Cross-Border eCommerce – European 2024 VAT Rules
European VAT reporting obligations in 2024
The EU’s forthcoming VAT reporting changes in 2024 signal a pivotal transition in VAT compliance, especially for online businesses engaged in cross-border trade. These upcoming regulations emphasize stringent reporting standards to restrain VAT fraud and support tax adherence.
As these new measures take effect, businesses must swiftly adjust their practices to meet the evolving compliance landscape. This adaptation ensures regulatory compliance and maintains trust and integrity in cross-border transactions.
This guide goes deep into the impending changes, shedding light on the implications for cross-border online businesses. Most importantly, it unveils how Nexway can guide you toward seamless out-of-the-box compliance.
What is EU VAT?
EU VAT, or European Union Value Added Tax, is a consumption tax applied to goods and services at each stage of production and distribution. It follows a harmonized system across EU member states, with each country setting its standards and reduced rates. Businesses engaged in cross-border trade within the EU require a VAT Identification Number, and there are specific rules for intra-community supplies.
When are you required to collect EU VAT?
You must comply with EU VAT law if your store meets the following three criteria:
- You sell digital products
- You accept sales from countries in the EU
- Your combined annual revenue from all EU countries is more than €10,000
The location of your store does not affect whether or not you need to collect EU VAT. Instead, it depends on the site of your buyers. So whether your store is in the USA, Canada, India, Vietnam, or anywhere else, you need to collect EU VAT if you sell digital products to consumers in the EU.
Keep in mind that collecting VAT only applies to B2C purchases.
You are not required to collect VAT on B2B sales. This is called a “reverse charge.” However, you still must collect a zero-rate VAT when invoicing these B2B customers and store their business’s VAT number in your records for general accounting purposes.
2024 – Key changes in EU VAT regulations affecting cross-border transactions
As of January 1st, 2024, significant changes have been implemented in the EU VAT landscape, mainly targeting cross-border transactions. Payment processors must now report cross-border transaction data to tax authorities, marking a crucial step in the ongoing efforts to combat international online fraud.
A pivotal adjustment has been introduced for US-based software or SaaS businesses engaged in cross-border online transactions within the European Union. If your business records more than 25 sales per quarter, your payment service provider must now log these transactions in the Central Electronic System of Payment Information (CESOP) database. CESOP will serve as a centralized repository, aggregating and verifying data with other existing EU databases. Importantly, all information stored in CESOP will be accessible to anti-fraud experts in EU member states.
Accurate collection and filing of sales taxes have become imperative, as tax authorities will verify this information against what payment processors provide. These details must align with your filings.
Amidst these regulatory changes, there’s good news. We offer a solution to simplify your VAT compliance challenges – the Merchant of Record. Discover how this strategic partner can support your global growth journey by exploring our guide on the role of the Merchant of Record and the benefits it brings to online companies that want to expand globally.
We have integrated Nexway as the Merchant of Record for our VPN Pro service, which has allowed us to ensure our users have a good payment experience with customized flows and designs, and various payment methods.
How to be EU VAT-compliant
The whole process can be understood in five clear steps, from beginning to end. At a high level, the process is pretty simple. It can quickly get complicated as you start transacting with consumers in multiple EU countries.
- Register your business for a VAT number
- Verify who your customers are and where they are
- Charge VAT on transactions when you need to
- Keep detailed invoices and records
- Submit VAT returns every quarter
Nexway, with its global expertise, manages sales taxes and EU VAT on your behalf
Staying compliant with EU VAT law is an ongoing task that can take time to manage. That’s why Nexway offers a comprehensive VAT compliance solution to relieve your burden.
- Automate complex tax calculations in 50+ countries, ensure accurate tax reporting, and maintain compliance with local and international tax regulations
- Apply the appropriate tax rates based on customer locations, handle tax exemptions, and generate comprehensive tax reports, saving businesses valuable time and effort
- Set up recurring invoices for subscription-based services, enhancing efficiency and reducing administrative burdens
Choose Nexway for a seamless tax and invoice management experience, which empowers your business to optimize financial processes, improve compliance, and enhance overall efficiency.
Delegate tax management & obligations
Nexway calculates taxes automatically on your behalf based on various factors such as product type, location, and applicable tax rates
Manage invoicing process efficiently
Support invoice template customization, integration with existing systems, and the ability to automate recurring invoices
Benefit from a fully compliant buying and selling experience
Let us handle the complexities of international taxes and stay up to date on worldwide financial and legal requirements
Billing cycles automation
Set up and manage recurring billing for subscription-based products or services
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