How do you pay VAT in the EU?

Value added tax, or VAT is a consumption tax that many countries impose. It's paid by the buyer when an item is purchased, and it adds to the sales price of whatever is being sold. In the European Union there are twenty-seven member states who all have their own national VAT rate which also makes taxation confusing for consumers buying from outside their state.

How to Pay VAT in the EU: Rates and Rules

The EU country with the highest standard VAT rate is Hungary at 27%, followed by Finland at 25.5% and Croatia, Denmark and Sweden at 25%. The lowest is Luxembourg which has a 17% VAT rate.

How VAT works in the EU

The European Union has different rules for how countries can share revenue from Value Added Tax within their borders. Under the EU VAT system, VAT on cross-border sales is generally due in the country where the goods or services are consumed, which is known as the "destination principle". This means that when a VAT-registered business sells goods to a VAT-registered business in another EU country, the sale is exempt in the supplier's country and the customer accounts for VAT at its own country's rate under the reverse charge, e.g. a French company selling to a German company charges 0% French VAT and the German company self-accounts for 19% German VAT.

Sales of goods to consumers in other EU countries are generally taxed at the customer's country's rate once the EU-wide €10,000 threshold is exceeded, and can be declared through the One Stop Shop (OSS). A B2B sale of goods between EU countries is called an intra-Community supply; the supplier must show the customer's VAT number on the invoice and report the sale in an EC Sales List (recapitulative statement), while Intrastat is a separate statistical return required only above national thresholds.

How does VAT work when you're an importer?

If you're a VAT-registered business buying goods from another EU country, your supplier does not charge VAT; instead you account for acquisition VAT in your own VAT return and can usually deduct it in the same return. If you import goods from outside the EU, import VAT and any customs duties are due in the member state of import, although some countries, such as France and the Netherlands, let businesses account for import VAT in their VAT return instead of paying it at the border. Since Brexit, Great Britain is no longer part of the EU VAT and customs area, so goods moving between Great Britain and the EU are treated as exports and imports, with customs declarations, import VAT and possibly duty due at the border.

How does VAT work when you're a re-seller?

When you buy goods in one EU country and sell them to consumers in another, VAT is generally due at the customer's country's rate once your EU-wide cross-border B2C sales exceed €10,000 a year (non-EU sellers have no threshold), and you can report it through OSS.

If this is too confusing, for example if you want to understand how to pay VAT in the EU, which countries apply each other's rates, or how it works with non-EU trade partners – contact us - Global Trade Business.

Chat with us