How EU VAT Is Determined

Determining VAT in the European Union (EU) follows a different logic than US sales tax. While the US focuses on "Nexus" (your business’s connection to a state), the EU focuses on the "Place of Supply" (where the transaction is deemed to occur for tax purposes).

1. The Core Variable: B2B vs. B2C

The first step in determining EU VAT is identifying the status of your customer.

B2B (Business-to-Business)

If your customer provides a valid VAT identification number (which Kintsugi automatically verifies via the VIES portal), the transaction is generally treated as B2B.

• Tax Treatment: The Reverse Charge mechanism applies. You charge 0% VAT, and the buyer is responsible for reporting the tax in their own country.

• Place of Supply: The buyer's country of establishment.

B2C (Business-to-Consumer)

If the customer is a private individual or a business without a valid VAT number, the transaction is B2C.

• Tax Treatment: You must charge the VAT rate of the customer's country (the "destination principle").

• Place of Supply: Generally, where the customer resides or where the goods are delivered.

2. The "Nature of Supply" Logic

The rules for where tax is owed change based on what you are selling.

Digital Services (SaaS, E-books, Streaming)

For digital goods, the EU uses a strict destination-based rule. VAT is always determined by the customer’s location, regardless of where your business is based.

2025 Update: This now includes virtual events and live streaming, which are taxed at the customer's residence rather than at the host's location. EU member states may also apply reduced VAT rates to virtual events if those events would be subject to a reduced rate in person, such as a digital museum tour or an educational seminar.

Physical Goods

For physical products, the jurisdiction depends on the movement of the goods:

• Intra-EU Sales: Taxed in the country where the goods arrive.

• Imports (Non-EU to EU): Taxed at the point of entry into the EU. For shipments under €150, Kintsugi uses your IOSS (Import One-Stop Shop) number to collect tax at checkout and fast-track customs.

3. Thresholds: When Taxability Is Triggered

Unlike the variable thresholds in the US, the EU has a streamlined approach:

• EU-Based Sellers: You have a unified €10,000 annual threshold for total cross-border B2C sales. Below this, you charge your home country's rate. Above this, you must charge the destination country's rate.

• Non-EU Sellers (US, UK, etc.): There is no threshold. You are liable to collect and remit VAT from your very first sale to an EU consumer.

Need help?

If you need help with your EU VAT registration, just contact our support team for assistance with setup, filing, or managing your registration details.