SaaS and Digital Services VAT in the EU

Two regimes, decided by who the customer is

Software sold as a service is an electronically supplied service. Where it is taxed depends almost entirely on whether the customer is a business or a consumer.

B2B — Article 44. The place of supply is where the customer is established. You do not charge your own VAT; the customer accounts for it under the reverse charge in Article 196. Your invoice carries no VAT and must state that the reverse charge applies.

B2C — Article 58. The place of supply is where the customer belongs. You charge that country's VAT rate, on the first sale, at that country's rate.

Everything else — thresholds, OSS, evidence rules — follows from which of these two you are in. Which makes customer status the single most important field in your billing system.

Proving your customer is a business

In practice, status turns on the VAT identification number. A customer who supplies a valid VAT number is treated as a taxable person; one who does not is treated as a consumer.

This creates a concrete obligation: you must validate VAT numbers through VIES at the point of sale, and keep the evidence. A number that was valid when you onboarded a customer may have been deregistered since. If it turns out to be invalid and you did not charge VAT, the liability is generally yours, not the customer's.

Two practical points that cause real money to move:

• Validate at the time of each supply, not only at signup. For a monthly subscription that means an ongoing check, not a one-off.
• Store the VIES consultation result, not just the number. The consultation number is the evidence that you checked.

For B2B supplies you also report the customer's VAT number and the value of the supply on your EC Sales List in the country from which you supply.

The €10,000 threshold, and who actually gets it

Article 59c provides a single EU-wide threshold of €10,000 per calendar year covering cross-border B2C supplies of telecommunications, broadcasting and electronically supplied services, together with intra-Community distance sales of goods.

Below it, you may continue charging your own country's VAT. Above it, you charge the customer's country's rate and the threshold is gone for that year and the next.

Two limits matter:

• It is available only to businesses established in one Member State. A business established outside the EU cannot use it — for non-EU providers the obligation starts at the first B2C sale.
• It is a combined figure across all Member States and both categories, not per-country. Small SaaS businesses routinely cross it without noticing because they are counting per market.

You can also waive the threshold voluntarily and apply destination taxation from the outset, which is often simpler than switching mid-year.

Reporting through OSS instead of registering everywhere

Without OSS, destination taxation would mean a registration in every Member State where you have a single consumer. The One Stop Shop exists to prevent that. Which scheme you use depends on where you are established:

	Union scheme	Non-Union scheme
Who	Businesses established in the EU	Businesses with no EU establishment
Covers	Cross-border B2C services and intra-EU distance sales of goods	All B2C services supplied to EU consumers
Registers in	Your Member State of establishment	Any Member State you choose
Returns	Quarterly	Quarterly

Two constraints worth holding onto:

• OSS does not cover domestic sales. Supplies to consumers in the country where you are registered go on the ordinary domestic return. Putting them in the OSS return as well is double reporting, and it is a common error.
• OSS returns do not allow input VAT deduction. Input VAT is recovered through your domestic return, or through a refund claim under Directive 2008/9/EC (EU businesses) or the Thirteenth Directive 86/560/EEC (non-EU businesses).

Establishing where a consumer belongs

For B2C supplies you must determine the customer's location and hold the evidence for it. Implementing Regulation (EU) No 282/2011 sets out presumptions for cases where the location is effectively fixed — a wi-fi hotspot, a fixed landline — and, for everything else, a general rule requiring two items of non-contradictory evidence.

Accepted items include:

• Billing address
• IP address, or geolocation
• Bank details, including the location of the account used for payment
• The country code of the SIM card
• Any other commercially relevant information

For a typical SaaS sale that usually means billing address plus IP, or billing address plus payment-instrument country. Where the two disagree — a common case with VPNs and corporate cards — you need a documented, consistently applied tie-break rule rather than an ad hoc decision per customer.

Retention: records supporting OSS returns must be kept for 10 years and be made available electronically on request. This is longer than the general retention period in many Member States, and it is a requirement people discover late.

Rate is a per-country question

There is no single "digital services rate." Standard rates across the EU currently span roughly 17% to 27%, and reduced rates for particular digital categories — electronically supplied publications being the clearest example — differ by Member State and change. A rate table is only as good as its refresh date; treat rate determination as a maintained data problem rather than a constant.

What tends to go wrong

• Treating a missing VAT number as a B2B sale anyway. No valid number means B2C treatment, with your own or the customer's VAT due.
• Validating once at signup. Subscriptions require validation per supply.
• Reporting domestic sales in the OSS return. They belong on the domestic return.
• Assuming the €10,000 threshold is per country. It is a single combined figure.
• Trying to deduct input VAT on the OSS return. Recover it domestically or via a refund claim.
• Keeping only the VAT number, not the VIES consultation result. The consultation is the evidence.

Where Veroskat fits

We handle Swedish VAT registration, OSS reporting and corrections, and Skatteverket correspondence directly in Swedish — for software businesses selling into Sweden, and as a subcontractor for VAT and accounting firms whose clients have Swedish obligations.

Sources

• Council Directive 2006/112/EC, Articles 44, 58, 59c, 196
• Council Implementing Regulation (EU) No 282/2011, Articles 24a–24f
• Council Directive 2008/9/EC; Thirteenth Council Directive 86/560/EEC