Sales tax and VAT on digital memberships

Membergate Support - January 31, 2025

Pricing & Payments Running Your Business

When you sell a membership online, you may be selling into dozens of places at once. Many countries, states and regions tax digital services, and the rules increasingly depend on where the customer lives rather than where the seller is based. A membership owner who has never thought about sales tax or VAT (value added tax) can find they have obligations in places they have never visited.

This is an area where the details vary enormously and change over time, so this article does not give tax advice, rates or thresholds. Its aim is to explain the main ideas in plain language, so you can understand what questions to ask and have a productive conversation with a qualified accountant or tax adviser who knows the rules that apply to you.

Why digital memberships are treated differently

Traditionally, a small business mostly worried about tax where it was based. Digital products changed that. Because a membership can be bought from anywhere, many tax systems now treat an online sale as taking place where the buyer is. That means:

A member in another country or state may be subject to their local tax on your membership.
You may have to register, collect and report tax in that place once your sales there pass a certain level, or in some places from the first sale.
Different kinds of product can be taxed differently. An online membership, a physical kit, a downloadable guide and a ticket to an in-person event may each follow different rules.

Associations and nonprofits face their own questions, because dues, donations and member services can be treated differently from one another.

Key ideas worth understanding

Where the customer is

If a tax depends on the member’s location, you need a reliable way to know it. That usually means collecting a billing address or country at checkout, and in some systems keeping more than one piece of evidence, such as the card’s country and the member’s address.

Thresholds and registration

Many places only require you to register once your sales there exceed a certain amount or number of transactions. Those levels differ widely, and some places have none. Your adviser can tell you which ones matter for your sales.

Business and consumer buyers

Some tax systems treat sales to businesses differently from sales to individuals. A business customer may provide a tax identification number, and the tax may then be handled on their side. If you sell to professionals and organizations, you may need to collect and check those numbers.

Collecting and passing on

Where tax applies, you typically collect it from the member as part of the price, record it separately and pay it to the relevant authority on a regular schedule.

Tax-inclusive or tax-exclusive prices

One decision you will make, whatever the rules, is how to show prices:

Tax-inclusive: the advertised price includes any tax. Members pay the same amount wherever they live, and you receive less where tax is charged.
Tax-exclusive: tax is added at checkout. You receive the same amount everywhere, but the member’s final price varies.

Here is an illustration with a made-up tax amount, not a real rate. Say your membership is $20 a month and a member lives somewhere a tax of $4 applies to it.

Tax-inclusive: the member pays $20. You keep $16 and pass $4 to the tax authority.

Tax-exclusive: the member sees $20 on your pricing page and $24 at checkout. You keep $20 and pass on $4.

Tax-exclusive pricing protects your income, but a price that rises at checkout surprises people. If you use it, say so clearly beside the price, for example “$20 a month plus any applicable tax.” Customers in some places expect prices to include tax, so the right choice may depend on where your members are, which links to decisions about regional pricing for members in different countries.

Questions to take to your adviser

You will get far more from a meeting with an accountant or tax adviser if you arrive with facts and questions. Prepare:

A breakdown of your sales by country, and by state or region where relevant, for the past year.
A list of everything you sell: memberships, courses, downloads, physical items, events and any bundles.
Whether your customers are mostly individuals or businesses.
How your business is set up, and where it is based.

Then ask:

Where do I currently have obligations to register, collect or report tax?
Are any of my products taxed differently from the others?
What evidence of customer location do I need to keep, and for how long?
How should tax appear on receipts and invoices?
How should I record tax collected in my books?
What should I watch for as sales grow in new places?

Keeping your records tidy makes all of this easier; bookkeeping basics for a membership business covers the routine.

Practical setup once you know the rules

Once you know what applies, the operational side is fairly consistent:

Collect the member’s country, and address where needed, at checkout.
Collect business tax numbers from business customers, if relevant.
Configure your checkout or payment tools to calculate tax correctly, and test a purchase from each type of location you sell to.
Show tax separately on receipts and invoices.
Export records of tax collected on a regular schedule.
Set a reminder to review your position with your adviser at least once a year.

Your next steps

Pull a report of your sales by customer location for the past year.
List every type of product you sell.
Book a conversation with a qualified accountant or tax adviser and take the questions above.
Decide whether to show prices tax-inclusive or tax-exclusive, and say which on your pricing page.
Check that your checkout collects the location information you need.
Schedule an annual review of your tax position.