Navigating Foreign VAT Compliance for Distance Sales and Digital Services

As cross-border commerce grows, understanding VAT (Value Added Tax) compliance for distance sales of goods and electronically supplied services (ESS) is crucial for businesses selling to consumers across Europe and beyond. 

VAT obligations depend on several factors, including: 

• Whether you are supplying goods or services. 

• Whether your customer is a business (B2B) or an individual consumer (B2C). 

In general, a supply of goods refers to the transfer of the right to dispose of tangible property as an owner, while a supply of services is any transaction that does not constitute a supply of goods. 

This guide outlines the key aspects of foreign VAT compliance for B2C supplies of goods and services. 

1. What Are Distance Sales? 

Distance sales involve the sale and delivery of goods across borders within the EU. These include: 

• Sales from one EU Member State to another. 

• Sales where the buyer is not VAT-registered, individual consumer (B2C). 

• Sales where the supplier manages the delivery of goods. 

Example: 
An Irish business selling to consumers in France, Germany, and Spain exceeding €10,000 in annual sales must: 

• Register for VAT in each customer country or, 

• Opt into the Union OSS (One-Stop Shop) to simplify VAT reporting. 
  The OSS enables businesses to handle EU VAT through a single quarterly filing. 

2. What Is the Union OSS (One-Stop Shop)? 

Introduced in July 2021, the Union OSS simplifies VAT reporting for businesses selling to consumers across EU borders. 

Key Features: 

• Businesses file a single quarterly VAT return covering all eligible cross-border sales to EU consumers. 

• The OSS applies to intra-community distance sales of goods and services. 

• The OSS is optional, allowing businesses to avoid VAT registration in multiple EU countries. 

Future Update: 
With the implementation of ViDA’s Pillar 3 in July 2028, the OSS will also apply to B2C domestic supplies of goods. 

3. The Import One-Stop Shop (IOSS) 

The IOSS simplifies VAT processes for distance sales of imported goods. 

Conditions for Use: 

• Goods are located outside the EU at the time of sale. 

• Goods are shipped in consignments with an intrinsic value not exceeding €150. 

• Goods are not subject to excise duties. 

Benefits: 

• Register in a single EU Member State to handle import VAT across Europe. 

• Consolidate and report all import VAT through one monthly return. 

• Collect VAT at the applicable rate at the point of sale. 

Impact: 

When the IOSS is used, import VAT is not collected by Customs. Consumers pay VAT at the time of purchase, avoiding additional taxes or customs charges upon delivery. 

4. Sale of Goods to Consumers Outside the EU 

When selling goods to consumers outside the EU, the VAT obligations of the supplier will depend on the rules of consumer’s country. 

Key Points: 

• EU VAT is not applicable to these sales. They are treated as exports and are usually zero-rated for VAT purposes. 

• Consumers may responsible for any import VAT, customs duties, or other local taxes in their country of residence. 

• There are however countries that will obligate sellers to VAT/GST register in the destination country under certain conditions.  

Example: 

EU Supplier to an Australian Consumer: If you are a non-resident business and you sell goods into Australia with a customs value of A$1,000 or less, GST applies and you will have to collect this from your customer and remit this to the Australian Tax Office.

5. Electronically Supplied Services (ESS) 

ESS refers to digital services delivered over the internet, including: 

• Web hosting, software, and app downloads. 

• Streaming services (music, movies, games). 

• Online education and e-books. 

EU Compliance: 

• For B2C services within the EU, VAT obligations are based on the customer’s location. 

• Businesses can either: 

• Register for VAT in each customer’s country, or 

• Use the Union/non-Union OSS for simplified quarterly reporting. 

6. Sale of Digital Services to Consumers Outside the EU 

Key Points: 

• Digital services supplied by EU-based businesses to consumers outside the EU are outside the scope of EU VAT and treated as exports of services. 

• Suppliers may need to comply with VAT/GST/sales tax rules in the consumer’s country. 

• More and more non-EU countries are obligating non-resident suppliers to register locally to collect the related VAT/GST. 

Supplier Obligations: 

• Register for VAT/GST in the consumer’s country. 

• Charge the applicable VAT/GST rate at the point of sale. 

• Remit the collected tax to the local tax authority. 

Example: 

• EU Supplier to a U.S. Consumer: Outside the scope of EU VAT, but U.S. local taxes may apply. 

• EU Supplier to an Australian Consumer: Australian GST rules require foreign suppliers to register and charge GST. 

7. Challenges in Managing Foreign VAT Compliance 

Managing VAT compliance across multiple jurisdictions can be complex due to: 

• Different “place of supply” rules. 

• Varying VAT rates, thresholds, and deadlines. 

• Country-specific reporting requirements. 

• Non-EU countries with their own VAT/GST rules for import of low value goods and digital services. 

In Summary 

To maintain compliance, businesses should: 

• Register for VAT in customer countries or use the OSS/IOSS for simplified EU reporting. 

• Monitor sales to non-EU countries and understand VAT obligations in each destination. 

• Develop a clear VAT compliance strategy and utilize tools for efficient VAT management. 

Taxback International can help businesses stay on top of VAT compliance with expert support and our VAT Compliance software, Comply.

Simplify VAT Compliance with Taxback International

Navigating cross-border VAT obligations doesn’t have to be complicated. With Taxback International’s expert services and our advanced VAT Compliance software, Comply, you can streamline VAT registration, reporting, and management across all jurisdictions.

✅ Stay compliant with ease.
✅ Focus on growing your business while we handle VAT complexities.
✅ Access customized support for your global VAT needs.

Contact us today to learn more or visit Taxback International to discover how we can help your business thrive.