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Understanding sales tax in Europe
When selling goods and services in Europe, understanding how VAT works, and what your company VAT compliance obligations are, can be challenging.
Is Sales Tax in the USA the same thing as Value Added Tax (VAT) across Europe?
While VAT and Sales Tax are both types of indirect tax, they differ in the way that they are collected.
In the EU, when a vendor sells an item, VAT is included in the price. This means that the final consumer buys a product with the total VAT included in the price at the point of purchase.
In the USA, when a vendor sells an item, the sales tax is not included in the price. The vendor adds sales tax at the time of final consumer purchase. This means that the final consumer pays the product price plus the sales tax at the point of purchase.
There are three additional types of VAT registration, namely the European Union One Stop Shop (OSS), the Non-Union OSS, and the Import OSS.
These registrations were introduced by the EU to streamline the VAT responsibilities for businesses engaged in B2C sales across all EU member states.
A business may be registered for multiple VAT schemes, depending on where that business is established, what type of goods or services are supplied, and where that business holds its stock.
What are the VAT registrations my business needs to obtain?
There are several VAT registration options available in the EU, and it’s important to understand which of these VAT registrations are required, based on your individual business operations.
Local VAT registration is specific to one EU country only. It’s applicable to local transactions in that country as well as B2B cross-border sales.
Import One Stop Shop (IOSS)
This scheme applies to the sale of goods shipped from outside the EU directly to consumers within the EU, for orders or shipments of €150 or less.
With the IOSS scheme, your business can report all B2C sales of goods to all EU member states under this one VAT registration where the goods don’t exceed the €150 threshold.
For sales under the IOSS scheme, VAT is due at point of sale rather than at the point of entry into the EU. As a result, sellers must assess and collect VAT at the time of the sale.
Local VAT Registration
The VAT rates, filing frequencies, and filing requirements – including VAT, EC sales, Intrastat, and SAFT processes – will all vary depending on the specific EU member state in which you hold a local VAT registration.
Navigating the requirements in individual countries can be challenging, particularly with potential language barriers across the EU. Seeking assistance from a reliable VAT service provider can help to fully understand your individual business tax obligations and compliance.
Non-Union OSS
This scheme is similar to the Union OSS scheme, but only Non-EU based businesses can register and only B2C services can be reported under this scheme.
Note: this information is intended to provide information on VAT. It does not constitute advice and should not be relied upon as tax advice.
Union One Stop Shop (OSS)
Under this scheme, both EU based and Non-EU based businesses can report cross border sales of goods (B2C) within the EU under an OSS VAT registration.
Only one VAT registration is required, and filings are completed each quarter, as opposed to registering for VAT in every member state you sell into.
In addition, EU based businesses can report sales of electronically supplied services under the Union OSS VAT return.