Easy VAT for EU businesses: Do you understand the VAT rules when selling online to EU consumers?
Within the EU different VAT rules apply depending on whether you are supplying goods or services. In addition, the rules can vary according to whether you are selling to a ‘business’ customer (B2B) who is VAT registered or a consumer customer (B2C) who is not VAT registered.
One of the more complex areas for EU businesses to get to grips with is the VAT rules that need to be complied with when selling B2C to a customer in another EU Member State – known as distance selling.
B2B vs B2C
Distance selling occurs when a VAT-registered business in one EU country supplies and delivers goods to a customer in another EU country who isn’t registered for VAT.
For example, a business is distance selling into the UK if:
- it is outside the UK but in another EU country,
- it sell goods to customers in the UK or Isle of Man who aren’t VAT-registered, and
- it is responsible for delivering the goods or arranging for their delivery.
Customers who aren’t VAT-registered include:
- private individuals
- some small businesses
- businesses that can’t register for VAT because their activities are exempt
- public bodies
When an EU business starts making distance sales it should initially charge the VAT rate applicable in its own Member State. However it is important that the value of sales to customers in each EU Member State is carefully monitored because once an annual net value threshold of the customer country has been exceeded (known as the Distance Selling Threshold (DST)), the business must register for VAT in that country and start charging local VAT on subsequent B2C sales.
Distance Selling Thresholds
EU Member States can choose between 2 DSTs; €35,000 or €100,000. In the UK the DST is set at £70,000. It is therefore important to know which DST applies in each EU country as well as recording the value of sales to each country.
The value of distance sales during a calendar year is calculated by adding up the total value of all the VAT taxable distance sales made into each EU country, including any Zero-rated goods.
The following items should be excluded though:
- goods installed or assembled at a customer’s premises,
- New Means of Transport (NMT), like certain vehicles and boats, and
- any capital assets sold, e.g. vehicles and equipment.
As soon as the value of distance sales goes over the relevant DST in another EU country the business has to register for VAT there. In the UK, registration must be applied for within 30 days of this date by sending a completed form VAT 1A ‘Application for Registration – Distance Selling’ to HMRC. The registration date is the date when the value of distances sales went over the UK threshold, and this is the date from which the EU business should start accounting for UK VAT on sales.
Let’s look at an example business making distance sales:
|Lucy is VAT registered in the UK and sells jewellery to individuals via her website. Her sales to Italy are:
The DST in Italy is €35,000. DSTs are based on calendar years. Lucy did not exceed the Italian DST in 2014.
She did however exceed the DST for 2015 in March 2015 as total sales in the period January – March 2015 amounted to €45,000.
Lucy now needs to register for VAT in Italy and start charging Italian VAT on future sales to non-registered customers in Italy.
Hopefully you now have a better understanding of the distance selling VAT rules.
For further information on the DSTs in each EU country, you can download our EU VAT Essentials Table.
To be kept up to date with the latest DSTs and EU VAT registration requirements, you can sign up to our VAT newsletter and VAT updates alerts.