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VAT Compliance in EU Countries
VAT Ai Team

1. What is VAT?

In essence, VAT (Value-Added Tax) is a tax on the final purchase of goods and services.

Whenever you buy a product or service, this tax is levied on top of the product price.

2. Local (Domestic) VAT

The buyer pays this tax, but the seller acts as an intermediary, collecting the tax on behalf of the tax office. The seller's role is to ensure that the correct amount of VAT is collected and then passed on to the tax office.

Example: A buyer in Germany purchases a jacket (€100) from a German shop.

VAT Compliance in EU Countries

  1. The shop owner sells the jacket to the customer for €100(without VAT).
  2. The shop owner collects the VAT from the customer, which is €19 (€100 x 19%).
  3. The total amount paid by the customer is €119 (€100+ €19).
  4. The shop owner keeps the full €119 but is required to forward the €19 VAT to the local tax office.

3. Cross-border VAT

When a buyer from one EU country purchases goods from a seller in another EU country, it becomes a cross-border transaction. The VAT is collected by the seller based on the VAT rate of the destination country. Later the seller forwards this amount to the tax office of the destination country. This process ensures that the VAT is correctly paid to the tax office in the country where the goods are consumed.

VAT Compliance in EU Countries

Example: A French buyer purchases a jacket from a German shop, making it a cross-border transaction.

  1. The shop owner in Germany sells the jacket for €100 (without VAT).
  2. Since the buyer is located in France, the French VAT rate (20%) is applicable to this transaction.
  3. The VAT amount collected by the German shop owner is €20 (€100 x 20%).
  4. The total amount the French buyer pays is €100 (the price of the jacket) + €20 (VAT) = €120.
  5. The shop owner keeps the full €120 but is required to forward the €20 VAT to the French tax office later.

→The VAT rate that is applicable and the tax office that will ultimately collect the VAT payment are both based on the location of the buyer, not the seller.

4. Cross-border VAT - 10,000€ threshold

If the distance selling threshold in a specific EU country is not exceeded (i.e., the total value of annual cross-border sales to customers in that country remains below the €10,000), the business is not required to register for VAT in that country.

VAT Compliance in EU Countries

Example: A German-based shop sells goods to customers in France.

The volume of sales to French customers is below €10,000 per year.

  1. Even though the buyer's location is in France, German VAT rate (19%) is applicable
  2. The German shop owner forwards the VAT to the German tax office

→ Businesses have the obligation to always track the threshold. In order to avoid this a business can choose to register for VAT right from the start.

5. Different VAT rates in different EU countries

VAT Compliance in EU Countries

Each country typically has its own specific VAT rate.

However, it’s important to be aware that VAT rates can also differ within a country depending on the type of goods and services.

Many EU countries have a reduced VAT rate for certain food items. In Germany, for example, the VAT tax rate for bread is 7%, whereas the usual rate is 19%.

6. One Stop Shop (OSS)

The One Stop Shop (OSS) is a simplified VAT compliance scheme introduced within the European Union (EU) on July 1, 2021.

  1. Businesses can register for OSS in the country they are based in. This registration allows them to declare and pay the VAT for all their cross-border sales to other EU countries through a single VAT return to their local tax office.
  2. The local tax office will then forward the appropriate VAT amounts to the tax authorities in the EU countries where the buyer is located.
  3. There is no longer any need for individual VAT registrations in each country. The local VAT ID is enough.
  • OSS has made life much easier for businesses that engage in cross-border sales within the EU.

7. Storing goods in a different EU country

VAT Compliance in EU Countries

When a business uses a warehouse in another EU country for storing goods, it can trigger a tax obligation in that country as it may be considered a "fixed establishment" for VAT purposes. In such cases, you need to register for VAT in that country, charge the local VAT rate on sales to customers within that country, and comply with other VAT regulations.

8. What happens if you do not register for VAT?

If a business is required to register for VAT and it fails to do so, there can be serious consequences:

  1. Fines and penalties imposed by the tax authorities.
  2. Tax authorities taking legal action.
  3. Retroactive VAT Liability: If a business should have been registered for VAT but were not, tax authorities may require it to pay the VAT that should have been collected from customers dating back to when it should have been registered.

Amazon sellers:

Amazon may suspend the seller's account. In severe cases of non-compliance, Amazon may permanently remove your selling privileges, effectively barring you from selling on the platform.