European VAT 2026: What digital cross-border businesses need to know

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Article updated in December 2025
The European Union’s Value Added Tax (VAT) framework is evolving significantly in 2026, strengthening tax transparency, fighting fraud, and modernizing cross-border digital commerce. As global eCommerce grows, businesses selling digital products, SaaS, and online services must adapt to these new EU VAT rules to stay compliant and avoid operational risks. Whether you are based in the EU or are a non-EU business selling to European customers, these reforms impact VAT obligations, invoicing, reporting, and financial operations.

Understanding VAT in the EU: A quick refresher

What is VAT?
VAT (Value Added Tax) is a consumption tax applied at each stage of production and distribution. It is collected by businesses and remitted to the government.
Each EU country sets its own VAT rates, but the standard rate usually ranges from 17% to 27%

When are businesses required to collect VAT?
A company must charge VAT on sales to EU consumers if:
check-10 It sells digital products (SaaS, e-books, software, streaming services)
check-10 It has EU customers, even if the business is based outside the EU
check-10 It exceeds the €10,000 annual threshold in EU sales

VAT on B2B vs. B2C Transactions
B2C Sales → VAT must be collected and paid by the seller
B2B Sales → Reverse charge mechanism applies, meaning the buyer accounts for VAT, not the seller

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Key VAT Updates for 2026

The 2026 VAT updates introduce three major areas of change:

1. Stricter reporting requirements: CESOP & payment data transparency

The EU continues to tighten cross-border payment reporting under CESOP (Central Electronic System of Payment Information). Payment service providers (banks, PayPal, Stripe, etc.) report detailed transaction data to allow tax authorities to detect VAT evasion more efficiently.

Implications for businesses:

  • Payment processors must comply with CESOP reporting rules
  • Increased scrutiny of cross-border transactions
  • Non-compliance can lead to fines or account restrictions

2. Lower VAT registration thresholds for digital sellers
From 2025–2026, a uniform €10,000 threshold applies for all EU cross-border digital sales. If your total EU sales exceed this threshold, you must:

  • Register for VAT in the EU country of your customers, or
  • Use the One-Stop-Shop (OSS) to report VAT centrally

Impact:
Even small and non-EU sellers now have VAT obligations when selling to EU customers. Digital businesses selling SaaS, e-books, online courses, and software downloads must track total EU sales carefully.

3. Expanded VAT reporting for non-EU businesses
Non-EU businesses selling digital products/services to EU consumers remain liable for VAT. The OSS and IOSS schemes help sellers report VAT through a single EU member state, avoiding multiple local registrations.

Why it matters:

  • Determines where and how VAT must be collected
  • Failure to register may result in legal action or bans from EU marketplaces

How to stay VAT-compliant in 2026

Staying compliant is essential to avoid penalties, operational disruptions, or account suspensions on marketplaces. Here’s a step-by-step approach:

Step 1: Register for VAT where necessary

  • If your annual EU sales exceed €10,000, you must register for VAT.
  • Consider using the OSS system to simplify VAT filings

Step 2: Ensure payment providers are CESOP-compliant

  • Check that your payment processors comply with the new data-sharing rules
  • Maintain detailed transaction records for tax audits

Step 3: Automate VAT calculations

  • Different EU countries have different VAT rates. Use automation tools to apply the correct tax per country
  • Incorrect VAT charges could lead to penalties and tax audits

Step 4: Submit VAT returns on time

  • VAT returns must be filed quarterly – late submissions may result in fines
  • Keep digital records of all transactions to stay compliant

How Nexway simplifies VAT compliance

Managing VAT across multiple countries can be overwhelming, especially for businesses handling cross-border eCommerce.

That’s where Nexway comes in
Automated VAT calculationsAutomated VAT calculations for 50+ countries
OSS/IOSS registrationSeamless OSS/IOSS registration and reporting
CESOP rulesCompliance with CESOP rules, ensuring real-time payment data monitoring
Recurring invoicing solutionsRecurring invoicing solutions for SaaS and subscription businesses

With Nexway’s  Merchant of Record (Mor) model, you can outsource VAT collection, OSS/IOSS filing, monthly payments, and compliance monitoring – so you stay compliant with 2026 EU VAT reforms without extra administrative burden.

With Nexway’s Merchant of Record (MoR) model, businesses can outsource tax management,ensuring they remain compliant without the administrative burden.Ready to simplify your global expansion? Discover how!

best-Xsolla-alternatives-star-20Need expert guidance?  Nexway’s VAT solutions help businesses stay compliant while reducing administrative work.

easy-2025-EU-VAT-rulesExplore Nexway’s tax and compliance solutions today

Get in touch with Nexway today!