How can tax rules from different regions affect my product pricing?

Pricing products and services is crucial for your business strategy. When your sales occur in different regions, for instance, it’s essential to consider how local tax rules can impact the final price of your products. In this context, including or not including taxes in your product’s price becomes an important strategic decision. 

In this article, we will explain the concept of tax-inclusive pricing, and show you how to correctly calculate prices when you decide to include taxes in your product pricing. 

Attention: The information provided in this article is for informational purposes only and should not, under any circumstances, be considered tax advice or used for decision-making. This article may not have all the latest specific data and is not intended to exhaust the topic. We strongly recommend consulting your accountant and/or lawyer to determine the tax requirements related to your business. 

What type of pricing should I adopt for my product?

For sales made in some regions of the world, Hotmart is responsible for managing the taxes, which means that Hotmart itself handles the calculation, collection, and remittance of taxes. In these regions, the product price, defined by you at the time of registration, is considered "tax exclusive". This means the final price customers see at checkout will include any applicable taxes added automatically by Hotmart. No extra setup is needed on your end. 

On the other hand, there are other sales regions where the creator is responsible for managing invoices and taxes. This means the creator is responsible for calculating, collecting, and paying any taxes on your sales. In these regions, the product price, defined by you when registering the product on the platform, is the final price, meaning the price is considered "tax inclusive." Since the creator is responsible for collecting the taxes on the sale, Hotmart won't add extra taxes at checkout, so you might want to adjust your pricing to account for the tax cost.

To know more about when tax responsibilities lie with Hotmart or creators, check the article Global sales: tax responsibilities for sales made on Hotmart.

When should I review my product pricing?

Product pricing should be reviewed regularly, but some specific situations may require adjustments: 

• Changes in tax rates: modifications in tax legislation that impact the tax rates applicable to your products. 
• Variations in your business costs: increases or decreases in costs that directly affect the profit margin of your products. 
• Competitor analysis: significant price movements among competitors that may require adjustments to maintain competitiveness. 
• Market changes: new trends or changes in consumer behavior that demand an adaptation in pricing strategy. 

Depending on the regions of the world where you sell, your sales may or may not include taxes in your product price. Therefore, we recommend that you consult your accountant and/or lawyer for every decision to define the pricing strategies for your digital business according to tax responsibilities.

How to calculate to include taxes in the final pricing of my products?

It is important to emphasize that, to make this decision, you must assess if there are taxes on your sales. This analysis must consider the nature of the product, ESS* or non-ESS, and the buyer’s country. Remember also that the tax rate can vary from country to country. 

*Electronically Supplied Services (ESS), for tax purposes in the European Union, refer to services provided over the Internet or an automated electronic network that involve minimal human intervention (such as software downloads, online courses, or streaming services). 

That said, if you decide to include taxes in your product pricing, here’s an illustrative example of how this can be done: 

1. Determine the tax rate: know the tax rate that should be applied to your product. In this example, let’s assume the tax rate is 16%.
2. Calculate the final price with taxes included: 
   • Formula: Final price = Base price / (1 - (tax rate / 100)) 
   • Example: If the base price of a product is US$100 and the tax rate is 16%, the calculation will be: 
     • Final price = 100 / (1 - (16 / 100))
     • Final price = 100 / 0.84 
     • Final price = US$119.05 

This formula helps to maintain your base price, even after deducting sales taxes. However, we emphasize the importance of always considering the support of an accountant for tax matters.

What is the difference between "tax inclusive" and "tax exclusive" prices on the checkout?

Tax-inclusive pricing occurs when the final product value includes all applicable taxes. In other words, the tax amounts are already included in the total product value by the creator when setting the price. As shown in the image below, the product price already includes all taxes, and the buyer will see a single total amount on the payment page.

On the other hand, tax-exclusive pricing occurs when the product value does not include taxes, which are added only at checkout. In this way, the tax amount is itemized at the time of purchase for the buyer, as is the product value.