EU VAT Digital Services: More Complicated Than You Think
If you sell digital products or services to customers in the EU – ebooks, software, online courses, SaaS, music downloads, streaming access – you are required to charge EU VAT on digital services based on where your customer is, not where you are. That means potentially dealing with 27 different VAT rates across 27 countries. The good news is there is a system that makes this manageable without registering separately in every country. Here is how it works.
Why EU VAT on Digital Services Works Differently
Before 2015, businesses charged VAT based on where they were based. A company in Ireland could sell software to a customer in Germany and charge Irish VAT. The EU closed that loophole in January 2015, shifting the rule to destination-based VAT: you charge the VAT rate of the customer’s country.
This applies to B2C sales only (business to consumer). If you are selling to another business (B2B), different rules apply – generally the buyer handles VAT through a reverse charge mechanism.
What Counts as a Digital Service?
The EU defines digital services broadly. They include:
- Software downloads and SaaS subscriptions
- Ebooks, PDFs, and digital publications
- Music, video, and streaming services
- Online courses and e-learning
- Website hosting and web services
- Online marketplaces and platforms
- Digital images, templates, and downloadable graphics
Essentially: if it is delivered electronically with little to no human involvement, it is probably subject to EU VAT digital services rules.
EU VAT Digital Services Rates by Country
Each EU member state sets its own standard VAT rate, though EU rules require a minimum of 15%. Here is a sample of current standard rates:
| Country | Standard VAT Rate |
|---|---|
| Hungary | 27% |
| Denmark, Sweden, Croatia | 25% |
| Finland, Greece, Ireland, Poland | 24% / 23% |
| France, Netherlands, Austria | 20% |
| Germany | 19% |
| Luxembourg | 17% |
Full rates for all member states are maintained by the European Commission’s taxation department.
The €10,000 Threshold
There is an important threshold to know: if your total cross-border B2C digital sales to EU customers are under €10,000 per year (combined across all EU countries), you can charge your home country’s VAT rate instead of the customer’s rate. This simplification is designed for very small sellers just starting out.
Once you exceed €10,000, you must charge the VAT rate of each customer’s country – and that is where the One Stop Shop comes in.
The One Stop Shop (OSS)
Registering for VAT in every EU country where you have customers would be a nightmare. The One Stop Shop (OSS) – which replaced the older Mini One Stop Shop (MOSS) in July 2021 – solves this.
Here is how it works:
- You register for OSS in one EU member state (your country of establishment if you are EU-based)
- You file a single quarterly VAT return covering all your EU digital sales
- You make one payment, and the OSS distributes the VAT to each relevant country on your behalf
- No need to register separately in each country
If you are based outside the EU, you can still use OSS – you just choose which member state to register in (called the Non-Union OSS scheme).
What About Businesses Outside the EU?
If you are a US, UK, or other non-EU business selling digital services to EU consumers, EU VAT rules still apply to you. You are required to charge and remit VAT on those sales. The Non-Union OSS lets you handle it through a single registration rather than registering in every country where you have customers.
This is worth flagging if you are thinking about setting up an EU company – having an EU establishment changes which OSS scheme you use and may simplify your compliance setup further.
Quick Answers
Do I need to charge EU VAT if I am based in the UK?
Yes, if you are selling digital services to EU consumers. The UK left the EU, but EU VAT rules still apply to non-EU businesses selling into the EU. You would use the Non-Union OSS scheme.
What if I sell through a platform like Gumroad or Etsy?
Many digital platforms operate as the “deemed supplier” for VAT purposes – meaning they collect and remit VAT on your behalf. Check your platform’s terms to confirm whether they handle this. If they do, you do not need to register for OSS for those sales.
Do I charge VAT on B2B sales to EU businesses?
Generally no – B2B cross-border sales within the EU are handled through a reverse charge mechanism. The buyer accounts for VAT in their own country. You still need to collect their VAT number and confirm it is valid.
How do I prove where my customer is based?
EU rules require you to collect two pieces of non-contradictory evidence – things like billing address, IP address, bank details, or the country code of the SIM card used. For low-risk, low-value sales this is usually handled automatically by your payment processor.