Apple Inc. (NASDAQ:AAPL) is to start levying new VAT rates for apps across all the European territories starting Jan 1, 2015 a move that might considerably affect app developer’s earnings. The increase in VAT taxes will mostly affect people living in high tax countries such as the U.K.
Change Of Laws
Apple Inc. (NASDAQ:AAPL)’s App store customers in most of the European nations have over the years enjoyed a flat VAT across the EU something that is to change and result in additional costs. The increase in VAT taxes comes in the wake of British Chancellor of the Exchequer issuing new laws aimed at curbing tax loopholes in the country.
Earlier loopholes allowed Apple Inc. (NASDAQ:AAPL) to sell its Apps via low VAT countries something that is to change starting 2015.
At the moment, U.K users can bypass paying a 20% VAT through Apple routing some for the purchases through countries like Luxembourg, which enjoy tax rates of as low as 3%. It is still not yet clear how Apple plans to implement new tax laws that should affect items purchased on iTunes such as music eBooks and movies.
Increase in App Prices
The new rules are mostly to affect developers even though Apple Inc. (NASDAQ:AAPL)’s earnings are also to be affected as they normally come after taxation. Developers may, therefore, be forced to increase the prices of their apps to compensate any losses that they may come as a result of the new tax rates. Free apps will, on the other hand, not be affected by the new laws as they don’t incur any VAT charge.
It awaits to be seen if the new taxes will force developers to move to other platforms for their apps such as Android or resort to increasing their prices as a way of maintaining their earnings.
