Understanding KDP’s new VAT-inclusive pricing, and how to work it to your advantage

Much confusion has reigned over Kindle Direct Publishing’s new VAT-inclusive pricing. Part of the problem lies with Amazon who, in an attempt to explain what an author’s pre-VAT royalty would look like, published a list of the new pricing bands with and without VAT. What this did was create worry that if a consumer from another EU country with a higher ebook VAT bought one’s ebook off, for example, the Amazon.fr site, and the price without VAT fell outside the minimum price to receive the 70% royalty, then the author would only be paid 35%. This is simply not the case.

The new pricing band for the EU is £1.99–£9.99 for the UK and €2,99–€9,99 for Continental Europe. As long as your ebook is priced within those bands you will be paid the 70% royalty regardless of where in the EU your ebook is purchased. All that will change is how much you are paid after the VAT and delivery fee are deducted.

For example, say you priced your 2MB ebook at €2,99. In France, VAT on ebooks is 5.5%. Amazon charge a delivery fee of €,12 per MB in the EU. If someone from France buys your ebook from the Amazon.fr site, you will be paid €2,99 – (5.5% VAT + €,24), or approximately €1,82. If someone from Belgium, where VAT is 21%, buys your ebook from the Amazon.fr site, you will be paid €2,99 – (21% VAT + €,24), or approximately €1,56.

For authors who opt to have their USD price automatically converted by Amazon, Amazon will add VAT to the converted price but only for those ebooks already active in your account.

This is a one-time courtesy. For all your future ebooks, Amazon will convert the USD price into pounds sterling and euros and not add any VAT. This means that your future royalties will further decrease if you do not take the time to set your own fixed EU prices.

For example, you have an ebook currently priced at USD $3.99. The size is again 2MB, and Amazon charge £.10/MB in the UK where VAT is 20%. When converted to pounds sterling, USD $3.99 currently amounts to £2.56. Amazon will add the 20% VAT and sell your ebook in the UK for £3.07 and pay you £3.07 – (20% VAT + £.20), or approximately £1.65.

But when you upload a new ebook and set your price at USD $3.99, Amazon will not add any VAT.

Instead they will sell your ebook in the UK for the converted price of £2.56 and pay you £2.56 – (20% VAT + £.20), or approximately £1.35.

However, if you set your own UK price and add the VAT yourself, you could set your UK price to £2.99 because this is a more attractive consumer price than either £2.56 or £3.07.

When your ebook is sold in the UK, Amazon will pay you £2.99 – (20% VAT + £.20), or approximately £1.60. By taking the time in future to set your own price, you earn approximately 18.5% more in royalties AND you take advantage of charm pricing. (The same concept applies to your euro price. And authors do not have to wait until they upload a new ebook to KDP; you can change the prices of your current ebooks at any time to take advantage of charm pricing.)

But what happens at the low end? What happens if you set your USD price to $2.99, the minimum of the 70% royalty band?

When converted, $2.99 currently equals £1.92 and €2,47. Both are less than the 70% royalty minimum of £1.99 and €2,99. In this case, Amazon will automatically increase the converted price and sell your ebook for £1.99 and €2,99 to keep you in your chosen 70% royalty bracket. This has always been the way KDP works when the author uses currency auto-conversion. Problem has been that most authors are not aware of this automatic upwards adjustment because they have never checked their USD price on the currency exchanges.

Due to fluctuating currencies, it was never a good idea to let Amazon auto-convert your USD price (because then there is no price consistency); now there is even more incentive to take the time to set a fixed price for your other currencies.

 

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6 thoughts on “Understanding KDP’s new VAT-inclusive pricing, and how to work it to your advantage

  1. Interesting article with useful information. My only criticism is the insulting tone of the beginning of fourth paragraph which I thought detracted from the rest of the piece. Other than that, nice job.

    1. I’m sorry you find the tone of the fourth paragraph insulting, but it IS lazy to just leave it to Amazon to auto-convert your USD price. I am constantly hearing from authors who have a very US-centric view of publishing, and couldn’t care less about what goes on anywhere else (and this is not just American authors, either; it’s authors from all over). These authors are shooting themselves in the foot, lowering their sales, and ignoring a vital aspect of ebook publishing: that it gives us access to an INTERNATIONAL marketplace. If one is serious about self-publishing, you have to take a proactive approach to marketing, of which pricing is integral.

      (But I hear you and have modified the tone. 🙂 )

  2. Great article, Michelle, and so helpful. I went straight to my KDP dashboard to check my books’ prices, but the option to set individual prices for each market myself was not there. I had to accept Amazon’s USD conversions. I’m in Australia.

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