What is VAT and how does it affect the sale of digital products in the EU?
Thiago Nunes · 2026-10-07
Difference between VAT and income tax
VAT (Value Added Tax) is a consumption tax applied to the sale of goods and services. Unlike income tax, which is based on the income or profit of a person or business, VAT is applied at each stage of production and distribution. For digital products, VAT is charged on the amount paid by the end consumer, not on the business’s profit.
Scenarios where you need to register for VAT in the EU
You must register for VAT in the EU if you:
- Sell digital products to end consumers (B2C) in the EU.
- Have annual sales volume exceeding 10.000 euros (the threshold for cross-border sales).
- Sell in one or more EU countries where your business isn’t registered.
REVENUE THRESHOLDS THAT DETERMINE WHETHER VAT REGISTRATION IS REQUIRED
Revenue thresholds can vary, but in general, most EU countries have a 10.000-euro threshold for sales of digital goods and services. If you exceed this threshold, you’ll need to register for VAT in one of the EU countries where you sell. It’s important to keep a close eye on your sales to make sure you don’t go over this threshold without registering.
How to calculate VAT on digital products and online services
The VAT calculation depends on the rate applied in the consumer’s country. Rates can range from 17% to 27% across different EU countries. To calculate it, follow these steps:
- Determine the price of the digital product.
- Check the VAT rate in the consumer’s country.
- Multiply the price by the VAT percentage. For example, if a product costs 100 euros and the rate is 20%, the VAT will be 20 euros.
Consequences of not complying with VAT rules
Non-compliance can result in severe penalties, including:
- Fines of up to 100% of the VAT owed.
- Being prohibited from operating in certain EU countries.
- Difficulties obtaining tax registrations in other countries.
Complying with VAT rules is essential to avoid legal and financial issues. Keep track of your sales and look for up-to-date information on VAT laws in the countries where you operate.
How have you been handling VAT on your sales to the EU? What numbers are you seeing for revenue and registration?