Understanding VAT for UK E-commerce Businesses Selling in the EU
We have a lot of e-commerce clients at MWA who even if they didn’t start selling abroad initially their business has grown and they are now trading in the EU. New clients also come to us with questions about how and if they should be charging VAT as a UK based e-commerce business selling in the EU and we thought we would try and answer some of those questions.
It is important to remember every business’s set of circumstances differs and therefore when it comes to paying VAT abroad and in the EU, it is important to take professional advice that looks at all the different elements of your business.
Brexit has changed the landscape of UK-EU trade, navigating VAT rules for both digital and physical products and interoperating them can be challenging due to the fast nature for change to occur and the complexities of the rules.
This post will outline in summary some of the main VAT responsibilities, marketplace rules, and how different jurisdictions affect your tax obligations—and we will also touch on the tax and VAT implications for UK based e-commerce businesses selling in the USA.
How is VAT charged on Physical vs Digital Download Products in the UK and EU?
How is VAT charged on Physical vs Digital Download Products in the UK and EU?
Physical Goods
For UK e-commerce businesses selling physical goods to EU customers, VAT rules depend on where your stock is held and how it is delivered:
Goods shipped from the UK to the EU:
- B2B : These are treated as exports and are zero-rated for UK VAT and count towards your UK VAT threshold. However, your customers in the EU may need to pay import VAT and customs duties when the goods arrive.
- B2C : There is no UK VAT implication, but you must charge EU VAT in the country of the customer. There is no threshold, so you must register on your first sale, either in each country, or under 'IOSS' for goods less than €150 or 'OSS' for goods more than €150
Goods stored in an EU country: If you hold stock in an EU country (such as through an EU warehouse or fulfilment centre such as Amazon), you must register for VAT in that country.
If my e-commerce business sells Digital Downloads do I still pay VAT in the EU?
Selling digital products (e-books, online courses, software downloads, etc.) follows different VAT rules.
- B2C Sales (to individuals): You must charge VAT based on the customer’s location.
- B2B Sales (to VAT-registered businesses): VAT is usually reverse-charged to the customer, meaning they account for VAT instead.
Since Brexit, UK businesses can no longer use the EU VAT MOSS (Mini One-Stop Shop) scheme but can register for the non-Union VAT OSS to handle digital sales VAT in one EU country instead of registering in each country individually. Registering in once country is a really useful tool as it means you can be strategic based on proximity and first language spoken.
How Marketplaces Handle VAT
Marketplaces like Amazon, eBay, Etsy, and Shopify handle VAT differently:
Amazon FBA (Fulfilment by Amazon): If your goods are stored in an EU Amazon warehouse, you must register for VAT in that country (e.g., Germany or France).
eBay and Etsy: If the platform facilitates the sale (collecting payment), it often collects and remits VAT for EU orders under EU marketplace VAT rules.
Shopify and Direct Sales: If selling directly via Shopify or your own website, you are responsible for charging and remitting VAT correctly.
For platforms that collect VAT on your behalf, check your invoices to ensure compliance and avoid double taxation.
What is the best EU country to register for VAT in?
As mentioned above sometimes you can use of the one stop shop schemes and only need to register for VAT in one EU country who will then distribute the VAT collected accordingly. The majority of our clients choose Ireland for obvious reasons but there are other reasons why it may be better to choose another country.
- Ireland: English-speaking, easier for UK businesses to manage, and has a friendly tax environment.
- Germany: Large customer base, but VAT compliance can be complex.
- Netherlands: Strong logistics network, often used for imports into the EU.
- France: Key marketplace but has stricter VAT compliance requirements.
Different types of products have varying VAT rates in both the UK and EU:
UK VAT Rates
- 20% (Standard Rate): Most goods and digital products.
- 5% (Reduced Rate): Certain energy-efficient products, car seats, etc.
- 0% (Zero-Rated): Books, newspapers, children’s clothing.
EU VAT Rates
Each EU country sets its VAT rate, which typically ranges between 17%-27%. Essential items (e.g., food, books) often have reduced rates.
If your UK limited company also sells in the USA, here’s what you need to know:
No VAT in the USA: Instead of VAT, US states impose Sales Tax, which varies by state.
Nexus Rules: If you have a significant presence in a US state (due to stock storage or high sales volume), you may need to register for Sales Tax in that state.
Income Tax Considerations: If you establish a US presence (office, staff), you may be liable for US corporate tax.
Selling in the USA requires checking state-specific sales tax laws, as marketplaces like Amazon and eBay often collect and remit sales tax for sellers.