SaaS and other electronically supplied services sold to consumers in the EU are taxed in the customer's country, at that country's VAT rate. A business established in one EU member state can charge its home rate until its consumer sales into other member states pass €10,000 a year. A business established outside the EU has no threshold and owes VAT in the customer's country from the first sale. Most sellers report all of it through one quarterly One Stop Shop (OSS) return, sales to VAT registered businesses fall under the reverse charge, and every consumer sale needs evidence of where the buyer is.
Member states collected more than €38 billion through the OSS and Import OSS schemes in 2025, up 17% on 2024, and more than 193,000 businesses were registered by the end of that year, according to European Commission figures published on 3 September 2026. The Commission's latest estimate puts the EU VAT compliance gap at €128 billion for 2023, or 9.5% of expected revenue, up from 7.9% the year before.
Check that your product is an electronically supplied service
EU law defines an electronically supplied service as one delivered over the internet that is essentially automated, involves minimal human intervention and cannot be provided without information technology (Article 7 of Implementing Regulation 282/2011). SaaS subscriptions, API access billed per call, downloadable software, prerecorded courses and AI tools all fall inside it.
A strategy session over a video call is a human service with its own place of supply rules. Since 1 January 2025, live streamed education and virtual event access sold to consumers is taxed where the customer lives, under Council Directive 2022/542. If the customer would still receive the product with your team removed from delivery, treat it as an electronically supplied service.
Your place of establishment decides when VAT starts
The €10,000 figure is a simplification under Article 59c of the VAT Directive, and it is available only to businesses established in a single EU member state.
Established in one EU member state | Established outside the EU | |
|---|---|---|
When destination VAT applies | Once consumer sales to other member states exceed €10,000 in the current or previous calendar year | From the first sale |
OSS scheme | Union scheme, filed in your home country | Scheme for sellers outside the EU, filed in any member state you choose |
Evidence of customer location | One item from a third party while those sales stay under €100,000 a year; two items above that | Two consistent items |
For an EU seller, the €10,000 is counted net of VAT, across all other member states combined, and it includes distance sales of physical goods. You can opt in to destination VAT below the threshold, but the choice binds you for two calendar years. Since 2025, EU established small businesses also have access to a cross border SME exemption, which again does not extend to anyone outside the EU.
For a founder in Zürich, London, New York or Bengaluru, the first €20 subscription bought by a consumer in Lyon carries French VAT at 20%. That founder either registers for OSS in one member state and files quarterly, or sells through a merchant of record that does it as the seller.
Separate business customers from consumers at checkout
Sales to VAT registered businesses in the EU are taxed where the customer is established, and the customer accounts for the VAT under the reverse charge (Article 196 of the VAT Directive). You charge no VAT, and the invoice carries the customer's VAT number and a reverse charge statement.
Validate the VAT number in VIES, the Commission's VAT number system, and store the result and date against the transaction. An invalid or missing number means the sale is treated as a consumer sale and destination VAT applies. A seller outside the EU with only business customers in the EU usually has no EU registration to maintain. The first consumer sale changes that, which is why the B2B or B2C decision belongs in the checkout flow rather than in a spreadsheet at quarter end.
Prove where each customer is
For consumer sales of digital services, the supplier identifies the customer's country from two items of evidence that do not contradict each other (Article 24b of Implementing Regulation 282/2011). Accepted items include the billing address, the IP address of the device, the country of the bank account or card, and the mobile country code of a SIM card. EU established sellers under €100,000 of such sales a year may rely on one item provided by a third party, such as their payment provider.
A customer with a German card who signs up from a French IP address needs a third item that settles the question, and a VPN can make the IP address worthless. Treat each subscription renewal as a new supply and keep the evidence for each charge. Records under OSS must be kept for ten years from the end of the year of the transaction and made available electronically when a member state asks.
Apply the right rate, and expect it to move
Standard rates run from 17% in Luxembourg to 27% in Hungary. Finland moved to 25.5% in September 2024, Slovakia to 23% in January 2025, Estonia to 24% in July 2025 and Romania to 21% in August 2025, so a rate table built at launch may already be out of date.
The rate that applies is the one in force on the date of supply, so a change needs to reach checkout and invoices on its effective date, while earlier transactions keep their original treatment. Most SaaS takes the standard rate. Electronic books and publications are the main digital category where member states may apply a reduced rate, so a product that bundles software with publications needs a closer look.
File the OSS return every quarter
OSS returns are quarterly and due by the last day of the month after the quarter ends: 30 April, 31 July, 31 October and 31 January. The deadline does not move for weekends or public holidays, and a nil return is required for a quarter with no qualifying sales. The return lists sales and VAT by member state of consumption, and you pay the total to your member state of identification, which passes each share on.
Mistakes in an earlier return are corrected in a later one, within three years of the original deadline. A seller that persistently fails to file or pay can be excluded from the scheme for two years, which means registering separately in every member state where it has customers. OSS also covers only these consumer sales. Input VAT on your own costs is reclaimed through your domestic return or, for sellers outside the EU, through the refund procedure for non EU businesses.
The UK and Switzerland run separate systems; our guide to UK VAT for overseas SaaS sellers covers the UK.
Register yourself or use a merchant of record
Register and run it yourself
You register for OSS, use a tax calculation tool such as Stripe Tax or Quaderno, collect evidence, and file with an accountant or VAT agent. You stay the seller of record, so you control pricing and can accept B2B contracts paid by bank transfer. You also carry the liability in an audit and own every rate change.
Use a merchant of record
A merchant of record buys your product and resells it to the customer, so the OSS registration, rate lookups, evidence, reverse charge checks and invoices become its obligations. Paddle, Lemon Squeezy, Polar, Stripe Managed Payments and tiun all work this way. The trade offs are a higher fee than raw card processing, the merchant of record's name on the customer's invoice, and less room for custom billing arrangements. Our explainer on how a merchant of record reduces compliance risk covers which liabilities move and which stay with you.
tiun as a merchant of record
tiun is a Swiss merchant of record for SaaS and AI products. It calculates tax at checkout, validates the customer's VAT number and applies the reverse charge with the required notation, issues invoices that customers download themselves, and assumes the tax liability as the legal seller. Authentication, subscription state and the customer database sit in the same system, so access follows payment status without extra code. On the free plan, transactions cost 2.9% plus $0.30, subscriptions add 0.5%, and tax compliance, international cards and currency conversion are included.
tiun does not support enterprise invoicing paid by external wire transfer, because every transaction has to run through its checkout to be invoiced. It is not built for physical goods or marketplaces with third party sellers, and payouts are monthly with a $200 minimum on the free plan. For an early stage product selling subscriptions by card, those limits rarely apply, and a founder outside the EU avoids an OSS registration for the first consumer sale. A company closing large contracts paid by invoice may be better served by its own registration.
What changes next under ViDA
The VAT in the Digital Age package was adopted on 11 March 2025. From 1 July 2028, the One Stop Shop expands toward a single EU VAT registration and a mandatory reverse charge applies to more supplies by sellers not established in the customer's country. From 1 July 2030, business sales between member states require structured electronic invoices under the EN 16931 standard, with near real time reporting to tax authorities. Belgium already requires structured electronic invoices for domestic B2B sales from 1 January 2026. For SaaS, the business invoice changes most. Our ViDA guide for SaaS covers the timeline in detail.
Frequently asked questions
Do I need a VAT registration in every EU country where I have customers?
No. The One Stop Shop lets you declare VAT for consumer sales in all 27 member states through one registration and one quarterly return.
Is there an EU VAT threshold for SaaS companies outside the EU?
No. Businesses established outside the EU owe VAT in the customer's country from the first consumer sale. The €10,000 threshold applies only to businesses established in a single EU member state.
Do I charge VAT to business customers in the EU?
Not when the customer gives a valid VAT number from another member state. The reverse charge applies and the customer accounts for the VAT. A business customer in your own country of establishment is charged your domestic VAT.
Does a merchant of record remove all my VAT obligations?
It covers the sales it makes as the seller. Your company's own tax registrations and any sales made outside the merchant of record, such as invoices paid by bank transfer, remain your responsibility.