VAT on Digital Services in the EU: Rules for SaaS & Apps

The EU defines electronically supplied services (ESS) as services delivered over the internet with minimal human intervention. This includes:

• SaaS subscriptions • Mobile apps and in-app purchases • E-books and digital publications • Online courses and webinars (if automated) • Streaming music and video • Web hosting and cloud storage • Software downloads • Online advertising services

Services that require significant human involvement (live webinars, custom consulting via video call) are generally NOT classified as ESS and follow different rules.

B2B (selling to businesses): • Place of supply: where the business customer is established • Reverse charge applies: you invoice without VAT • Customer's VAT number must be on the invoice • No need for OSS — handled via reverse charge

B2C (selling to consumers): • Place of supply: where the consumer is located • You must charge the consumer's country's VAT rate • Below €10,000 EU threshold: you can charge your home country's rate • Above €10,000: register for OSS or in each country

Determining B2B vs B2C requires collecting and verifying the customer's status (VAT number for B2B).

When selling digital services B2C, you must collect two non-contradictory pieces of evidence about the customer's location:

• Billing address • IP address geolocation • Bank/payment card country • Country code of SIM card • Other commercially relevant information

Your payment processor likely captures most of this automatically. Keep these records for 10 years.

1. Build B2B/B2C detection into your checkout (ask for VAT number) 2. Validate EU VAT numbers via VIES 3. Apply correct VAT rate based on customer location 4. Generate compliant invoices automatically 5. Register for OSS when you exceed the €10,000 threshold 6. File quarterly and keep location evidence records

Tools like Taxelyo can help automate this entire process.