The VAT threshold, also known as the VAT registration threshold, is the amount of money that can be earned before the company needs to register for VAT.
To help reduce the administrative burden on companies, and to encourage companies to start trading across Europe, there is national VAT registration threshold set by each country.
When to register for VAT/Sales Tax?
If You are selling B2C digital goods and services in Europe, You must register for VAT in a MOSS system once Your distance selling threshold exceeds a threshold of 10 000 EUR in any EU member state.
If You are selling B2C other goods and/or services in Europe, You must register for VAT once Your distance selling threshold exceeds 35 000 EUR – 100 000 EUR depending on a regulations of a particular EU member state. It is crucial to track your sales, since VAT registration threshold can be reached easily.
Bear in mind that this 12-month period does not have to align with the tax year, so companies should regularly check whether VAT taxable turnover for the last 12 months has crossed the current VAT threshold.
If You are selling digital goods and services in other countries than EU, You must register for VAT/Sales Tax once Your distance selling threshold exceeds a particular amount depending on a regulations of a particular country, which can be found on our Threshold for VAT Map.
What is considered distance selling?
There are a few different forms that businesses should be aware of and keep records of all sales over a calendar year. If a company is selling above the distance selling thresholds in one or more countries via these methods, then they must register for VAT:
- Your website. Every online sale done through an independent domain or a specific product service is considered to be a distance sale.
- Marketplaces. Businesses selling through online marketplaces like Amazon are also doing distance sales.
- Online auctions. The same distance selling regulations apply to internet auction sites like eBay, eBid, Bonanza, etc.
- Outbound sales or Telesales. This is one of the oldest forms of distance selling. Businesses are required to provide accurate product details and all contract terms. Later a written version must be provided.
- SMS. Quite a rare method, but any purchases done via SMS is distance selling too.
- TV. This involves television shopping networks, in-TV movie rentals, and any kind of interactive TV program from which users can purchase goods.
Tracking Your cross-border B2C sales and checking whether it exceeds distance selling thresholds in different countries is a demanding job. Our automated solution can help you do it quickly and easily.
Regulations in Europe
Distance selling involves sales and purchases done via online mail orders services and includes both physical and digital goods & services. This particularly applies to products that cross EU country borders to reach the buyer.
Usually, one must register for VAT when they open a business and/or store their products in a European warehouse. This is also necessary when the annual distance selling thresholds are exceeded in a specific EU country.
Every EU country has an individual threshold limit, which ranges from 35,000 € to 100,000 € per calendar year. Once it is reached, the seller must get an additional VAT number in that specific country where the goods are being imported or held. There are also certain rules and regulations called Distance Selling Regulations (DSRs) that businesses should be aware of and comply accordingly. Sellers have to provide customers with:
- Pre-Purchase Information;
- The right to cancel the order within 7 days;
- The right to have the products provided within 30 days after the order is sent (unless agreed otherwise);
- Refunds if the goods aren’t delivered on the agreed date;
- Refunds if the payment wasn’t authorized;
- Written information after the purchase of goods or services.
There are exceptions when it comes to B2C and B2B. With B2C, not selling above the 10,000 € limit within one calendar year means that local VAT rates apply to the sales. When the distance selling VAT turnover threshold is exceeded then the VAT rate of the destination country is charged. This limit changes which VAT rates are applied but this can easily be tracked with our automated systems. With B2B, it is quite simple as these thresholds don’t apply to these sales. It also doesn’t apply to such excisable goods as tobacco, alcohol, and petrol.
While these regulations are meant to protect the consumers, VAT threshold is designed to encourage companies to trade across Europe while also reducing the administrative burden of doing so. If a business is selling below the distance selling thresholds, they don’t need to register for VAT.