EU VAT for Beginners: Simple Steps to Automated VAT Compliance

Welcome to your beginner’s guide to EU VAT. VAT—Value Added Tax—applies throughout the European Union and affects every ecommerce seller. This guide explains the basics of VAT rules, thresholds, and schemes like OSS and IOSS—and shows how automated VAT compliance can make it simple.

So what your company pays in VAT you can deduct from the VATs due. VAT is a major source of income for countries. The VAT income is then used for roads and schools and Covid vaccinations, good stuff for all of us. Simple, right?

Not quite. All those PhDs and high IQs have managed to create something that is far from simple. There are over 600,000 reduced VAT rates in the EU for essential goods like food and books. For ecommerce businesses, tracking reduced rates manually is nearly impossible. That’s why many sellers rely on automated VAT compliance solutions—to calculate the right VAT by product and destination country without the headache.

You have to register for VAT if you exceed the €10,000 sales threshold, except when you are selling cross-border when VAT must be collected on all sales. You can, and in some instances must, register for VAT in another country. The registration allows you to deduct the paid VAT easier but creates broader reporting requirements. An example of a hot topic in VAT is which country can collect the VAT on hotel bookings—the booking solution or the place of consumption? Complicated? Yes. But we are here to help!

With the introduction of the long-anticipated simplification to e-commerce sales VAT, there is a possibility to create something that resembles a single EU market. And the VAT is to be paid to and according to the consumption country via the new reporting systems. One of the clever people finally realized that making VAT payment difficult also reduces the much-needed tax income. The new regulation still isn’t applicable to goods from outside of EU with value over 150€, warehousing in another country, deduction of paid VAT from VATs due and multiple other issues, but we are getting there.

In order to take advantage of the new regulation, you have to register for applicable schemes:

• OSS: for intra-EU sales (Read more)
• IOSS: for shipments from outside of EU (Read more)
• Non-Union: Digital goods and services from outside of EU (Read more)

The existing ones, domestic and B2B remain unchanged.

To take advantage of the mentioned 600,000 reduced VAT rates means you have to have a capable full landed cost calculator installed. The accurate calculation must identify the product group which in turn is used to determine the appropriate tax rate and taxes—again, in accordance with the destination country VAT. For ecommerce sellers, the easiest way to achieve this level of accuracy is with automated VAT compliance.

Still doesn’t sound simple? No, it isn’t simple. Which is why we automated the whole process. With our solution, you get fully automated VAT compliance for OSS, IOSS, and domestic VAT. Automation ensures you stay compliant without extra admin work, letting you focus on growing your business.

Get in touch with us today to make VAT compliance effortless.