VAT rules for European ecommerce
Whether your business is located within the European Union or outside, if you’re shipping to customers in European countries, you will have to pay value-added tax (VAT). On this page we’ll list the current VAT rules for EU cross-border sales.
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What is VAT?
The value-added tax, or VAT, in the European Union is a consumption tax that’s assessed on the value added to goods and services. It’s charged as a percentage of the price, which makes it a consumption tax. Consumers pay it as part of the price and as retailer you pay it to the authorities. This makes it an indirect tax.
VAT applies to more or less all goods and services that are bought and sold for use or consumption in the European Union. Imports are taxed to keep the system fair for EU producers so that they can compete on equal terms with suppliers situated outside the EU.
VAT regulations for cross-border sales within EU
If a business situated within the European Union sells to consumers in another EU country, there are some rules regarding VAT. The EU has set a threshold amount for all long-distance sales. If the EU-based company makes less than 10.000 euros with long-distance sales, the company charges the VAT rate of the country it’s situated in to all customers they ship to. They only need to fill in their local tax return forms.
Once the threshold amount of 10.000 euros is reached, businesses charge the VAT rate of the EU country where the customer is located.
Once the threshold amount is reached, the business should charge the VAT rate of the EU country where the customer is situated. Businesses will have to start charging these VAT rates from the invoice that crosses the threshold amount. This means that if you’ve already made a revenue of 8.000 euros from sales to customers in other EU countries and you’re making a sale for 3.000 euros to a customer in France, the invoice for 3.000 euros is charged with the French VAT rate.
How to charge VAT in multiple countries
There are several ways to register for VAT in the countries you’re selling to. It’s possible to register for a VAT-number and fill in the forms for tax returns in each country locally. The EU recognizes that this will bring a lot of administrative costs for most cross-border businesses, and because of that it launched a tool to make this easier for sellers.
Sellers can now file a single VAT return in the online platform known as the One Stop Shop (OSS). This way, businesses do not require an individual tax registration for each of the countries they’ve sold goods to. The seller should still take note the total amounts of VAT they charged in the different countries, and fill this out in the portal. After that, the OSS transfers that data to the local authorities in those EU countries.
VAT threshold and tax filing for non-EU businesses
Goods that are shipped to the EU are subject to VAT. This means that buyers are required to pay VAT on all purchases up to 150 euros. Orders above this threshold will still be subject to import VAT and duties.
Goods that are shipped to the EU are subject to VAT.
If your business is situated outside of the EU and you are shipping to customers within EU countries, you can choose to collect VAT on orders below 150 euros to simplify the buying and shipping experience of your customers. If you don’t, your customers will be charged upon delivery by the carrier.
If you do decide to collect VAT on orders below 150 euros, you can use the Import OSS. Within that platform, you can file a single monthly VAT return for all low value exports to the EU. Charging VAT enables non-EU sellers to give customers within the EU more certainty about final prices. Another additional benefit is that imported goods that are registered for VAT will likely be processed faster by custom authorities.
If your goods are stored within the EU, you should register for OSS in that country. If your goods are shipped from multiple EU countries, you may choose the EU country where you want to register. Consulting a tax professional is advised.
Making sure customers see the right prices in your online store
To make sure that you charge the right amount of VAT you can implement a location verification in your online store. Shoppers are asked to verify their location when they browse your store, which influences the prices they are shown. In order to do this, you should of course know the VAT rates of the countries you’re selling to.
Platforms and VAT
When platforms deliver items to customers, the EU sees them as having an ‘active role’ in the process. Active platforms have to pay VAT to the country the customer is residing in. This counts for goods that are imported into the EU as well as goods sold within the EU that are worth more than 150 euros. Online shoppers need to pay attention as to whether the platform charges VAT at checkout, otherwise they might need to pay it themselves upon delivery if it’s a long-distance sale.