Have you been thinking about selling your products in the EU (European Union)? The single market presents a major opportunity for businesses looking to reach new customers. More of the 450 million people in the EU have shopped online every year for the last nine years.

Before you can jump in and start making sales however, you’ll need to understand how Value Added Tax (VAT) works in the EU. This blog, written by our friends at SimplyVAT, will cover what you need to know.

What is VAT?

VAT is an indirect consumption tax, applied at every stage of a product’s production and distribution. It’s paid by the consumer of goods and services, to the seller. The seller then remits that amount to the tax authorities via a periodic VAT return. 

As the seller, you apply VAT as a percentage to your net prices. Using Germany as an example, the standard German VAT rate is 19%. If you sell a fountain pen in Germany with a net value of EUR 100. You’ll need to charge your German customer EUR 119 – your net price plus 19%. You then pass the 19% (EUR 19) to Bundeszentralamt für Steuern (BZSt), Germany’s tax authority.  

There are two kinds of VAT: Input and Output. The VAT you collect on your sales and pass to tax authorities is called output VAT. Input VAT is the amount you pay on goods and services. Import VAT is the most common way non-EU sellers will encounter input VAT. 

You report both input and output VAT on your VAT return. If your output VAT is higher than your input, you pay the tax authorities the difference. If your input is higher than your output, you can usually get a refund on the difference.

How does VAT work in the EU?

Every EU country uses VAT – it's a requirement of membership – and some aspects of the EU’s VAT system is unified. What non-EU sellers often mistake however, is assuming that the details are the same everywhere. For example, there is no single EU VAT number. You can’t register for EU VAT, rather, you register in individual EU States. 

The EU VAT Directive is the piece of legislation that set out the European VAT rules. It requires all EU States to:

• Charge VAT on sales and imports 
• Have a standard VAT rate no lower than 15% 
• Have no more than two reduced rates 
• Use the same place of supply rules 
• Participate in the VAT Information Exchange System (VIES) 
• Participate in the One Stop Shop schemes 
• Provide a mechanism for businesses to challenge VAT decisions

After that, there’s a lot of room for variation. In some cases, the same rule can be applied differently in different countries, depending on how that tax authority has interpreted it. 

Mainly, what changes by country is:

• What the VAT rates are, and what categories they apply to 
• When you’re expected to register 
• Whether you’ll need a fiscal representative to register 
• What documents you’ll need to provide to register 
• How often you’ll have to file a VAT return 
• What the VAT refund procedures are

Together these things will give you an idea of the time and cost involved in registering and the ongoing compliance.  

The Place of Supply 

The place of supply rule is one of the EU-wide rules. It determines where a transaction is taxable, and who has to pay the tax. As with every rule there are exceptions, but here’s the EU’s general rules for place of supply:
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For the purposes of EU VAT, goods are physical objects. Forms of power (like electricity), heat, refrigeration and ventilation also count as goods. Everything else is a service. For example, a Vinyl record is a good. When the same music is streamed online, it’s a service. 

Working out the place of supply for services can be very complicated. Digital/electronically supplied services or Telecommunications, Broadcasting and Electronic (TBE) services are taxed where the customer is based. What’s considered as electronically supplied isn't always straightforward. If you sell downloadable eBooks for example, whether you email it to your customer personally or it’s done automatically makes all the difference. We recommend speaking to an expert, so you’re not caught out. 

The place of supply also determines where you need to register for VAT, if you do at all. 

Do I need to register for VAT in the EU? 

For non-EU B2C businesses, whether you need to register depends on two things:

• What sales channel you’re using  
• Where your goods are at the point of sale

If you’d like a quick answer, you can take SimplyVAT’s 30 second quiz. 

Selling to the EU from an Online Marketplace 

In the EU, online marketplaces like Amazon have to collect and report the VAT on your behalf in certain circumstances. Your sales have to be:

• B2C (Business-to-Consumer) 
• Of goods outside the EU at the point of sale 
• Have an intrinsic value of EUR 150 or less

This obligation extends to ensuring that you’re charging the right amount of VAT. That’s why marketplaces will usually calculate and display VAT inclusive prices for you. 

If you use Amazon FBA Pan-EU, you’ll need to register for VAT in multiple countries. When you store your goods in an EU country, you create a “taxable presence” there, triggering the need to register. 

Selling to the EU from your own store 

When you sell through a store you own, you’re responsible for all the VAT.  As with selling your goods on a marketplace, if you store your goods in an EU country, you’ll need to register there. 

If your goods outside the EU when your customer buys them, you have three options:

• Register for VAT in your customer’s country 
• Register for IOSS  
• Ship your goods Delivered at Place (DAP)

An IOSS registration allows you to import goods with an intrinsic value of EUR 150 or less to customers all over the EU. If your average order has an intrinsic value over EUR 150, registering for VAT might be more efficient.   

You can also ship your goods DAP. Shipping DAP puts the responsibility for Import fees, duties and VAT on your customer. Shipping DAP is generally a worse experience for your customers and is one of the major causes of cart abandonment in the EU. 

The One Stop Shop Schemes 

One of the goals of the single market was to make cross-border trade easier. With that in mind, the EU introduced the One Stop Shop schemes, to simplify VAT compliance. There are three schemes:

• One Stop Shop (OSS) 
• Import One Stop Shop (IOSS) 
• Non-Union One Stop Shop (Non-Union OSS)

Each scheme has one monthly return and covers all 27 EU countries and Northern Ireland. 

One Stop Shop 

One Stop Shop (also known as Union One Stop Shop) is designed to make reporting intra-community transactions easier. That means it covers the provision of goods and services across internal EU borders. You can use OSS to report:

• Cross-border B2C services, if you’re based in the EU  
• Goods stored in the EU sold to customers in another EU country (Distance Sales) by EU and non-EU sellers  
• Goods stored in an EU country sold to a customer in the same country on an online marketplace, if the seller is not based in the EU

Import One Stop Shop 

Import One Stop Shop or IOSS, is just for goods located outside the EU at the point of sale. You can report the sale of goods to anywhere in the EU on a single monthly return if those sales are:

• Business-to-Consumer (B2C) 
• Imported in shipments with an intrinsic value of EUR 150 or less

Registering for IOSS means you have to collect and remit VAT, but parcels shipped under IOSS clear EU customs duty and import VAT free. We can help you get IOSS registered here.

Non-Union One Stop Shop ‍

Non-Union OSS is just for non-EU businesses providing B2C services to the EU. That includes online coaching, or if you’re selling tickets to a webinar. 

Ready to start selling into the EU? 

Getting the VAT basics right is the first step to building a successful cross-border business. If you need support with registrations, filings, or staying compliant across multiple EU countries, SimplyVAT can help.