EU VAT Basics

Last updated: 2026-02-26 | Sources: European Commission — VAT rules and rates, EU VAT Directive 2006/112/EC

What is VAT?

Value Added Tax (VAT) is a consumption tax applied at each stage of the production and distribution chain. Businesses charge VAT on their sales (output VAT) and can deduct the VAT they pay on their purchases (input VAT / Vorsteuer / voorbelasting / TVA déductible). The difference is remitted to or reclaimed from the tax authority.

VAT in the EU is governed by the VAT Directive (2006/112/EC), which establishes common rules that all member states must implement, while allowing flexibility on rates and certain exemptions.

How VAT Works on Invoices

1. A business sells goods or services and adds VAT to the price
2. The invoice shows: net amount + VAT amount = gross amount
3. The seller collects the VAT and remits it to the tax authority
4. The buyer (if VAT-registered) deducts the same VAT as input tax on their VAT return
5. The final consumer bears the full VAT cost (no deduction possible)

Place of Supply Rules

Where VAT is due depends on the place of supply:

Goods

• Domestic sale: VAT of the seller's country applies
• Intra-EU B2B supply: Zero-rated in the seller's country; buyer accounts for VAT in their country (reverse charge / acquisition tax)
• Intra-EU B2C supply: For distance sales exceeding €10,000 per year cross-border, VAT of the buyer's country applies (can use OSS)
• Export outside EU: Zero-rated (exempt with right to deduct)

Services

• B2B services (general rule): VAT is due where the buyer is established (reverse charge applies)
• B2C services (general rule): VAT is due where the seller is established
• Exceptions: Immovable property services (where the property is located), transport, cultural/entertainment events, restaurant services, car hire — each has specific place-of-supply rules

B2B vs B2C

Scenario	VAT treatment
Domestic B2B	Seller charges domestic VAT; buyer deducts as input VAT
Intra-EU B2B (goods)	Zero-rated by seller; buyer self-assesses VAT (acquisition)
Intra-EU B2B (services)	Reverse charge — buyer accounts for VAT
Domestic B2C	Seller charges domestic VAT; consumer pays, no deduction
Intra-EU B2C (goods, >€10K threshold)	Seller charges buyer-country VAT (via OSS or local registration)
Export (outside EU)	Zero-rated

VAT Registration

Businesses must register for VAT when they exceed their country's registration threshold (varies by country) or when they make intra-EU supplies. Once registered, businesses receive a VAT identification number used for:

• Appearing on invoices
• Filing VAT returns
• Verifying trading partners via VIES (VAT Information Exchange System)

VAT Returns

VAT-registered businesses must file periodic VAT returns (monthly, quarterly, or annually depending on the country and turnover). The return shows:

• Output VAT collected on sales
• Input VAT paid on purchases
• The difference: payable to the tax authority (if output > input) or reclaimable (if input > output)

One-Stop Shop (OSS)

The OSS (One-Stop Shop) allows businesses selling to consumers in other EU countries to:

• Register for VAT in one member state only
• File a single quarterly OSS return covering all EU B2C sales
• Apply the VAT rate of each buyer's country
• Avoid registering in every country where they have customers

The OSS threshold is €10,000 in total cross-border B2C sales per year.

Recent Updates

• 2025-11-08: EU Council adopted the ViDA (VAT in the Digital Age) package, which will introduce mandatory digital reporting and e-invoicing across the EU, starting from 2030.
• 2025-01-01: SME VAT exemption scheme went live, allowing cross-border use of small business exemptions.