VAT and SaaS: the EU rules every founder should know

If you are building a SaaS business in Europe, VAT is the most under-appreciated compliance surface you face. Get it right and it is a bureaucratic chore; get it wrong and you can end up owing back-taxes to multiple tax authorities with penalties for years of under-collection. Here is the plain-language framework.

The core principle

Since 2015, VAT on digital services sold to EU consumers is charged at the rate of the customer's country, not your country of establishment. A Dutch SaaS selling to a Spanish consumer collects Spanish VAT. For B2B sales, VAT is typically reverse-charged (the customer self-accounts for it) if the customer is a VAT-registered business.

MOSS and OSS (One-Stop Shop)

Instead of registering for VAT in every country where you have consumer customers, you register for the OSS scheme in your home country. You file a quarterly OSS return listing sales per destination country; your home tax authority forwards the VAT to each respective country. This is a massive simplification compared to the pre-2015 regime.

The B2B vs B2C question

At the moment of sale you must determine whether your buyer is a business or consumer. If a business, collect their VAT number, validate it (via VIES — the EU VAT info exchange — in real time), and if valid, reverse-charge (do not charge VAT). If invalid or absent, treat as consumer and charge destination-country VAT. Document the validation evidence; auditors will ask.

Evidence of customer location

You must retain two non-contradictory pieces of evidence of the customer's country: billing address, IP address, bank country of card, phone number country code, SIM-card country, physical delivery address. Most SaaS platforms (Stripe Tax, Paddle, LemonSqueezy) handle this automatically and store the evidence per transaction.

VAT rates to be aware of

Standard rates range from 17% (Luxembourg) to 27% (Hungary). Most EU countries sit at 19-25%. Some have reduced rates for specific categories (e-books, some digital publications) — SaaS as "software as a service" almost always sits at the standard rate.

Common founder mistakes

Not registering for OSS when you cross the €10,000 pan-EU threshold (below which you can charge home-country VAT only). Not validating VAT numbers at the moment of sale (and then owing VAT retroactively on sales that should have been reverse-charged). Treating the EU as "one market" and charging a single VAT rate across all customers.

Non-EU sellers to EU customers

If you are a US SaaS selling to EU consumers, you also owe EU VAT. Register under the Import OSS (IOSS) or non-Union OSS scheme to simplify. Many US SaaS companies skipped this historically and are now receiving back-tax assessments as EU tax authorities audit more aggressively.

Automation

For any SaaS doing more than €50k/year of cross-border consumer sales, use a specialised VAT tool (Stripe Tax, Taxamo, Avalara). The ongoing cost (0.5-1% of transactions) is far cheaper than the time to maintain this manually and the risk of mistakes.