What is the place of supply? How EU VAT decides where a sale is taxed

The place of supply is the VAT rule that decides in which country a transaction is taxed, and therefore whose VAT rate and rules apply. In the EU it depends mainly on whether you sell goods or services, and whether the buyer is a business or a consumer.

The main EU rules

The rules are set out in the EU VAT Directive (2006/112/EC). The core ones for online sellers are:

  • Goods that are shipped (general rule): the place where the goods are when transport to the customer begins (Article 32).
  • Distance sales of goods to consumers in another EU country: the place where the goods are when transport to the customer ends (Article 33).
  • Services to a business: where the customer has established its business (Article 44).
  • Services to a consumer (general rule): where the supplier has established its business (Article 45).
  • Telecommunications, broadcasting and electronically supplied services to a consumer: where the customer is established, has a permanent address or usually resides (Article 58).

The EUR 10,000 threshold

Article 59c gives small sellers a simplification. If a supplier is established in only one Member State and its cross-border sales to consumers in other Member States (distance sales of goods plus those electronic services) stay at or below EUR 10,000, excluding VAT, in both the current and the previous calendar year, it can keep applying its home country's VAT. As soon as the threshold is exceeded during a year, the destination rules apply from that moment.

Worked example

A hypothetical seller established in one EU country ships goods to consumers in other EU countries. Last year those sales were EUR 5,000; this year they reach EUR 6,000 by June. Both years are under EUR 10,000, so the seller can charge its home VAT. In October a large order takes the year's total to EUR 11,000. From the point the threshold is crossed, orders are taxed where the goods arrive, at that country's rate, which is where the One-Stop Shop helps with reporting.

Why it matters for an online store

The place of supply determines the rate you charge, the country you owe tax to and where you must report it. If you get it wrong, you can undercharge customers and still owe the difference.

Common mistakes

  • Assuming it follows the seller's location. For many consumer sales it follows the customer or the destination of the goods instead.
  • Treating B2B and B2C the same. Services to businesses and services to consumers follow different default rules. See B2B and B2C.
  • Counting the threshold per country. The EUR 10,000 limit covers the total of qualifying sales to all other Member States.
  • Relying on the general rules alone. The Directive has many special rules (for example for events, transport and property), so check your specific case.

See also VAT.

This page is general information, not tax advice.

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