Before we discuss the EU distance selling threshold, it is essential to understand what a distance sale is. Distance sale is a type of sale made by email, physical mail, over the internet, over the phone (SMS, voice call, WhatsApp, or any other app for chatting), or through the TV.
If you are selling goods to customers within the EU Member States, you should track your sales by Member State. The reason for that is simple - your sales generated in each of the EU Member States impact how your goods will be taxed.
Every EU Member State has a VAT distance selling threshold. If your sales in the particular Member States exceed that threshold, you are obliged to register for VAT purposes in that Member State, which means you need to collect taxes differently.
Let’s put this in an example.
You are a seller with a business established in Germany, registered for VAT purposes, and have a German VAT number. You sell handcrafted physical goods via Amazon.de to customers from different countries worldwide, including ones from the EU, like Portugal or Spain. However, all the EU Member States have their own VAT distance selling threshold. For example, if most of your annual sales are generated towards customers in France and you breach the French distance selling threshold (€ 35,000 per year), you must register for VAT in France. On the other hand, if your annual sales to Dutch customers don’t exceed the Dutch distance selling threshold (€ 100,000), you are not obliged to register for VAT purposes in the Netherlands.
Why Is The EU Distance Selling Threshold Important At All?
As already mentioned, your annual sales to another EU Member State depend on how your sales transactions will be taxed.
If your annual sales to a certain EU Member State remain below the threshold of that Member State, you will charge your local VAT rate to all your transactions, and at the end of the reporting period, you will file a VAT return in your home country.
On the other hand, if your annual sales to a certain EU Member State breach the distance selling threshold of that country, you need to register for VAT in that country. That means you will charge a VAT rate applicable in the customer’s country, and at the end of the reporting period, you are obliged to file a VAT return in that country.
In case that your annual sales breach the distance selling threshold, you can fulfill your VAT liabilities through the Mini-One Stop Shop (MOSS). We already covered this topic, and you can find out more about MOSS in our article.
Some transactions are not subject to the EU distance selling thresholds
However, it is essential to note that some transactions are not subject to the EU distance selling thresholds, like the B2B transactions where both supplier and customer have valid VAT numbers in scenarios where the object of the transaction is a digital product or excisable goods like alcohol, petrol, or tobacco.
Let’s follow the same assumptions we made in the example above.
Your business located and registered in Germany breached the VAT distance selling threshold in France. Until the moment of breaching the threshold, you were applying German VAT (the standard VAT rate in Germany is 19%), but from the moment of the breach, you need to apply the French VAT rate (the standard VAT rate in France is 20%) to every single transaction to French customers.
On the other hand, your annual sale is below the VAT registration limit (distance selling threshold) in the Netherlands. That means that you will apply the German VAT rate (19%) to all your transactions until (and if) you breach the distance selling threshold (€ 100,000).
Overview of EU VAT distance selling thresholds by the EU Member State
“As of July 1st, 2021, EU will withdraw the distance selling thresholds”
As a part of a new e-commerce VAT scheme, which we already covered in this article, the current distance selling threshold rules will no longer apply as of July 1st, 2021.
Instead, an EU-wide threshold of €10,000 will be introduced. Under this threshold, B2C goods will be subject to the member state’s VAT rules from which they are dispatched, and above it, of the destination member state.
Fonoa Tax can help you to comply with new regulations
Fonoa Tax seamlessly automates indirect tax rate calculation in 80+ countries across the globe and takes into account revenue sellers made to each specific country. Revenue tracking helps us understand whether sellers need to register for VAT locally and start applying local VAT rates to their transactions.
We already have a feature that is ready to be launched as soon as the new EU regulation kicks-in, where we’d be tracking sales to the EU as one conglomerate for tax threshold tracking purposes.
Furthermore, if you are dealing with large volumes of B2B transactions, Fonoa Lookup can help you validate their Tax IDs in real-time in more than 65 countries across the globe. This will provide you with a guarantee or not charging indirect taxes on your cross-border B2B transactions where the tax should be reverse-charged by the buyer.
Why is this relevant? In case you are always charging indirect taxes regardless of whether it is B2B or B2C, you are lowering your margins when transacting with businesses when you include VAT in that price which should not be there. On the other hand, if you are never charging VAT to your transactions, you could be liable for paying back the missing VAT by the tax authorities in countries where your buyers are - which could be 20%+ of those sales.