Sales tax when you sell across borders

This is the part of selling online that people put off, and the rules are more knowable than their reputation suggests. They also differ by market in structure rather than in detail, so it is worth having the shape of the problem before the specifics.

The principle almost everywhere

Modern consumption taxes are charged where the customer is, not where the seller is. That one idea explains most of what follows, including why selling abroad creates obligations abroad.

What differs between markets is the threshold at which the obligation starts, and how many registrations it takes to meet it.

• The EU: one combined threshold across the bloc, and one registration covering all member states through the One Stop Shop. Detailed below.
• The United States: no national sales tax. Each state sets its own rules, and since the Supreme Court's 2018 Wayfair decision a state can require an out-of-state seller to collect without any physical presence. The common test is economic nexus, often around 100,000 dollars of sales or 200 transactions in a year, though several states have dropped the transaction count and some measure only taxable sales. Each state is its own registration.
• The UK: its own VAT registration threshold, separate from the EU since leaving it, so EU and UK obligations are now two separate questions.
• Most other markets: a national registration threshold for non-resident sellers, usually with a single registration per country.

One relief worth knowing in both: where you sell through a marketplace, the marketplace is frequently obliged to collect and remit the tax itself. That does not always remove your own threshold calculation, since those sales may still count towards it, but it changes who hands the money over.

The EU threshold, in detail

Since 1 July 2021 there is a single EU-wide threshold of 10,000 euro for cross-border sales to consumers in other member states. The country-specific distance selling thresholds that used to apply, which were 35,000 or 100,000 euro depending on the country, were abolished and replaced by it.

Below the threshold you may keep charging VAT at your own country's rate. Above it, VAT is due in the customer's member state at that state's rate. Four details decide whether this applies to you, and each of them catches somebody.

• The 10,000 is the combined total of cross-border distance sales of goods and cross-border digital services to consumers. It is not a separate allowance for each.
• It is measured across the current and the preceding calendar year, so last year's trading affects this year's obligation.
• It applies only to sellers established in a single member state. If you have establishments in more than one, you cannot use it.
• It does not cover distance sales of goods imported from outside the EU, which have their own scheme.

What this changes in the shop

1. 01Your prices now contain different VAT rates for different countries. Decide whether the displayed price stays the same across countries, so your margin varies, or whether it varies by country. Both are legitimate; drifting into one by accident is not.
2. 02Your checkout has to determine the customer's country reliably and apply the right rate, and your invoices have to show it.
3. 03Your records need to support the OSS return, which means knowing the country and the VAT amount for every sale.
4. 04Digital products are treated as supplied where the customer is, so a shop selling downloads crosses this line sooner than it expects.

Goods arriving from outside the EU

A separate scheme with a separate limit. The Import One Stop Shop covers distance sales of imported goods with an intrinsic value not exceeding 150 euro. Above that value, normal import procedures and customs duty apply. If your supplier is outside the EU and ships directly to your customers, this is the rule that governs the parcel, and whether the customer gets an unexpected bill at the door is a function of how you set it up.

A customer charged an unexpected fee by a courier remembers it as your shop having done it to them. That is a commercial problem, not just a tax one.

The sensible order

Know where you are against the threshold before you need to. Set the shop up to record country and VAT per sale from the first order, because reconstructing it later is miserable. And take advice from an accountant in your own country before you cross: this article tells you what the rules are, and your situation decides how they apply, including whether you should opt in early.

What the records have to show

The threshold is the famous part and the record keeping is the part that causes the trouble, because it cannot be reconstructed after the fact from a list of card payments.

• The customer's member state, determined by evidence rather than by what they typed. Billing address, delivery address and the country of the payment instrument should agree, and where they do not, your platform should be recording which you relied on.
• The VAT rate applied and the amount, per order, per country.
• Whether the customer was a business with a valid VAT number, which changes the treatment entirely. Validate the number rather than accepting it.
• Invoices that meet the requirements of the state whose VAT you charged.

Set this up before you need it. A shop that has been trading for a year without recording country and rate per order faces an unpleasant reconstruction, and the figures it produces will be estimates at exactly the moment estimates are least welcome.

One practical note on prices. If you display a single price across countries, your net revenue moves with each country's VAT rate, so the same sale is worth different amounts depending on where the buyer lives. That is a legitimate choice and worth making deliberately rather than discovering in a quarterly return.