Navigation path

How can I comply with VAT obligations?

How can I comply with VAT obligations?

Selling online also means dealing with value-added tax (VAT) obligations. VAT is a general consumption tax regulated by the Council Directive 2006/112/EC (EU VAT Directive). It is important to know that different rules apply depending to whom, where and which good you are selling or service you are supplying. Make sure you are applying the rules of the country where VAT is due as well as the correct rate (standard, reduced, or even zero rate).

Most common concepts when selling online can be found in the Small Glossary on distance sales. A good basic knowledge of the VAT Directive is given by the VAT eLearning course.

Note that you also need to check whether you should be paying excise duties.

Finally, in order to clarify what online exports are, these are goods or services that you supply to customers outside the EU. They include goods or services which have been sold online or by other distance selling arrangements. In this case, both goods and services are zero VAT rated (even if you are a VAT registered business), but you must obtain and retain documentary evidence of the export (proof of export). In addition, for products/goods you must complete a customs declaration when the goods are sent out.

Basic VAT principles for sales of goods and for services

The basic principle is that VAT should apply to all sales of goods and services, except for those supplies which are exempt according to the EU VAT Directive (e.g. exemptions for some services such as medical services for instance or an exemption for sales of goods to countries outside the EU).

As a small or medium enterprise, you must apply the same rules as any business, unless your Member State has opted for a VAT exemption regime for small businesses (see glossary). Consult the VAT Country specific information page and look at the thresholds link to find out if your Member State has opted for a VAT exemption regime for small businesses whose annual turnover falls below a determined threshold.

If an SME VAT exemption regime exists in your Member State and you opt for the exemption, then sales of goods or services to your clients in your country are VAT exempt. The VAT SME exemption regime may also be accompanied by an exemption from an obligation to register as a VAT taxpayer.

Select the country in which you are selling (place of supply) and find out what you need to know on the VAT obligation in your country or country of destination. Note that the VAT authority of your country is responsible for more detailed information.

On line sales of goods or services in your country, irrespective whether B2B or B2C, are subject to general rules for businesses, unless the VAT exemption regime for small businesses can be applied.

Sales to other EU countries

As regards VAT obligations you are in general subject to the rules of the Member State where you are established, and the VAT is due (e.g. invoicing, VAT return). However, if you supply to private customers in another Member State where the VAT is due, unless you are under the distance sales thresholds, you should register for VAT or appoint a tax representative in that Member State in order to pay and declare VAT there.

Depending on the nature of the transaction (i.e. supply of goods, supply of services, intra-Community acquisition) and the status of your customer (business or private consumer) different rules to determine the place of taxation apply.

As regards the sales of goods, the place of taxation is determined according to the following:

•    The place of taxation of B2C intra-EU supplies of goods, where transport is made by the seller or on his behalf, is the place where the goods are located at the time when the transport of good to the customer ends. However, if you are below the distance selling threshold the good are taxed at the origin (this is also the case where in a B2C sale of goods the customer takes care of the intra-EU transport of the goods). When the threshold is exceeded, you would need to register in the other Member State(s) and charge VAT at the rate applicable in that Member State. The threshold is either 35.000€ or 100.000€ depending on the Member State. It is important to note that with the Directive 2017/2455 new place of supply rules will enter into force from the 1st of January 2021;
•    The place of taxation of B2B intra-EU supplies of goods is the place where the goods are located at the time when the transport of goods to the customer begins. These supplies are exempt as intra-Community supplies.

As regards the services, as a main rule, the place of supply of B2C services is where you are established while B2B services are taxed where the customer is established. There are also some specific place of supply rules for certain type of services, for example, for services connected to transport of passengers (to be taxed where the transport takes place), services related to immovable property (to be taxed where the immovable property is located), etc.

Moreover, since 1st January 2015 the place of taxation of B2C supplies of telecommunications, broadcasting and electronic services (see glossary) has been the place where the private customer is established or resides, and these services are taxed at the VAT rates of this Member State. Find more detailed guidelines regarding the application of that place of supply rule, the use of the mini one stop shop (MOSS) and a web portal to help businesses to adapt to this change in VAT rules.

In order to simplify declaring and paying VAT in other Member States, you can register for the MOSS in one single Member State (Member State of identification, MSI) and submit your VAT returns and make payments to other Member States via the MSI.

Find more about the rules regarding the place of supply for goods and services. Note that for B2B cross-border sales of goods and for sales of services within the EU, no thresholds are applicable.

For general rules and exemptions on cross-border VAT, find more information on Your Europe as well as additional information on rules for telecommunications, broadcasting & electronic services.

Complete the administrative formalities to pay VAT

VAT is paid to the tax authorities in the country where the supply is deemed to take place (find more information regarding the obligations to submit a VAT return). You have to be VAT registered there or use the MOSS, unless reverse charge applies (B2B supplies- see glossary).

Administrative formalities are set by each Member State. Select the country in which the supply is deemed to take place and find out what you need to know on the VAT obligations.

However, for telecommunications, broadcasting and electronic services supplied to final consumers in another EU country that is taxable where the customer is located, you can electronically declare and pay VAT in your own Member State via the MOSS (mini one stop shop).

Note that VAT is declared to the tax authorities in the country where you are VAT registered based on the VAT return.

Apply the correct VAT rates

Different VAT rates can apply. You must, therefore, first determine the place of taxation of your supply and second check, if the supply is not exempt, which is the VAT rate, standard or reduced rate, that shall be charged on your good/service. Some countries allow a zero or super reduced rate on certain sales.

At the EU Country specific Information on VAT page, you can find the VAT rates applicable in your Member State, and the restricted list. If you sell goods in digital format, you can expect that they are subject to the standard rates (15% to 27%).

The most reliable source of information on current VAT rates for a specified good/service in a particular Member State is that country’s VAT’s authority.

Note that exports of goods (sending goods outside EU) are generally VAT exempt (or zero-rated), irrespective whether B2B or B2C.

Make sure you apply the correct VAT rates on sales in the Member State where the VAT is due. Some products in one Member State can be sold at the standard VAT rate while they could be exempt from VAT or subject to a lower VAT rate in another Member State.
Please note that in April 2016, the European Commission adopted an Action Plan on VAT – Towards a Single EU VAT Area. Here https://ec.europa.eu/taxation_customs/business/vat/action-plan-vat_en, you can consult the Commission proposals towards its completion, as well as news on applicable VAT rates, or simplified VAT rules for small businesses.
You must inform your customer about the full selling price, including VAT and delivery, before placing the order.

Apply excises duties on certain goods

When selling goods within your country and across Europe, excise duties may be applicable. The most commonly applied excise duties are those on alcoholic beverages, manufactured tobacco products and energy products (motor fuels and heating fuels, such as petrol and gasoline, electricity, natural gas, coal and coke). They are also called harmonised excise duties as all EU Member States apply excise duties to on alcohol, tobacco and energy (find out more on these three product categories).

Some Member States may also apply excise duties on other goods, most commonly on coffee, cosmetics, furs, fire arms, etc. You can find a brief summary of the specific taxes by Member State in this database.

Small Glossary on services and distance sales

B2B (business-to-business) service – A supply of service in which the supplier is a business (taxable person) and the customer is also a business, acting as such.
B2C (business-to-customer) service – A supply of service in which the supplier is a business (taxable person) and the customer is a non-taxable person – generally a private individual.
Distance sale/Distance selling – In EU VAT terms, a sale in which goods are sent by a supplier in one EU country to a customer in another (a private individual or some non-taxable person). Legal reference: Articles 34-36 VAT Directive.
Distance sale/Distance selling threshold – A maximum amount set by each EU country for distance sales from another. When a foreign supplier exceeds this amount, it will have to register for VAT in that country. Legal reference: Articles 34-36 VAT directive.
Electronically supplied services include digitized goods delivered online (downloadable material, such as music, image or games, digital books or other electronic publications) or physical supply of software, website or web-hosting services. Legal reference: Article 59(k) VAT directive, Annex II VAT directive, Article 7 and Annex I VAT implementing regulation.
Exemption for small enterprises – A special scheme that exempts from VAT businesses whose VAT-exclusive turnover falls below a certain amount, which can vary from one EU country to another. This scheme is not mandatory and so does not exist in every EU country. Legal reference: Articles 282-292 VAT directive.
Reverse charge - The client being a business (B2B transaction) is liable to pay the VAT due to his tax administration, not the supplier.
VAT identification/registration – The process whereby businesses (taxable persons) are identified and registered for VAT in an EU country and given a unique VAT number. Legal reference: Articles 213-216 VAT directive.
VAT identification number / VAT number – The unique number by which a business (taxable person) is identified in any EU country. Also known as a ‘VAT registration number’.
VAT return – A tax declaration made by a business (taxable person) setting out all the information the tax authorities need to calculate the output VAT the business must pay and input VAT it can deduct. The VAT return includes the total value of VAT-liable transactions, deductions and exempt transactions. Legal reference: Articles 250-261 VAT directive.

Disclaimer: The most reliable source of information on current VAT rates for a specified good/service and VAT obligation in this particular Member State is that country’s VAT’s authority.

Sources of information

Basic VAT Principles

•    European Commission, VAT in the European Commission.
•    European Commission, General Overview - What is VAT?
•    EU VAT Directive 2006/112

Sell to other EU countries

•    European Commission, VAT on electronic services.
•    European Commission, Telecommunications, broadcasting & electronic services.

Complete the administrative formalities

•    European Commission, VAT on electronic services.
•    European Commission, Telecommunications, broadcasting & electronic services.

Apply the correct VAT rates

•    European Commission, Where to tax?

Apply excise duties

•    European Commission, what are excise duties?