Tax · 6 min read
Cross-Border VAT for Small Businesses in the EU
The moment a customer sits in another country, the question stops being how much VAT to charge and becomes which country's VAT applies at all. Getting that wrong produces invoices that have to be corrected, input tax that cannot be reclaimed and, in the worst case, a liability for tax you never collected.
The rules are more learnable than their reputation suggests. Four questions decide almost every case: is the customer a business or a consumer, are they inside or outside the EU, are you supplying goods or services, and where does the supply legally take place.
Place of supply is the first question
VAT is due where the supply is deemed to take place, and that location is defined by rules rather than by where you happen to sit. For business-to-business services the general rule places the supply where the customer is established. For business-to-consumer services the general rule places it where the supplier is established, with significant exceptions for electronically supplied services, telecoms and broadcasting, which follow the consumer.
Goods follow the movement. A physical shipment from one member state to another is treated differently from a domestic sale, and specific rules cover installation, chain transactions and goods that never leave the country. Special categories — land and property, passenger transport, admission to events, restaurant and catering services, short-term hire — have their own place-of-supply rules that override the general ones.
B2B inside the EU: the reverse charge
When you supply services to a VAT-registered business in another member state under the general rule, you invoice without VAT and the customer accounts for it in their own country. Three conditions must hold: the customer is a taxable person acting as such, you hold and have verified their VAT identification number, and the invoice states the reverse charge explicitly.
Verification is not optional diligence, it is the evidence that supports zero-rating. Check the number in the EU VIES system on the day of invoicing and keep the result. An invalid or later-withdrawn number can turn your untaxed invoice into a domestic supply on which you owe VAT you never charged.
The invoice itself must show both VAT identification numbers, the reverse charge wording or its national equivalent, and no VAT amount. Intra-community supplies of goods and services are additionally reported in a recapitulative statement, monthly or quarterly depending on volume and country.
- Verify the customer's VAT ID in VIES and keep the confirmation
- State the reverse charge on the invoice and show both VAT IDs
- Report the supply in your recapitulative statement
B2C inside the EU: OSS and the 10,000 EUR threshold
Selling to private consumers in other member states is governed by a single EU-wide threshold of 10,000 EUR per year covering both distance sales of goods and electronically supplied services combined. Below it, you may keep charging your home country's VAT. Above it, VAT is due in the customer's country at that country's rate, from the transaction that crosses the threshold onwards.
Registering in every country would be impractical, which is what the One Stop Shop exists to avoid. Through OSS you register once in your home member state, charge each customer their national rate, and file a single quarterly return that redistributes the tax. The obligation to apply the correct foreign rate remains yours, so your invoicing needs to know the rate for each destination.
You can also opt into OSS voluntarily below the threshold, which is sometimes simpler than tracking a running total across mixed goods and digital services.
Outside the EU, and the paperwork that protects you
Services supplied to business customers outside the EU are generally outside the scope of EU VAT under the place-of-supply rules, though the destination country may impose its own withholding or registration duties. Goods physically exported from the EU are zero-rated, but only if you can prove the export with customs documentation. Without proof of exit, tax authorities treat the sale as domestic and taxable.
Whatever the case, the invoice must say why no VAT was charged: the reverse-charge note for intra-community B2B, an exemption reason for exports, the applicable foreign rate for OSS sales. In structured e-invoicing this is not free text but a coded tax category with a reason, which is one more argument for generating invoices from a tool that models the tax treatment explicitly instead of typing a note at the bottom of a template.
Frequently asked questions
What happens if the customer's VAT ID turns out to be invalid?
The reverse charge does not apply and the supply is generally treated as domestic, leaving you liable for VAT you did not charge. Verify the number in VIES at the time of invoicing and keep the confirmation as evidence.
Does the 10,000 EUR threshold apply per country?
No. It is a single EU-wide annual threshold covering all cross-border distance sales of goods and electronically supplied services to consumers combined. Once exceeded, destination-country VAT applies to everything above it.
Do I charge VAT to a business customer in the United States?
Generally no EU VAT applies to services supplied to a non-EU business under the general place-of-supply rule, but check whether the destination country imposes its own obligations such as withholding tax or sales tax registration.
Is the small business exemption relevant here?
National small business schemes exempt you from charging domestic VAT below a turnover threshold, but they do not remove reverse-charge reporting duties on cross-border supplies. Check both rule sets before assuming you are out of scope.