VAT for Digital Services: The 2026 UK and EU Compliance Guide for SaaS and Digital Products

Quick answer

VAT on digital services is charged where your customer is, not where your business is. If you sell software, subscriptions, courses, ebooks or any other automated digital product to a private consumer, you owe VAT in that consumer’s country — at that country’s rate.

Three rules decide almost every case:

• Is it a digital service? If the sale is delivered over the internet with no or minimal human intervention, yes. A pre-recorded course is a digital service. The same course with a live tutor is not.
• Is the buyer a business or a consumer? For B2B cross-border sales, the customer accounts for the VAT themselves under the reverse charge and you charge nothing. For B2C sales, you charge and remit the VAT.
• Where is the consumer? In the EU, VAT is due from the very first sale — there is no registration threshold for businesses established outside the EU. In the UK, the standard rate is 20%, and a seller with no UK establishment has no threshold either.

You do not need 27 EU VAT registrations. The Non-Union One Stop Shop (OSS) lets a non-EU business register in one member state, charge the correct local rate on every sale, and file a single quarterly return covering the entire EU.

Digital businesses cross borders the moment they publish a checkout page. A SaaS product in Manchester, a course platform in Austin and a template shop on Shopify all face the same problem: within weeks of launch they are supplying customers in a dozen countries, and in most of them VAT became due on the first transaction.

This is what makes digital services VAT different. There is no shipping label to trigger a customs process, no warehouse to establish a presence, and no sales volume to reach before an obligation begins. The liability starts quietly and accrues — which is why so many digital businesses discover it retrospectively, several years and several hundred thousand pounds of turnover too late.

This guide covers what counts as a digital service, how the B2B and B2C rules diverge, what the UK and EU each require, how Non-Union OSS works and how to register for it, what evidence you must keep, and where digital VAT and GST apply beyond Europe.

What counts as a digital service for VAT?

A digital service is a supply delivered over the internet or an electronic network that is automated and involves no, or only minimal, human intervention. HMRC calls these electronically supplied services, and that is the term you will see in the legislation and in HMRC’s guidance on supplying digital services to private consumers.

The test is the level of automation, not the type of content. Using email to deliver something does not automatically make it a digital service, and a highly technical product delivered by a person is not one at all.

If you are unsure whether a specific product falls inside the definition, that is a question worth resolving before you scale, not after. AVASK’s advisory team can talk it through with you.

Digital services VAT is not the Digital Services Tax

These are two completely different taxes and they are frequently confused.

• VAT on digital services is a consumption tax charged on the sale, paid by the customer and collected by the seller. It applies to businesses of every size, including a sole trader selling one ebook.
• The UK Digital Services Tax (DST) is a levy on the UK revenues of very large search engines, social media platforms and online marketplaces, with global revenue thresholds that exclude virtually every business reading this guide.

If you are wondering which one applies to you, it is almost certainly VAT. The rest of this guide is about VAT.

The rule that decides everything: place of supply

Every cross-border VAT question comes back to one concept — place of supply. It determines which country has the right to tax a sale, and therefore whose rules, rates and registration requirements you have to follow.

For digital services, the rule is short: the place of supply is where the customer belongs, not where the supplier is established.

That single sentence is why a UK SaaS business can owe German VAT, and why a US course platform can owe Irish VAT, without ever having an office, employee or server in either country. The detailed rules sit in VAT Notice 741A on the place of supply of services.

Two consequences follow immediately, and they define the rest of this guide:

1. Sales to customers outside your own country are generally outside the scope of your domestic VAT — but they may be taxable somewhere else.
2. What you actually have to do next depends entirely on whether that customer is a business or a private consumer.

B2B or B2C? How to tell, and why it changes everything

This is the second decision in the chain, and it produces two completely different outcomes.

B2B: the reverse charge does the work

When you supply a digital service to a business customer in another country, you generally do not charge VAT. Instead, the reverse charge applies: the customer accounts for both the output and input VAT in their own country, usually with no net cash cost to them and no registration obligation for you.

That is a genuinely good outcome. It also depends entirely on being able to prove the customer really is a business.

How to prove a customer is a business

The customer’s VAT number is the evidence. If a buyer provides a valid VAT registration number, treat the sale as B2B. If they do not, treat them as a private consumer and charge VAT — unless they can provide alternative evidence of being a registered business.

In practice:

• Put a VAT number field in your checkout and validate it in real time. For EU customers, the European Commission’s VIES service confirms whether a number is valid and currently registered.
• Store the validation result, not just the number. Proof that a number was valid at the point of sale is your defence years later. If you enter your own VAT number alongside the customer’s, VIES issues a consultation number — a timestamped receipt confirming the check was made and the number was valid at that moment. Tax authorities ask for these. Almost nobody keeps them.
• Default to B2C. An unvalidated number is not evidence. Recovering under-charged VAT from a customer two years later is far harder than refunding it.
• A business buying for private use is treated as a consumer.

The risk is asymmetric: if you treat B2C sales as B2B and charge nothing, the unpaid VAT remains your liability, plus interest and penalties.

Selling digital services to UK customers

If the place of supply is the UK, UK VAT rules apply — and there are two very different starting positions depending on where your business is established.

If your business is established in the UK

Digital services supplied to UK customers are subject to UK VAT at the standard rate of 20%, once you are VAT registered. Registration is driven by your taxable turnover against the UK VAT registration threshold, and you can also register voluntarily below it. If you are working out whether you have crossed the line, our checklist on whether you need to register for VAT walks through it, and our step-by-step guide to registering for VAT in the UK covers the process itself.

If your business is established outside the UK

There is no registration threshold. A business with no UK establishment — what HMRC calls a non-established taxable person — must register for UK VAT and account for it from its first taxable B2C supply in the UK, whether that is £50,000 of subscriptions or a single £12 ebook.

This is the rule that most often surprises overseas SaaS and digital-content businesses, because it has no equivalent in a US sales tax system built around economic nexus thresholds. If you are coming from that world, our explainer on how VAT differs from US sales tax is a useful primer.

Zero-rated electronic publications

Not everything digital is standard rated. Certain electronically supplied publications are zero rated in the UK, including books, booklets, brochures, leaflets, pamphlets, newspapers, journals, periodicals and children’s picture books. The scope is set out in VAT Notice 701/10 on zero rating books and printed matter.

The exclusions matter as much as the rule. The standard 20% rate still applies where:

• more than half the publication is devoted to advertising, audio or video content;
• the product is an audiobook rather than something intended to be read or looked at;
• the supply is of intellectual property, or of architectural and engineering drawings or plans.

A digital magazine that is mostly video, or an ebook bundled with an audio version, can easily fall on the wrong side of that line. Where a catalogue mixes zero-rated and standard-rated products, the rate has to be applied product by product.

Selling digital services to EU consumers: no threshold, 27 rates

This is where the compliance burden is heaviest, and where the rules are least forgiving.

For a business established outside the EU, there is no registration threshold for B2C digital services. VAT is due in the consumer’s member state from the first sale, at that member state’s rate. There is no de-minimis, no grace period and no “we’ll deal with it when we’re bigger.”

EU VAT rates vary substantially — the standard rate ranges from 17% to 27% depending on the member state, and some countries apply reduced rates to specific categories such as ebooks. Because rates and reduced-rate categories change, price and rate detail is best taken from a maintained source rather than a blog post: see our country-by-country VAT guides, including VAT in Germany, VAT in France, VAT in Spain, VAT in Italy, VAT in the Netherlands and VAT in Ireland.

The exceptions — and why they probably don’t apply to you

Two simplifications exist, and both are reserved for businesses established in the EU:

• The €10,000 micro-business threshold. An EU-established business whose total cross-border B2C digital services and intra-EU distance sales of goods stay below €10,000 a year can charge its own country’s VAT rate instead of the customer’s.
• The SME cross-border exemption. Since 2025, EU-established small businesses under a Union-wide turnover cap can apply an exemption in other member states rather than registering there.

If your business is established in the UK, the US or anywhere else outside the EU, neither of these is available to you. Guidance that mentions a threshold without mentioning that condition is one of the most common sources of expensive misunderstanding in this area.

Non-Union OSS: one registration instead of 27

The obvious question after the section above is whether you now need to register for VAT in every EU country you sell into. You do not.

The One Stop Shop was designed for exactly this problem. It lets you register once, charge the correct local VAT on every EU sale, and declare all of it through a single return — while the member state you registered in distributes the money to the others on your behalf. The scheme is run centrally by the European Commission through its VAT One Stop Shop portal.

There are three schemes and they are routinely confused:

IOSS is for goods, not digital products. If you sell software or courses and someone tells you that you need an IOSS number, they have misread your business model. Where a business sells both — a printed workbook and a downloadable version, for instance — it may genuinely need both schemes, but for different parts of the catalogue.

How to register for Non-Union OSS, step by step

3. Choose your member state of identification. A business established outside the EU can pick any member state to register in. The choice affects the language of the portal, the practical experience of dealing with that tax authority and, in some cases, whether a local representative is required — so it is worth making deliberately rather than alphabetically.
4. Register through that member state’s OSS portal. You will need your business details, an existing VAT or tax number where you have one, bank details and the date you started making EU supplies. If supplies have already been made, say so — the start date is one of the fields most often stated incorrectly.
5. Apply the customer’s local VAT rate at checkout. From the moment the registration takes effect, every B2C sale must carry the rate of the consumer’s country, not a single blended rate. This is the point at which manual processes stop scaling.
6. File a quarterly OSS return. One return covers every EU member state, broken down country by country, and is due after the end of each calendar quarter. Nil returns are still required.
7. Pay in a single payment. You pay the member state of identification, which distributes the money onwards.
8. Keep your records for 10 years. OSS records must be retained for ten years and made available electronically on request from any member state involved.

Registration is only the beginning — the recurring obligation is quarterly, permanent and unforgiving of gaps. This is precisely the work our compliance platform is built to carry: rate determination by customer location, evidence capture at the point of sale, and return preparation and submission across every jurisdiction in one place.

What happened to VAT MOSS?

VAT MOSS — the Mini One Stop Shop — no longer exists as a route for UK businesses. It was the pre-Brexit scheme that let UK sellers declare EU digital services VAT through HMRC. When the UK left the EU VAT area, UK businesses lost access to it.

The replacement is the Non-Union OSS, registered directly with an EU member state rather than with HMRC. If you are following advice that tells you to register for MOSS through HMRC, that advice predates 2021 and will send you somewhere that no longer exists.

The same applies to a great deal of “VAT on digital services after Brexit” content still circulating: the UK is now a third country for EU VAT purposes, and UK sellers sit in exactly the same position as US or Australian sellers.

Proving where your customer is: the evidence rules

Charging the right rate is only half the obligation. You also have to be able to prove why you charged it.

The standard is two pieces of non-contradictory evidence of where the consumer belongs. Accepted items include:

• the customer’s billing address;
• the IP address of the device used;
• the country code of the SIM card, where the service is bought on a mobile;
• the customer’s bank details or the location of the payment provider;
• the location of the fixed landline used to supply the service;
• other commercially relevant information, such as a product code tied to a location.

Where two items disagree — a German billing address and a Spanish IP, say — you cannot simply pick one. You need a documented, consistently applied rule for resolving the conflict, and the evidence that supports it.

Presumption rules cover situations where evidence is impractical. VAT is due where the service was physically supplied for Wi-Fi hotspots, hotel lobbies, restaurants and telephone kiosks; at the place of departure for services supplied on board transport between countries; and by SIM country code for mobile supplies.

The practical failure here is almost never the rule — it is the record. Evidence has to be captured at the point of sale and retained for ten years, which means it has to be automated. A checkout that stores only a billing address has already lost the second piece of evidence it will need in an audit five years from now.

When the platform owes the VAT, not you

If you sell through someone else’s storefront, the VAT liability may not be yours at all.

Where a marketplace, app store, gateway or portal sets the general terms and conditions, authorises the payment, or controls delivery of the digital service, that platform is treated as the deemed supplier. It is making the supply to the consumer, and it accounts for the VAT. Your supply is to the platform, not to the end customer.

This is why app store and major marketplace sales usually come with the VAT already handled — and why sales through your own website usually do not.

The grey area sits with payment infrastructure, and the distinction that matters is merchant of record:

• Some providers act as the merchant of record. They are legally the seller, they carry the VAT obligation, and your relationship is with the provider rather than the end customer.
• Others are payment processors only. They move money. Registration, rate determination, filing and evidence obligations all remain yours, however much tax tooling sits in the dashboard.

Both models are legitimate and the pricing reflects the difference. Problems come from assuming you have the first when your contract says the second. Check what your provider’s terms say about who is the seller of record — and check it per product line, since many businesses run one model for subscriptions and another for one-off downloads without realising the VAT treatment diverges.

Where marketplace sales sit alongside your own channels, those obligations interact with EU VAT registration in ways worth mapping properly — start with our guidance on selling into the EU and UK.

Invoicing and record keeping

Cross-border digital sales create paperwork obligations that outlast the transaction by a decade.

• Invoices. Requirements vary by member state, and some require a compliant VAT invoice even for consumer sales. Where you issue one, it must contain the required particulars — our guide to what a compliant VAT invoice must include covers the UK position in detail.
• Records. OSS records must be kept for ten years and produced electronically on request.
• Currency. OSS returns are completed in euros. Where sales are made in another currency, use the European Central Bank rate for the last day of the return period, and keep the conversion evidence.
• Rate changes. VAT rates change. The rate that applies is the one in force at the time of supply, which means your checkout logic needs to be maintained, not configured once.

If you already hold VAT numbers in individual member states as well as an OSS registration, our guide to getting VAT numbers in the UK and EU explains how the two sit alongside each other.

Beyond the EU and UK: where else digital VAT applies

The EU and the UK get the attention, but they are not the only jurisdictions taxing digital sales by non-resident sellers. Most major economies have introduced equivalent rules over the past decade, and many have registration thresholds far lower than businesses expect.

The pattern is consistent: consumption follows the consumer. A digital business that scales globally accumulates obligations in every market it sells into, and they arrive quietly. If your growth plan involves markets beyond Europe, our guidance on selling in the rest of the world maps what that means jurisdiction by jurisdiction.

What’s changing: ViDA and beyond

Digital VAT rules are not static. The EU’s VAT in the Digital Age package will progressively reshape reporting, platform obligations and single VAT registration across the bloc over the coming years, with real consequences for businesses using OSS today. We cover the timeline and the practical implications in our guide to VAT in the Digital Age (ViDA).

The short version for digital sellers: the direction of travel is towards more real-time reporting, wider platform liability and less tolerance for manual processes. Systems that just about cope today are the ones most exposed to the next change.

Getting it wrong: back VAT, penalties and retrospective liability

Digital VAT liabilities do not sit still while you decide what to do about them.

Because there is no threshold for non-established sellers, an unregistered business that has been selling into the EU or UK for three years has been accruing a VAT debt for three years. When it is identified — by a tax authority, by a platform, or during due diligence in a funding round or acquisition — the exposure is the cumulative VAT that should have been charged, plus interest and penalties. VAT that was never collected from customers comes out of margin.

The two moments this usually surfaces are the two worst moments for it to surface: an audit, and a transaction. Both reward businesses that fixed it early, and both punish businesses that hoped it would not come up.

Voluntary disclosure, backdated registration and negotiated settlement are all available, and they produce materially better outcomes than being found. If you suspect there is historical exposure in your business, our VAT audit and consultancy support team handles exactly this — quantifying what is owed, where, and dealing with the authorities on your behalf.

How AVASK handles digital services VAT

Digital businesses rarely fail at VAT because the rules are unknowable. They fail because the rules are unmanageable at the speed and volume they sell at — hundreds of transactions a day, dozens of countries, rates and evidence requirements changing underneath them.

That is a systems problem. Our compliance platform determines the correct rate by customer location at the point of sale, captures and retains the evidence behind that decision, and prepares and submits returns across every jurisdiction you sell into — backed by over 420 specialists in 12 countries for the questions that need judgement rather than automation.

For digital sellers that usually means an exposure review to establish where you stand today, Non-Union OSS registration to consolidate the EU into a single filing, UK VAT registration and filing where UK customers are in scope, and ongoing support as the catalogue and the map both grow.

Frequently asked questions