One of the core principles of the European Union is the free flow of goods and services. This means tha, as far as intra-community trade is concerned, customs obligations are minimal. They might consist simply of filling a declaration for goods or services sold to customers from other EU countries.
Regarding VAT, however, intra-community trade doesn’t mean you’re exempt from charging VAT: on the contrary, you need to account for VAT when selling to EU customers.
In this article, we’ll look into your VAT responsibilities as an EU service provider, as well as into the new OSS (One-Stop-Shop) scheme designed to streamline tax compliance for EU businesses.
B2B service trade within the EU: the reverse charge mechanism
If your company is selling services to B2B customers within the EU, the reverse-charge mechanism for VAT applies.
This means that you shouldn’t charge VAT to your B2B clients, but instead mention on the invoice that services are subject to a reverse charge and that VAT is accounted for by the buyer.
To do that, you need to have an EU VAT number, and always ask your clients to provide theirs. For each client, you need to check whether their VAT number is valid, and include it on every invoice.
B2C service trade within the EU: the OSS scheme
If you’re selling services to B2C customers in the EU, to a different country than yours, you need to charge and remit VAT. To do this, you can use the OSS (One-Stop-Shop) scheme, which simplifies VAT compliance for companies, and is in force since July 2021. It’s an extension of the MOSS (Mini One-Stop-Shop) scheme, and if you were registered for MOSS, you should be able to use the same registration.
When you register for OSS, you’ll be able to file a quarterly VAT return in one country, and account for VAT on all your EU sales for the quarter. EU businesses can register in their country of establishment, to keep all registrations at one place. Each EU tax office then relays the information on VAT charged and remitted to all other EU tax offices that are concerned.
A new pan-EU threshold is introduced
Additionally, distance-selling thresholds for B2C sales no longer apply. They have been replaced by a pan-EU threshold of €10,000:
If your turnover is under €10,000 for the year, you need to apply the VAT rules of the country of origin of the services (i.e. the country where your business is established)
Once your turnover reaches €10,000, you need to start applying VAT as per the country of destination’s rules.
Union OSS vs non-Union OSS: what’s the difference for service providers?
There are two types of OSS:
- Union OSS: If your business is established in the EU and you’re selling services to B2C customers in the EU, you need to register for the Union OSS.
- Non-Union OSS: If you’re established outside of the EU, i.e. if you’re not an EU taxable person or supplier and you’re providing services to B2C customers in the EU, then the non-Union OSS scheme is for you.
If you’re based in the UK, you’ll need to use the non-Union OSS scheme.
Other considerations for selling services in the EU
Keep in mind that each country might have additional rules and regulations for selling services on its territory, which you need to check. You should apply the VAT rates of the country of destination, if you’ve sold over €10,000 for the year, and VAT rates might sometimes differ for different services.