Music licensing and VAT

[Edouardo]

It is going to be a boring topic, I know, but it is a necessary evil for any composer that is starting to become serious…

I just checked out how much I made this month, it has been steadily going up since I started selling licences end 2013, and is now reaching a level where I may need soon to consider this revenue stream as a significant income, i.e, declaring it as income to my countries tax office. No problem on that side, as if the trend continues, I will just add a line on my income tax declaration for 2015.

My concern is VAT. I already run a (non musical) business where I manage VAT, and what I offer is sold locally. Yet, for the music licence stuff, with all these small revenue streams that come from all these different places, how do I handle that? Besides, despite searching the web, I still have no clue if the license I sell through libraries, should be subject to the VAT of my country of residence or not. I read somewhere that business deals related to artistic works that were concluded out of the EU are not subjected to EU VAT regulations, but am not sure I understood everything and if it applies to our case.

Or is it the platform/library that handles everything, and I do not have to declare any VAT.

Or should I just drop it because un-manageable for a tiny business like mine (since I clearly don’t have the means to pay someone to do that for me)… I am not Dutch, but I live in an European country, The Netherlands.

Is there an European composer out there, or even better, a Dutch composer, making a living by licensing his music, that had to dig through that and knows what to do. How do you manage that aspect of the biz ?

Thanks for any enlightenment!

[Mark Lewis]

The library is the one selling the product so they would be liable for any VAT issues for that sale. Just like sales tax in the US the business owner has to pay that, not the composer.
I have experience both the US and in Europe with this but I am very far being an kind of an accountant so you should check with yours to be sure.
But my feeling is that you do not have to worry about VAT on the sales that someone else makes of your products, only sales that you personally make of your product.

[Tbone]

This side of VAT is nothing to do with the business making the sales on your behalf – it’s on your income regardless of VAT being paid by the business. Get an accountant if you’re worried. Mine told me that anyone from an individual to a business must become VAT registered if they make over x revenue per year, provided that that revenue is from within the EU. Again, ask an accountant.

[woodsdenis]

The library is the one selling the product so they would be liable for any VAT issues for that sale. Just like sales tax in the US the business owner has to pay that, not the composer.

I am in the EU and as Mark said this is how it works, any income you receive from that library is subject to your countries income tax etc not VAT.

[Tbone]

Denis / Mark,

I’m not sure if you’ve spoken to an accountant but that is incorrect advice for the UK.

In the UK, any individual making over £81,000 in revenue in a tax year must legally register for VAT: https://www.gov.uk/vat-registration

This is not just for businesses, this is for individuals as well. The accountants I spoke to confirmed this. There are exemptions however.

Since it is very complicated my advice is to speak to an accountant for your respective countries in the EU.

[MichaelL]

Do composers not living in the EU have to worry about this, if a library selling their music is located in the EU?

In the US you are taxed where the money is earned.

[Edouardo]

Thank you guys for this useful information – I feel kind of less alone now! I contacted my accountant with the conclusions of my research.

Because none of my license sales are directly in the EU, I am not subject to VAT payment.
Royalties may be subject to VAT, but my PRO (PRS) details this on the invoice when relevant.
All income whatever the source and origin should end up in my income tax declaration.

I also remember reading somewhere an EU text saying that artistic activities by EU residents that were carried out and paid outside of the EU were exempt of European VAT. I understand music licencing is part of that when the licensor is the composer.

Michael, I also read somewhere that suppliers located outside the EU are subject to the relevant EU country’s VAT when selling to a customer resident of that country. However, the text also analysed that it is a real administrative nightmare (>80 different VAT rates), and the EU has no way to enforce it. So I wouldn’t worry.

[woodsdenis]

In the UK, any individual making over £81,000 in revenue in a tax year must legally register for VAT: https://www.gov.uk/vat-registration

TBone it’s if your VAT taxable turnover is in excess of 81k not your income. Money you receive from ML for example is not VAT taxable, they are the vendor and are responsible for charging VAT or any other relevant TAX to their customer. If was licensing directly from my own website or getting commissions personally that I was invoicing for in excess of 81 k, I would have to register and charge VAT.

For example if I was earning 100k a year for PRO royalties as my only income I wouldn’t be charging the PRS VAT or paying it from my 100k. I would be paying income tax of course.

Of course always get professional accounting and legal advice on such matters in your own country. I am in Ireland BTW.

http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/vat_on_services/index_en.htm

Basically the place of supply POS is responsible for charging VAT or any other relevant tax, if it is applicable to the end user.
If as a trader in Ireland and I was issuing invoices for work in the EU and I exceeded the threshold , I would charge VAT.

With all RF libraries I am in I don’t issue the invoice to the end user, they do, are responsible for any taxes in their own country.
I don’t issue and invoice to the library either in that scenario.

[Tbone]

Just going on the advice of two accountants who told me the above.

The PRS even has a special line about being VAT registered, which they say is due on UK income only.

Also on contracts with KPM and the like they have a pre formatted page for arranging VAT with them if you are VAT registered. If you receive royalties or synch fees in excess of £81k from KPM in a year you need to be VAT registered. That’s what I heard..

[woodsdenis]

@Tbone as you say always get pro advice, I am just commenting on my situation with the common RF model not on any other in another country.

If I was earning over 81k in synch fees I would gladly register for VAT.LOL

I will check here about a threshold on Irish derived PRO income, that could indeed be the case, although I don’t think I would exceed that one either !!!

[Tbone]

Haha, fair enough. Yea, best to get advice from a trustworthy accountant. Maybe we should have put that and closed the thread hahaha!

[Art Munson]

Haha, fair enough. Yea, best to get advice from a trustworthy accountant. Maybe we should have put that and closed the thread hahaha!

Good idea and done so!

[Author]

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