If you sell SaaS, software licenses, or other digital services, VAT rules are significantly more complex than selling physical goods. Here's what you need to know.
EU digital services VAT (the "destination principle")
Since 2015, digital services sold to EU consumers are taxed where the customer is located — not where you're based. This means:
- A US-based SaaS charging a French consumer must charge French VAT (20%)
- A UK-based SaaS charging a German business charges 0% (B2B reverse charge)
- An Australian developer selling an app to Italian consumers must charge Italian VAT (22%)
EU OSS threshold: If your total EU consumer digital sales exceed €10,000/year, you must register for VAT (either locally or via the EU One-Stop Shop). Below this threshold, you can apply your own country's VAT rate.
B2B vs B2C — the crucial distinction
The rules above apply to B2C (selling to consumers). For B2B (selling to other VAT-registered businesses), the reverse charge mechanism applies: - You charge 0% (or no VAT) - The business customer self-reports the VAT in their own country - You must obtain and verify their VAT registration number
UK rules post-Brexit
The UK operates its own digital services VAT regime. Non-UK businesses with UK digital sales above £8,818/year must register for UK VAT (currently 20%) and file UK VAT returns separately from EU VAT.
Use our VAT Calculator to calculate the correct VAT amount for any rate, and check your country's tax authority website for current thresholds.