Tax5 min read
VAT when a US company sells into the EU and the UK
The registration threshold everyone quotes applies to businesses established in the country. A US company selling to European consumers usually has no threshold at all — the obligation starts at the first euro.
A US company with no European presence sells a $29 subscription to someone in Germany. Under EU rules that sale is subject to German VAT, the US company is the person liable for it, and there is no minimum threshold before the obligation starts.
This surprises people because the thresholds that are widely quoted — the UK's registration threshold, the EU's small-enterprise reliefs — are available to businesses established in those places. A non-established business does not get them. That single distinction explains most of the confusion in this area.
Four questions, in order
- What are you selling? Digital services, other services, or physical goods. The rules diverge completely.
- Who is the customer? A business with a valid VAT number, or a consumer. This decides who accounts for the tax.
- Where are they? The customer's location sets the rate and the country entitled to the money.
- Are you established there? Almost certainly not — which removes the thresholds and changes the registration route.
Selling to businesses: usually nothing to do
For most services sold to a VAT-registered business in the EU or the UK, the reverse charge applies. The place of supply moves to the customer's country and the customer accounts for the VAT themselves on their own return. You charge nothing, you collect nothing, and you owe nothing.
Two obligations remain. You must verify the customer's VAT number — the EU provides a validation service for exactly this — and keep the evidence. And your invoice should state that the reverse charge applies. A customer who cannot produce a valid number is treated as a consumer, and the next section applies instead.
Selling digital services to consumers
This is the case that catches founders. Software, subscriptions, downloads, courses, hosting, e-books, stock assets — anything delivered electronically with minimal human intervention. The place of supply is where the consumer is, so you charge that country's rate.
| European Union | United Kingdom | |
|---|---|---|
| Threshold for a non-established seller | None. Obligation from the first sale | None. Obligation from the first sale |
| Rate to charge | The customer's member state rate — they differ substantially | The UK standard rate, or a reduced rate where one applies |
| How to register | Non-Union OSS — one registration in a single member state covering all 27 | A UK VAT registration |
| Returns | One OSS return, quarterly, covering every member state | UK VAT returns on the assigned cycle, filed under Making Tax Digital |
| Evidence of customer location | Two pieces of non-contradictory evidence — billing address, IP, card issuer country, SIM country | Similar evidential expectations |
Selling physical goods
A different regime again. For consignments of low value imported into the EU, IOSS lets you charge VAT at the point of sale and remit it through a single monthly return, so the parcel clears without the customer being asked for money at the door. Above that value threshold, ordinary import VAT and duty apply and someone has to be the importer of record.
The UK operates a comparable structure with its own low-value threshold, and requires the seller to charge and account for VAT below it. Either way, the commercial point is the same: an unexpected charge at delivery is the single largest driver of refused parcels, and that is a customer-experience problem before it is a tax one.
The way most founders should solve this
Use a merchant of record. A merchant of record sells to your customer as principal, so it is that company — not yours — that is registered, charging, collecting and remitting VAT in every jurisdiction. You sell to the merchant of record and receive a single payout.
| Route | You handle | Cost |
|---|---|---|
| Merchant of record | Nothing. The obligation is contractually theirs | A percentage of revenue, materially higher than a payment processor |
| Tax engine on your own processor | Registration, filing and remittance in every jurisdiction. The engine only calculates | A smaller fee, plus your accountant's time per registration |
| Doing it yourself | Registration, rates, evidence, returns, retention | Cheapest in fees, most expensive in attention |
The rule of thumb is unglamorous: below meaningful European consumer revenue, a merchant of record is almost always the right answer, because the fee is smaller than the accounting cost of doing it properly and far smaller than the cost of doing it badly. Above that, the arithmetic flips and registration becomes worth it. What a merchant of record is covers the mechanics.
What goes wrong
- Assuming a threshold applies. It does not, for a non-established seller. This is the error that produces multi-year back assessments.
- Charging one flat rate to all of Europe. Rates differ by member state and you are liable for the correct one, not the average.
- Treating a sole trader as a business. No valid VAT number means consumer treatment, whatever they call themselves.
- Missing that VAT is a debt you already owe. If you failed to charge it, you still owe it — out of revenue you already banked and spent. Unlike income tax, the money was never yours.
- Forgetting the UK is separate. Since it left the EU, the UK is its own registration, its own return and its own rules. An OSS registration does not cover it.
Income tax takes a share of profit. VAT you failed to collect comes out of capital, because the customer is gone and the liability is not.
Get the selling stack right the first time
Entity, processing, merchant-of-record decision and the tax registrations each one implies — sequenced before the first sale rather than after the first assessment.
See the Business OSFounders 8 does not provide tax advice. Tax residency depends on facts and rules specific to each jurisdiction — review your position with a qualified adviser.