Europe VAT Guide - European Union VAT Guide for Businesses

European Union

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The European Union (EU) is a political and economic union of 27 countries. It comprises a single market which allows free movement of goods, capital, services and people between member states.

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The EU countries include:​ 

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Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czechia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden.

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Value Added Tax (VAT)

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The Value Added Tax (VAT) is a consumption tax levied on nearly all goods and services bought and sold and brought into the EU and is ultimately borne by the final consumer.  VAT is charged, at the applicable rate, on the sales price of the goods or services.

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VAT is collected at each stage along the supply chain. It is charged on the value added to goods and services at each stage of production and distribution based on a standard set of invoicing rules. 

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Each EU country is responsible for setting their own VAT rates but the standard rate cannot be less than 15% and the reduced rates cannot be less than 5%.

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VAT-registered businesses can deduct the VAT they have incurred on purchases from other EU & Non EU businesses from the VAT they have collected from businesses they have sold goods or services to. This means where a business makes purely taxable sales (not Exempt) they are tax neutral in that there is no VAT loss or P&L VAT cost. 

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Note: VAT is not charged on exports to countries outside the EU. 

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VAT in The Digital Age (VIDA)

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The VAT in The Digital Age is an EU package adopted in March 2025 which aims to modernise the VAT system in line with digitalisation, reduce fraud and make the system more efficient for businesses.

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The package is made up of 3 main pillars with an implementation timeline between 2025 to 2035 an include:

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• Real time Digital Reporting Requirements for cross border (B2B) EU trade based on e-Invoicing using structured electronic invoices for real-time digital reporting.The timelines for implementation are (a) 14 April 2025 - EU Member States can introduce mandatory domestic e invoicing without requiring EU approval (b) 1 July 2030, E-invoicing will become mandatory for all cross-border B2B transactions in the EU. (c) 1 January 2035, all domestic e invoicing and reporting must align with the EU standard.

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• Platform Economy  - There will be new rules for online platforms in the short-term accommodation rental and passenger transport sectors. Platforms facilitating supplies in the passenger transport and short-term accommodation sectors will become responsible for collecting and remitting VAT to tax authorities when their users do not, for example because they are a small business or individual providers. This will become effective from 1 July 2028.

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• Single VAT Registration - Building on the already existing ‘VAT One Stop Shop’ (OSS) model for e-commerce, the proposals would allow more businesses selling to consumers in another EU country to fulfil their VAT obligations via an online portal in one EU country. Further measures to improve the collection of VAT include making the ‘Import One Stop Shop’ (IOSS) mandatory for certain platforms facilitating sales by persons established outside the EU to consumers in the EU. This will become effective from 1 July 2028.

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EU Cross Border Refunds for EU Businesses 

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EU businesses can claim and obtain refunds of VAT incurred in performance of their business in other EU member states where they do not supply goods and services.and are not VAT registered there.

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So in effect, businesses should not have been based in the respective EU Member State during the period the refund claim relates to, or supplied goods and services (including to customers required to apply the reverse charge procedure).

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Requests for refunds must be made to the claimants own country Tax Authority via their online portal where they will be checked for their validity and the claimants identity and VAT registration number will also be verified. Once verified, claims will be forwarded by the businesses Tax Authority to the Member State where the VAT was incurred provided:

 

• The claimant is a taxable person

• Does not supply only exempt goods and services

• Is not covered by the special scheme for small business

• Is not covered by the flat rate scheme for Farmers

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For more information on the refund procedure, see the Summary of VAT refund procedure

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Source; European Commission

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EU Changes From 1 January 2025

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Place of supply for Virtual / live Streamed Events 

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On 1 January 2025 EU VAT rules change for businesses providing virtual and streaming services for conferences, distant learning and other live events streamed online (with a fee for viewing).  From 1 Jan 2025, EU countries must apply the 'where services are consumed' rule and VAT will be accountable in the country of the recipient of these services.  This change basically aligns the VAT treatment of virtual services with electronically supplied / digital services.

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Currently the general B2C rule applies - so VAT is due the supplier's country.

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Businesses in the EU providing these services will need to update their billing systems to reflect this change so that VAT will not be applied locally. Recipients of these services will need to ensure they account for VAT locally on these services.

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Small Business (SME) VAT Exemption Scheme

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From 1 January 2025, the special VAT regime (the SME scheme) allows small enterprises to: 

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• sell goods and services without charging VAT to their customers (VAT exemption) and,

• alleviate their VAT compliance obligations.

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Small enterprises choosing VAT exemption will lose the right to deduct VAT on goods and services used to make exempt supplies.

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Who Can Benefit

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Any small enterprise with a total annual turnover of no more than EUR 100 000 (or the equivalent in national currency) in all Member States in the current calendar year and in the previous calendar year are eligible for the VAT exemption in its Member State of establishment (MSEST) and/or in other Member State(s) under the cross-border SME scheme. 

This is applicable only if the Member State concerned has implemented the scheme in its national legislation.

The SME scheme is optional. 

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Non-EU small enterprises cannot apply the SME scheme. In the context of the SME scheme, small enterprises established in the United Kingdom, including Northern Ireland, are non-EU small enterprises.

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New Maximum for National Annual Threshold

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The maximum national annual threshold set by Member States under which small enterprises can VAT exempt their supplies of goods and services under the SME scheme (domestic and cross-border) is EUR 85 000 (or the equivalent in national currency).

Member States have the possibility to set more than one national annual threshold. These are called ‘sectoral thresholds’. In case a small enterprise can benefit from more than one sectoral threshold, the tax authorities will, based on its activities, inform the small enterprise about the threshold to use since only one threshold can be applied per taxable person.

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Cross Border Application

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Small enterprises established in another Member State than where VAT is due can VAT exempt their supplies (cross-border), in the same way that small enterprises established in that Member State already can for domestic transactions. 

This will help place all small enterprises on an equal footing, whether they are based in that Member State or not. 

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For more information please use this link - VAT rules for small enterprises

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One Stop Shop Scheme 

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The EU One Stop Shop scheme allows online sellers, including online marketplaces and platforms to register in one EU Member State (member state of identification) for the declaration and payment of VAT on all distance sales of goods and cross-border supplies of services to consumers within all EU member states.  This option therefore removes the need for online sellers / marketplaces / platforms to register and declare VAT in each EU country where they have made distant sales. This therefore reduces the administrative burden for taxable businesses making cross border sales from outside or within the EU.     

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The One Stop Shop consists of three optional schemes namely 

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• Non-Union (OSS) Scheme - Is for Non EU Businesses (Company, Partnership, Sole Trader) that do not have an established place of business in the EU or a fixed establishment in the EU and provide Business to Consumer (B2C) services in the  EU such as accommodation, transportation, admission to events 

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• Union (OSS) Scheme - Is for EU e-commerce businesses that have an established place of business in EU or have a fixed establishment) selling B2C goods or services within the EU. Services such as telecommunications, broadcasting, or electronically supplied services and intra-Community distance sales of goods.

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• Import (IOSS) Scheme. Is for EU established or non EU established businesses that sell low value goods of up to 150 euros imported into the EU. Note - for businesses that are not established in the EU, are required to appoint a representative or intermediary before they can use the IOSS scheme. 

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Registration for IOSS

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To use the Import One-Stop Shop, the company carrying out distance sales of goods imported from third territories, or third countries must register in the Member State where it has established its business, or, if it has established its business outside the Community, in one of the Member States where it has a fixed establishment. There are no VAT advantages in choosing one Member State over the other.

 

VAT Return

 

A taxable person using the IOSS is required to submit a monthly VAT to the Member State of Identification detailing:

 

• Total taxable amount for each product supplied to each Member State in which the dispatch or transport of the goods to the customer ends.

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• VAT amount

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• 3) VAT rate The import declaration shall contain the valid IOSS Identification number of the taxable person or of the appointed Intermediary established in the Union. ​

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Member State of Identification tax authorities provide the VAT return information to each Member State mentioned on the VAT return in which the dispatch or transport of the goods to the customer ends.

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VAT Payments

 

The company pays the VAT declared in its VAT return, to the Member State of Identification tax authorities. Member State of Identification distributes the VAT to the Member States mentioned on the VAT return.

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Registration Process

 

Direct Registration in the Member State of Establishment

 

Any taxable person who carries out distance sales of goods imported into the EU from a third territory or a third country in consignments with an intrinsic value not exceeding EUR 150 can register for the Import scheme. If that person has no establishment in the EU, they need to appoint an Intermediary to be able to use the scheme. For the Import scheme, the Member State of Identification is the Member State in which the taxable person has established their business.

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About the Intermediary

 

Taxable persons, suppliers, and electronic interfaces, which are not established in the EU or in a third country with which the EU has concluded a VAT mutual assistance agreement, need to appoint an Intermediary to be able to use the Import scheme.

 

Other taxable persons, the ones established in the EU, are free to appoint an Intermediary, but are not obliged to do so. The Intermediary needs to be a taxable person established in the EU. They must fulfil all obligations laid down in the Import scheme for the supplier or electronic interface that appointed them, including the submission of IOSS VAT returns and payment of VAT on the distance sales of imported low value goods. 

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Direct registration with Intermediary and in the Member State of Identification

 

If the taxable person has not established their business in the EU, the Member State of Identification is a Member State in which the taxable person has a fixed establishment. Where the taxable person has more than one fixed establishment, that taxable person can choose any Member State in which they have a fixed establishment to be their Member State of Identification. I

 

f the taxable person is established outside the EU, but in a third country with which the EU has concluded an agreement on mutual assistance for the recovery of VAT and makes distance sales of imported goods from that third country, they are free to choose any Member State as Member State of Identification. In this case, there is no need to appoint an Intermediary to be able to use the Import scheme. 

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For more information please see link below to source information:

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IOSS Scheme - Customs & Tax EU Learning Portal

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