VAT on Digital Services: Registration, OSS Filing, and Marketplaces

If you sell software, streaming content, e-books, or other automated digital products to customers abroad, VAT on digital services is owed in the country where the customer lives, at that country’s rate — not where your business is based. That single principle drives everything else: you register in foreign jurisdictions once you cross their thresholds, you collect the local rate at checkout, and you file returns on each country’s schedule. The EU’s One Stop Shop lets you handle all 27 member states through a single registration, but outside that system each country runs its own regime.

What Counts as a Digital Service

The EU’s VAT Implementing Regulation defines electronically supplied services as those “delivered over the Internet or an electronic network” where the supply is “essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology.”¹ Most countries that tax digital services use a similar definition. Automated is the key word. If a computer delivers the product without a person stepping in, it almost certainly qualifies.

Typical taxable categories:

Downloaded software, mobile apps, and SaaS platforms
Music, video, and gaming streamed on demand
E-books, online newspapers, and subscription databases
Automated web hosting, domain registration, and website supply

Using the internet to deliver a service does not automatically put it in scope. UK guidance excludes lawyers or financial consultants advising clients by email, live teacher-led courses over the internet, individually commissioned content like photographs or reports, and offline computer repair.² A pre-recorded video course students access on their own is a digital service. The same course taught live over video is not.

Automated assessments scored by software count. If a human marks the exam, it falls outside the rules.² Bundled products (say, a video library plus a live tutor) are judged on the dominant element of the supply. Worth professional advice before you register.

How You Pin Down the Customer’s Country

Because the rate depends on where the customer lives, you need reliable evidence of location. Under EU rules, which many other countries mirror, you collect data from the transaction and cross-check it. The usable data points are the customer’s billing address, the IP address of the device used at purchase, the country where the payment card was issued, and for mobile transactions the SIM country code.

The EU requires at least two pieces of non-contradictory evidence. A billing address in Germany with an IP address in France is a conflict you must resolve before applying a rate. Payment processors and tax automation tools handle this triangulation, but the legal responsibility stays with you, and the evidence you relied on for each transaction forms part of your audit file.

When You Have to Register

Not every cross-border sale triggers a registration duty. Most jurisdictions set a revenue threshold below which foreign sellers can ignore local VAT. Crossing the threshold — or in some countries, making any taxable sale at all — is what creates the obligation.

European Union: a €10,000 annual threshold applies across all EU member states combined. Below that, EU-established sellers may charge VAT in their home country. Non-EU sellers have no threshold and must register from their first sale.³
United Kingdom: non-resident businesses must register for UK VAT regardless of turnover if they supply any goods or services to the UK.⁴
Australia: non-resident sellers of digital products must register for GST once Australian turnover reaches A$75,000.⁵

Zero-threshold rules catch small sellers off guard. A solo developer selling a $5 app to a handful of UK customers technically owes UK VAT from the first download. Marketplaces often handle this for you; direct sales through your own website do not have that cushion.

Selling to Businesses vs. Consumers

The destination principle applies cleanly to sales to individuals (B2C). Business-to-business transactions usually work differently. When you sell a digital service to another VAT-registered business, the tax obligation shifts to the buyer through the reverse charge mechanism. You invoice without VAT, and the buyer self-assesses on their own return.

Under the EU VAT Directive, the business customer becomes liable for tax on cross-border services from a foreign supplier.¹ Your invoice must state that the reverse charge applies, and you need to verify the customer’s VAT identification number before treating the sale as B2B. The EU’s VIES system checks whether a VAT number is valid and active for cross-border transactions.⁶

If VIES returns “invalid,” the customer isn’t necessarily wrong. Some EU countries require separate activation for cross-border transactions. Until you can confirm a valid number, treat the sale as B2C and charge VAT at the customer’s local rate. Failing to charge VAT on what turns out to be a consumer sale creates a liability that comes out of your margin.

The reverse charge is widespread but not universal. Some countries outside the EU require foreign digital sellers to register and collect VAT even on B2B sales. Check each country where you have business customers rather than assuming.

Registering Through the One Stop Shop

The EU’s One Stop Shop is the biggest simplification available. Instead of registering separately in every member state where you have customers, you register once in a single member state and file one return covering all EU sales. The member state of identification then distributes the collected tax to the others.⁷

Non-EU businesses using the non-Union scheme submit registration electronically through the chosen member state’s portal, providing:

Legal name, trading name if different, full postal address, and country of establishment
Email address, website URLs, and a named contact with telephone number
IBAN or OBAN number and BIC code
Any VAT identification or tax reference numbers already held in EU member states
A declaration that the business is not established in the EU, plus the intended start date⁸

Registration normally takes effect on the first day of the calendar quarter after you notify the member state. If you’ve already started selling, you can backdate the start to the date of your first supply, provided you notify within ten days of that first sale.⁸ Outside the EU, each country runs its own system. The UK uses HMRC’s online portal; Australia uses the Australian Business Register. None of the major jurisdictions charge a registration fee.

Once approved, your VAT identification number must appear on all invoices and filings in that jurisdiction. Changes to your registration — new bank account, address, additional websites — must be reported within ten days.

Filing Returns and Paying

Under the One Stop Shop, returns are quarterly. Each return and its payment are due by the end of the month following the quarter:⁹

Q1 (January–March): due April 30
Q2 (April–June): due July 31
Q3 (July–September): due October 31
Q4 (October–December): due January 31 of the following year

File even in a zero-sales quarter. Missing a deadline or filing a nil return late can trigger penalties and, in some member states, exclusion from OSS, which forces you back into individual country registrations. Payments must reference the unique return number so the receiving tax authority can match money to filing.

Schedules elsewhere vary. The UK generally requires quarterly VAT returns; Australia uses a quarterly Business Activity Statement for GST. The pattern is consistent: report what you collected, pay what you owe, on time.

Records, Invoices, and Currency

OSS transactions must be kept for ten years from the end of the year the transaction took place, and the obligation continues after you leave the scheme.¹⁰ The UK requires VAT records for six years.¹¹ If you sell into both, keep everything for ten years.

Records must cover:

VAT invoices showing tax collected, rate applied, and customer country
The two pieces of non-contradictory location evidence used for each transaction
Transaction date, amount in the currency charged, and the converted amount in the reporting currency

Records must be available electronically and produced on request to your member state of identification and any member state where the customer was located. Your transaction database needs to be exportable in a format a foreign tax inspector can read.

For currency conversion, EU businesses may use the European Central Bank’s most recently published exchange rate at the time of the transaction.¹² Some member states require advance notification if you use this method. For conversions between two non-euro currencies, euros act as the intermediary. Whichever method you choose, apply it consistently — switching sources between returns invites audit questions.

If You Sell Through a Marketplace

If you sell through a major platform, the platform itself may be legally responsible for collecting and remitting VAT. The EU treats platforms that facilitate certain sales as the deemed supplier: the marketplace is considered to have bought the product from you and resold it to the consumer. Under these rules, the platform handles VAT collection, and you should not include those sales on your own VAT return.

The practical check: if you sell through Amazon, Apple’s App Store, Google Play, or similar, confirm whether the platform already handles VAT in each market. Most large platforms do, and double-reporting is itself a compliance problem. Direct sales through your own website remain yours.

What Happens if You Get It Wrong

There is no single international penalty regime. Each country sets its own consequences for late registration, missed filings, and incorrect returns. Severity scales with intent.

The UK illustrates a typical structure:

Careless errors: up to 30% of the additional tax owed
Deliberate errors: 20% to 70% of the additional tax owed
Deliberate and concealed errors: 30% to 100% of the additional tax owed¹³

A separate failure-to-notify penalty applies if you should have registered and didn’t, calculated on the tax that went uncollected while unregistered.¹³ Within the EU, penalties vary. France can fine businesses €50 per missing electronic invoice. In some jurisdictions, repeated or deliberate violations can escalate to personal liability for company directors.

Beyond the fines, non-compliance under the One Stop Shop can result in exclusion from the scheme, which then forces separate VAT registrations in each member state where you have customers. Filing on time, even for a zero quarter, is the cheapest compliance insurance available.

1
EUR-Lex. Council Directive 2006/112/EC – On the Common System of Value Added Tax
2
GOV.UK. VAT Rules for Supplies of Digital Services to Consumers
3
Your Europe. Cross-border VAT
4
GOV.UK. Register for VAT
5
business.gov.au. Register for Goods and Services Tax (GST)
6
European Union. Check a VAT Number (VIES)
7
European Commission. Register to OSS
8
European Commission. Guide to the VAT One Stop Shop
9
European Commission. Declare and Pay in OSS
10
European Commission. Record Keeping and Audits in OSS
11
HM Revenue & Customs. Compliance Handbook – Record Keeping: How Long Must Records Be Retained For: VAT: Determining the 6-Year Period
12
European Commission. Taxable Amount
13
GOV.UK. Penalties: An Overview for Agents and Advisers