Does My SaaS Need to Charge EU VAT?
If you sell software-as-a-service, digital subscriptions, or any electronically supplied service to customers in the EU, EU VAT almost certainly applies — regardless of where your company is based. This is true even if you are a solo founder in India, the United States, Australia, or anywhere else outside Europe.
The rule is straightforward: digital services sold to EU consumers (B2C) are taxed where the customer is located, not where the seller is based. This principle, enshrined in Article 44 of the EU VAT Directive, was introduced in 2015 specifically to capture non-EU digital businesses selling into Europe — and it applies to you.
B2B vs B2C: The Most Important Distinction in EU VAT
The single most important question when determining your EU VAT obligations is whether your customer is a business (B2B) or a consumer (B2C).
B2B sales (business to business): If your customer is a VAT-registered business in the EU and provides you with their valid EU VAT number, you do not charge VAT. Instead, the customer accounts for VAT themselves under the "reverse charge" mechanism. Your invoice should state the customer's VAT number and include the note "Reverse charge — Article 196 EU VAT Directive". This applies whether you are based in the EU or outside it.
B2C sales (business to consumer): If your customer is a private individual, a non-VAT-registered entity, or a business that does not provide a valid VAT number, you must charge VAT at the rate applicable in the customer's EU country. A German consumer buying your SaaS subscription owes German VAT at 19%. A French consumer owes French TVA at 20%. You must collect and remit the correct rate for each country.
The €10,000 OSS Threshold
EU VAT law includes a small business relief: if your total B2C sales to all EU countries combined are below €10,000 in the current and previous calendar year, you can apply your home country's VAT rate (or no VAT if your home country exempts small businesses) to all EU sales.
Once you exceed €10,000 in EU B2C sales — even by a single transaction — you must charge each customer's local VAT rate going forward. At this point you have two options: register for VAT individually in each EU country where you have customers, or register for the EU One Stop Shop (OSS).
OSS: How SaaS Companies Handle VAT Across 27 Countries
The EU One Stop Shop (OSS) was introduced in July 2021 specifically to solve the problem of SaaS and e-commerce businesses having to register in up to 27 countries. OSS allows you to register in a single EU member state and file one quarterly VAT return covering all your EU B2C sales.
If you are based in the EU, register for OSS in your home country. If you are based outside the EU, you can register for the Non-Union OSS scheme in any EU member state of your choice — many non-EU businesses choose Ireland, the Netherlands, or Luxembourg for their English-language administration and straightforward registration processes.
The OSS return is filed quarterly (by the end of the month following the quarter: April, July, October, January). You report the total sales to each EU country, apply the correct local VAT rate, and pay the total VAT due. The tax authority in your registration country distributes the VAT to each member state on your behalf.
What Counts as a Digital Service for EU VAT Purposes?
The EU defines "electronically supplied services" broadly. Services that qualify include: SaaS and cloud software, website hosting and domain registration, online courses and e-learning platforms, streaming music and video, digital downloads (ebooks, fonts, templates, photos), online gaming, and any service delivered automatically over the internet with minimal human involvement.
Services that are NOT electronically supplied (and therefore follow different VAT rules) include: online consultancy and coaching (where a human is materially involved), legal or accounting services delivered by email, and bespoke software development. If a human is substantially involved in delivering the service, it is likely not an electronically supplied service.
Collecting Evidence of Your Customer's Location
EU VAT law requires you to collect two non-contradictory pieces of evidence to determine where your customer is located. Acceptable evidence includes: the customer's billing address, IP address geolocation, bank details (BIC/SWIFT country code), country-specific SIM card for mobile purchases, and the location of a fixed land line.
For most SaaS businesses, billing address combined with IP geolocation is sufficient. Store this evidence for 10 years — EU tax authorities can audit your VAT compliance up to a decade later.
Practical Steps to Get Compliant
- →Determine whether your customers are B2B or B2C (or a mix). For B2B customers, collect and validate their EU VAT numbers via the VIES database.
- →Track your total EU B2C sales. Once you approach €10,000, prepare to register for OSS.
- →Register for OSS in your home country (or any EU country if based outside the EU). Registration is free and typically takes a few weeks.
- →Update your billing system to apply the correct local VAT rate per customer country for B2C sales.
- →File quarterly OSS returns and pay VAT due by the deadline.
- →Store location evidence for all EU customers for 10 years.