For e-commerce sellers targeting the European Union, one technical concept dictates every tax decision you make: the Place of Supply. This rule determines which country’s VAT laws apply to a transaction and, consequently, which government is owed tax revenue. Getting this wrong doesn't just mean paperwork errors; it can lead to immediate tax liabilities in 27 different countries.
The "Destination Principle" and the €10,000 Threshold
Historically, cross-border VAT was complex, but the rules were streamlined in July 2021 with the introduction of a unified EU-wide threshold. For most B2C distance sales of goods and digital services, the "Place of Supply" is the location of the consumer—a concept known as the destination principle.
However, to spare micro-businesses from suffocating red tape, the EU maintains a €10,000 annual threshold. If your total cross-border sales to customers in other EU countries remain below this €10,000 limit in a calendar year, you are permitted to treat the "Place of Supply" as your own home country. This means you can charge your local domestic VAT rate and remit it to your local tax authority, ignoring the complex rates of your foreign customers.
Once you breach this €10,000 threshold, the rules flip immediately. From that point forward, every B2C sale is deemed to take place in the consumer's country. You must charge the specific VAT rate of the customer’s residence (e.g., 19% in Germany, 27% in Hungary) and remit that tax to the respective foreign authority.
Major 2025 Update: Virtual Events and Training
While the rules for physical goods have stabilized, a significant change arrived on January 1, 2025, targeting the digital services sector. Previously, interactive virtual services—such as live webinars, online conferences, and distance learning courses—were often taxed based on where the supplier was established.
As of 2025, the EU has shifted these services to the destination principle. The Place of Supply for B2C virtual events and online training is now legally defined as the location where the consumer resides. This closes a loophole that allowed providers to base themselves in low-VAT jurisdictions. Now, a UK or US-based educator selling a live online course to a student in France must charge French VAT, regardless of where the class is "hosted".
The SME Scheme Update (2025)
Another critical 2025 reform is the expansion of the SME (Small and Medium-sized Enterprises) scheme. Starting January 1, 2025, small EU-based businesses with an annual turnover under €100,000 can access VAT exemptions in other member states, not just their own. This allows a small Austrian seller, for example, to sell to German customers without charging VAT, provided they meet specific exemption criteria. Note that this specific benefit is generally restricted to businesses established within the EU; non-EU sellers typically face a nil registration threshold for these exemptions.
Solving the Administrative Nightmare: OSS and IOSS
With the Place of Supply rules forcing sellers to collect tax for dozens of different countries, the administrative burden could be crushing. To solve this, the EU offers the One Stop Shop (OSS).
OSS is a simplification tool that allows you to register for VAT in just one EU member state. Instead of registering in all 27 countries, you file a single quarterly "OSS return" that details your sales across the entire bloc. You pay the total VAT owed to your host country, which then distributes the funds to the other member states on your behalf.
For sellers importing goods from outside the EU (such as dropshippers or UK brands), the Import One Stop Shop (IOSS) serves a similar function for consignments valued under €150. By registering for IOSS, you can collect VAT at the point of checkout. This ensures the goods travel through customs "green lanes" without consumers being hit with surprise import fees upon delivery, significantly improving the customer experience.
18 Dec, 2025
