Distance sales in the EU are governed by cross-border tax rules. In July 2021, these rules were changed in a three-part EU VAT eCommerce package.
Beyond that, the EU has a ton of distance selling regulations (DSR), designed to protect European consumers from scams, fraud, and just low-quality or misrepresented products.
All of these rules apply only to EU sellers or non-EU sellers with a permanent establishment in the EU.
In order to protect your business and avoid making costly mistakes, it’s crucial you understand exactly what’s expected of you as a distance seller.
This post will explain exactly what distance selling is, what rules you must follow, and how to handle VAT.
What is distance selling?
Distance selling occurs whenever goods or services are sold without any face-to-face contact between the supplier and the buyer. |
These include any made by mail order, through TV shopping, over the phone (whether voice calls or SMS), or ordered on the internet. These are physical products and digital goods, though digital goods fall under a slightly different tax category (telecommunications, broadcasting and e-services). More on that later!
Distance selling also crosses borders. It applies to any goods that move from one EU state to a buyer in another EU country. The buyer is not registered for VAT, which is to say that the buyer is a private citizen and not another business.
Different forms of distance selling
Whether you have an independent domain or sell your products through a service like Shopify, every online sale you make is considered a distance sale.
Many businesses opt to sell through an accredited online marketplace like Amazon. There are different terms depending on the site, such as who will store your goods, who will deliver them, and who will handle VAT.
For related reading, check out how Amazon FBA affects your EU VAT obligations.
Online auction (eBay, eBid, Bonanza)
Businesses selling products via internet auction sites are still beholden to the same distance selling regulations. Some sites might be in possession of your products and control the shipments; other sites just offer the selling platform and let you take care of the heavy lifting.
Within the world of mobile commerce, SMS purchases and payments aren’t a widely-used method of distance selling. Back in 2008, Amazon announced its TextBuyIt service, which allows shoppers to search, select, and buy products right in their text messages.
Telesales / Outbound sales
An oldie but a goodie, the over-the-phone sale is one of the first forms of distance selling. Telesales scripts should be meticulously drafted according to distance selling policies. Since there’s no visual element to this sale, all information about the product — and all terms about the contract — must be explained verbally, on that same phone call. Then the seller must follow up with a written version.
This includes any kind of interactive TV program that requests and receives payment from a buyer. Television shopping networks, as well as in-TV movie rentals, all do business within the world of distance selling.
Rules about distance selling in the EU
All of the DSR are designed to protect the consumer. To give you a sense of how extensive and specific the regulations are, here’s a quick overview:
- Must provide detailed, thorough information before the contract is signed.*
- Any charges or extra fees must be explicitly stated and agreed to by the customer. No pre-ticked boxes!
- The point where a customer clicks to complete a purchase or contract must use a Call To Action such as “Buy Now” or “Pay Now” — something that clearly states payment is expected.
- Must provide contract in a durable form (print or email), sent as soon as the contract is confirmed.
- You must offer returns and refunds, with a 14-day minimum. There’s a seven-day cooling off period, during which a customer can cancel for any reason. Then the customer is granted seven more days to test their satisfaction with the product. (If any information about the sale is missing or inaccurate, then the buyer has three months to cancel the contract or return the product — potentially for a full refund at your cost.)
*This will be a long asterisk note. That’s because there’s a hefty amount of information you have to provide the customer before the sale even takes place.
- Display how customers can pay and include delivery options and costs
- List the steps involved in a customer placing an order
- List what languages are available
- Your business name, email address, and sometimes your physical address
- Your VAT number (if your business is registered for VAT)
- The cost of using phone lines or other communication to complete the contract (if need be)
- A description of your goods, services or digital content - include as much information as you can
- The total price or how this will be calculated
- The total delivery cost or how this will be calculated
- The minimum length of their contract
- Any conditions for ending rolling contracts or contracts with no clear end date
Again, if any of this information is missing or inaccurate, the customer has the right to cancel or return up to three months later! Be sure to design your website, product listings, and checkout pages appropriately.
How EU VAT works for distance selling physical products
No matter what, you must register and comply with tax rules. But which rules apply to your business? This depends on whether you pass the EU-wide tax registration threshold.
If your sales are below the threshold each year, you can do VAT in your own country, always charging your local tax rate no matter where you’re shipping.
If your sales are above the threshold, you have two options:
- Register for the One-Stop Shop (OSS) and begin charging VAT at the rate of your buyer’s country. File one return per quarter in your OSS.
- Register for VAT in every single EU member state where you make a sale. Charge the VAT rate of your buyer’s country. File a quarterly return in every country where you’re registered.
We recommend the first option, because it will simplify your life. But before we get into that, let’s explore the threshold.
EU VAT e-commerce threshold
Since July 1, 2021, the threshold for distance selling in Europe is €10,000 in annual revenue.
This revenue includes sales that:
- cross borders to buyers in other EU countries
- are made to private citizens, i.e. only B2C and not B2B.
- can be both physical products or digital goods/services.
Note: Any sales you make in your home country, to other EU VAT-registered businesses, or outside the EU do not apply to the €10,000 annual threshold.
If your relevant sales in the current year or previous year have passed this number, then you must start charging destination-based tax rates.
Now you have the option to enroll in the OSS. If you decide not to enroll in the OSS and choose the more manual route of registering for VAT in every country, then you’re stuck with this choice for two years.
How the One-Stop Shop (OSS) works
The OSS is an electronic portal businesses can use to comply with their VAT obligations on e-commerce sales. It’s designed to streamline the whole process, so you only need to register and file in one place. This is where tax compliance software solutions for e-commerce definitely comes in handy.
If your business is based in the EU — or if your business is not based in the EU but you store inventory in EU countries — then you should enroll inthe Union scheme for OSS.
Here’s a quick summary of how you comply:
- Register your business in the country where you or your goods are physically located. The country’s tax website should offer the option for you to register online in the OSS. You’ll receive a VAT Registered Number (VRN) and access to the online portal.
- Charge VAT rate of the destination country, at the point of sale. For example, if you’re selling to someone in France, the transaction is subject to the 20% French VAT.
- Send customers an invoice.
- File returns. You must file VAT OSS returns after each quarter, by the end of the following month. At the end of the online filing process, you’ll be told how much you owe (or how much you’ll be refunded).
If some of your sales are made through an online marketplace like Amazon, please read how July 2021 EU VAT rules for online marketplaces affect your business.
Are digital products part of it?
Although the transactions are technically distance sales, digital products are subject to some additional tax rules, mainly around collecting location evidence and record keeping.
If you want in-depth guidance, please check out our Ultimate Guide to EU VAT Digital Taxes or read our blog post about what you must know about VAT if you have customers in Europe.
Where EU VAT gets tricky
Ultimately, the VAT OSS makes filing simple, but the front-end of the tax process is still quite complicated! As you know, The 27 countries each have their own tax rate. With every sale in the EU, you must check that you’re applying the correct rate.
Staying up-to-date on these questions — with every sale — just isn’t feasible for a business owner to do on their own. Okay… we don’t want to underestimate you! Maybe you can do it, but do you actually want to?
You can save time and hassle by using a tax software that automatically collects location evidence, applies the right VAT rate, sends proper tax receipts, and generally stays on top of any VAT regulation changes. That’s Quaderno, in a nutshell. We navigate the maze so you don’t have to! If you want to give us a try, please sign up for our free trial.
Note: At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or the Tax Agency.