Digital services VAT - place of supply
Special rules for electronically supplied services to consumers (B2C), including OSS reporting and the destination-country default.
The short version
Electronically supplied services to consumers (B2C) are taxed in the customer's country at the customer's rate. This is the inverse of the general B2C rule (which taxes at the supplier's country). The exception was introduced from 1 January 2015 to stop major platforms basing themselves in Luxembourg (17% standard rate) and supplying all EU consumers at Luxembourg VAT. Now everyone pays their own country's rate.
What counts as "electronically supplied"
- SaaS subscriptions, app store purchases, in-app purchases.
- Streaming services (video, music, podcasts).
- E-books, online newspapers (the rate may differ from printed - some countries align them, others don't).
- Downloads of software, ebooks, music files.
- Cloud storage and similar automated services.
The test is whether the service is essentially automated and supplied over the internet. A consultant emailing a hand-crafted report doesn't count even though email is involved. A video-on-demand platform clearly does.
How VAT is collected
For B2C sales above EUR 10,000 EU-wide per year, the supplier registers for OSS in one EU member state and reports all cross-border sales there quarterly. For sales below that threshold, the supplier charges its origin-country VAT.
Major platforms (Apple App Store, Google Play, Steam, Spotify) act as the "deemed supplier" for many small developers, collecting and remitting EU VAT themselves. If you sell through one of these, check whether you or the platform is the VAT collector - they handle it for indie developers selling apps.
Evidence of customer location
For VAT purposes you need two non-contradictory pieces of evidence establishing the consumer's location: IP address, billing address, bank country, SIM country code, etc. Most billing platforms collect these automatically and pick the rate at checkout. The tax authority can audit your evidence trail, so the platform's logs matter.
B2B digital services
For B2B, the customer self-assesses VAT under the standard reverse-charge mechanism (see that guide). The supplier zero-rates and marks "reverse charge" on the invoice. The distinction between B2B and B2C therefore matters - you verify by capturing the customer's VAT number and validating it through VIES. A validated number means B2B; no valid number means B2C.
Post-Brexit (UK)
The UK left the EU OSS system. UK suppliers selling digital services to EU consumers must register for the EU's non-Union OSS scheme (designed for non-EU sellers) - or register in each customer country if their volumes justify it. EU suppliers selling to UK consumers register for UK VAT under a similar non-Union scheme.
Common questions on this topic
Does this apply if my customer is in a non-EU country other than the UK? No - the rules in this guide cover EU-EU and EU-UK movements specifically. For non-EU third countries (Switzerland, Norway, US, etc.), each pair has its own treaty or tariff treatment.
What records should I keep? EU and UK tax authorities expect you to retain the underlying invoices, VAT-number validation evidence (VIES consultation reference or HMRC check timestamp), and proof of supply for six years (UK) or as required by each member state (varies between five and ten years across the EU 27).
How often do these rules change? The base Directive changes rarely (the last major reform was 1 July 2021 for distance selling). Member-state implementing details change more frequently. Always confirm against your national tax authoritys current guidance for time-sensitive decisions.
Sources
- EU VAT Directive 2006/112/EC Articles 58 and 59 - place of supply for telecoms, broadcasting, and electronically supplied services.
- European Commission OSS portal
- HMRC: digital services to EU consumers
The €10,000 distance-selling threshold for B2C digital services
Since 1 July 2021, EU VAT rules introduce a single €10,000 distance-selling threshold for B2C cross-border supplies of digital services (telecommunications, broadcasting, electronically supplied services — TBES). Below this threshold, the supplier may charge VAT at the home-country rate; above it, the place of supply moves to the customer's country and the supplier must register either directly in each consumer country or through the One-Stop Shop (OSS) Union scheme. The threshold is annual, calculated across all EU consumer supplies combined, and reset each calendar year. The pre-2021 regime had no threshold — every single euro of cross-border B2C digital services triggered MOSS registration obligations, which created disproportionate compliance burden on small suppliers. The 2021 reform unified the threshold for digital services and distance-selling of goods to consumers, removing one of the biggest pain points of pre-2021 EU VAT for SMEs.
Place of supply rules — Articles 58 and 59 of the EU VAT Directive
Article 58 of Directive 2006/112/EC sets the place of supply for B2C telecommunications, broadcasting, and electronically supplied services as the customer's location. Article 59 covers B2B services — place of supply is the customer's establishment. The directive provides specific presumption rules for customer location (Article 24a and 24b of Implementing Regulation 282/2011, as amended by Regulation 1042/2013 and 967/2012): if the customer pays at a hotel, the customer's location is presumed to be the hotel's location; if via a fixed-line phone, the line's location; if via a SIM card, the country code's location; if via the customer's bank-card billing address, that address. For all other supplies, the supplier must collect TWO non-contradictory pieces of evidence of customer location — the billing address, the IP address, the SIM country code, the bank country code, or other commercially relevant evidence — and store them for 10 years for audit purposes.
OSS Union vs OSS Non-Union vs IOSS — three flavors of one-stop shop
The 2021 reform consolidated three separate registration schemes into a unified One-Stop Shop framework: the Union OSS for EU-established suppliers selling B2C digital services or distance-selling goods to other EU member states; the Non-Union OSS for non-EU established suppliers (including the United Kingdom post-Brexit) selling B2C digital services to EU consumers; and the Import OSS (IOSS) for B2C imports of low-value consignments (intrinsic value ≤€150) from outside the EU. Each scheme has a separate registration portal in the EU member state where the supplier registers (the "Member State of Identification" — for the Non-Union OSS, any EU member state can be chosen). Quarterly returns under OSS are due by the last day of the month following the quarter end; payment is due at the same time. The Member State of Identification then distributes the VAT collected to the Member State(s) of Consumption based on the OSS return data.
UK-to-EU digital services post-Brexit (1 January 2021 onward)
UK-established suppliers of B2C digital services to EU consumers cannot use the Union OSS (only available to EU-established taxable persons since Brexit) but can register for the Non-Union OSS in any EU member state — most UK suppliers choose Ireland, the Netherlands, or Luxembourg for English-language administration and simplified registration. The €10,000 threshold does NOT apply to non-EU suppliers; from the first euro of B2C digital supplies into the EU, the supplier must either register for Non-Union OSS or in each individual EU consumer state. Conversely, EU suppliers to UK B2C consumers must register for UK VAT and charge UK VAT — there is no UK-side OSS equivalent. The UK retains a £85,000 (now £90,000 since 1 April 2024) general VAT registration threshold but this applies only to UK-domestic supplies, not to cross-border B2C digital services where the threshold is effectively £0 for non-UK suppliers.
Common pitfalls and HMRC enforcement priorities
HMRC's compliance focus on digital services has intensified since 2021. Common enforcement triggers include: failure to collect two pieces of location evidence and store for 10 years; mis-classification of B2B vs B2C supplies (B2B requires a valid VAT number provable via VIES — failure to validate via VIES at the time of supply means the supply is treated as B2C and standard-rated in the consumer country); failure to charge the correct national VAT rate; failure to issue invoices in the customer's national language and currency where required; and failure to submit Union OSS or Non-Union OSS returns by the quarterly deadline (€100 per late return per member state can apply). For small UK suppliers under £10,000 EU-bound revenue, the cleanest compliance path is Non-Union OSS in a single chosen Member State of Identification rather than per-country registration in 27 member states. For larger suppliers, the OSS still simplifies the return-filing logistics but doesn't reduce the underlying liability — they still owe each consumer state's VAT at the destination rate. See our OSS detailed guide for full mechanics.
Frequently asked questions
What's the minimum standard VAT rate in the EU?
Article 97 of the EU VAT Directive sets a 15% minimum standard rate. Luxembourg has the lowest standard rate currently at 17%.
Where can I check a VAT number's validity?
Use the European Commission's VIES portal at ec.europa.eu/taxation_customs/vies for EU numbers, and HMRC's UK VAT checker at gov.uk/check-uk-vat-number for UK numbers.
Which countries have the highest and lowest VAT rates in the EU?
Hungary has the highest standard rate in the EU 27 at 27%; Luxembourg has the lowest at 17%. Outside the EU but in Europe, Switzerland sits at 8.1% (the lowest in Western Europe) and Norway at 25%.
VAT rate snapshot — selected European jurisdictions
| Country | Standard rate | Reduced rate(s) | Notes |
|---|---|---|---|
| United Kingdom | 20% | 5%, 0% | Post-Brexit standalone regime |
| Hungary | 27% | 18%, 5% | EU 27 maximum |
| Luxembourg | 17% | 14%, 8%, 3% | EU 27 minimum |
| Germany | 19% | 7% | Single reduced rate |
| France | 20% | 10%, 5.5%, 2.1% | Super-reduced on pharma |
| Switzerland | 8.1% | 3.8%, 2.6% | Lowest in Western Europe |