup to expire after a given period of time. If the user wants to continue using the product they would need to then pay for the product (with their credit card online). I would then send them an email with an unlock code to re-activate the software.

My main question is regarding VAT and income.

I am Irish and I am resident in Ireland.
My website is hosted in an american datacentre.
I will be using an American credit card processing company called shareit .

All transactions will be in US$. The reason I want this is that the american market is by for the biggest for this way of selling software and they like dealing in USD.

ShareIt process the orders and will monthly send a bank wire transfer with any revenue generated.

ShareIt also charge VAT for orders for European customers and the approperate American Taxes for US etc.

I am not going to form a LTD company.

I am not planning on retaining any money in the business and I just going to pay my expenses and any money left over I am going to pay myself as income (obviously paying income tax and PRSI).

Finally my questions
Do you recon I will need to pay American Corporation Tax?
Is there any other tax liability I should be concerned about especially with getting a wire transfer from an american credit card processing company once a month?
Do I need to register for VAT? I am assuming because ShareIt collect the VAT I do not need to be VAT registered.

I know this is a complicated setup and I will need to speak to an accountant but I would be grateful if people could give me their input.

Thanks.
 
adder said:
I would visit the CRO website www.cro.ie and have a look at the different company business formation types (Foreign company)
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This refers to foreign companies wishing to register in Ireland, so I doubt it's relevant.

I think the OP really needs to get some professional advice on this, or at the very least talk to someone already doing this (talk to some of ShareIt's European customers?).

Some things stand out as sounding wrong: how can a foreign company (ShareIt) charge VAT for selling goods from a company not registered for VAT? In fact, why are they charging VAT at all?

As for setting up in the US, which it sounds like you may be contemplating, it is not straightforward: a lot depends on individual State as well as Federal Law. I was involved with a company that looked into this a few years ago. We registered a business in California, which as far as I recall enabled us to trade there (I can't recall the exact details, but it wasn't a full US corporation). One thing I do know is that legal advice in the US is very expensive. Opening a US bank account was none to easy either, even though we had an office there.

My inclination would be to avoid setting anything up in the US, unless you need to establish a physical presence there. You can open US$ accounts at any bank here, so trading in US$ is no issue.
 
ang1170 said:
Some things stand out as sounding wrong: how can a foreign company (ShareIt) charge VAT for selling goods from a company not registered for VAT? In fact, why are they charging VAT at all?.
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This is normal practice in the new internet sales VAT collection model. I assume that this is because the sale is deemed to take place in the country of purchase, and if that's a EU country, the vendor is required to charge VAT, just like any High St. retailer.

Such vendors do in fact register for VAT and return the collected sums to the relevant exchequer.
 
extopia said:
This is normal practice in the new internet sales VAT collection model. I assume that this is because the sale is deemed to take place in the country of purchase, and if that's a EU country, the vendor is required to charge VAT, just like any High St. retailer.

Such vendors do in fact register for VAT and return the collected sums to the relevant exchequer.
Click to expand...

OK - that makes sense. It was more the statement "I am assuming because ShareIt collect the VAT I do not need to be VAT registered" that triggered the thought "that has to be wrong" with me.

As a point of interest, does that mean (for example) a US company with no European aspect to them has to charge and collect VAT for any European customers they sell to over the net? I can't see that working too well.
 
Well, this is fairly nerdy stuff, but you'll get the gist of it [broken link removed].
 
I think companies like ShareIt can collect VAT because act as software resellers. If a company gets tesco to sell their products isn't it tesco that collects the VAT at the time of purchase by a consumer. ShareIT sort of acts like a software supermarket.

I was incorrect in one of my assumptions of my origional post. I assumed ShareIT was based in the US. It is in fact based in Germany.

So my questions are still quiet similar.


Do I need to pay any taxes in Germany the country where the money is being collected? I was assuming no.

Are there any tax liabilities with being wired money from a German company to my Irish Company? I assume no, especially seeing as both in EU.

Do I need to register for VAT? Again I am assuming there is no point. Taking my company - tesco analogy I doubt the company would need to be registered for VAT.

Thanks for taking to time to look at my problem.
 
leahcim said:
I think companies like ShareIt can collect VAT because act as software resellers. If a company gets tesco to sell their products isn't it tesco that collects the VAT at the time of purchase by a consumer. ShareIT sort of acts like a software supermarket.
Click to expand...

Using tesco

1: You sell to tesco and charge them VAT, which you pay to the government.

2: Tesco reclaim the VAT from the government.

3: Tesco sell to customers and charge them VAT which they pay to the government.
 
I see. Thanks for the clarification hhhhhhhhhh. I had an incorrect understanding of VAT.

I think I am in a position to answer some of my own questions.

I will have to register for VAT as according to the revenue.ie this is a requirement for doing business with another EU member state company who is vat registered.

I do not have to charge ShareIT any VAT as the product would be classed as a zero rated supply.

According to revenue.ie it is classed as zero rate if the following criteria are met.
  • the customer is registered for VAT in that other EU Member State,
  • the customer’s VAT registration number (including country prefix) is obtained and retained in the supplier’s records,
  • this number, together with the supplier ’s VAT registration number, is quoted on the sales invoice,
  • the goods are dispatched or transported to that other EU Member State.
As well as a VAT return I will also have to do a VIES return.

VIES return
11.14 When an Irish VAT-registered trader makes zero rated supplies of goods to a trader in another EU Member State, summary details of those supplies must be returned to Revenue on a quarterly or monthly basis. This return, known as the VIES return, is to enable the authorities in each EU Member State to ensure that intra-Community transactions are properly recorded and accounted for.

I think I need to get an accountant to verify the procedure.

Would most accountants know this kind of stuff or would I need to find a specialist?
 
I considered paypal. The problem is they do not handle the VAT collection as part of their service. If you were going with paypal you would need to figure out how much VAT each customer must pay yourself. Imagine the hastle of keeping track of the approperate VAT to charge for each region.
ShareIT do this for you. In my opinion it is worth the extra cost.
Also ShareIT is designed for software sales. You can configure their system to automatically send out unlock codes once the customer has paid.

I would be selling my software for 49US$
The cost using paypal is 2.065 US$
The cost of using shareit is 3.401 US$

The 1.40 extra cost of ShareIT is well worth it for the extra functionality.
 
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