EU VAT for SaaS Companies
How VAT applies to software subscriptions, APIs, and cloud services
If you sell SaaS to customers in the EU, you need to determine whether VAT should be charged or reverse charged. The EU classifies SaaS as an electronically supplied service (ESS), which means specific VAT rules apply to how you charge, collect, and report VAT.
The core rule is simple: tax is generally due where your customer is located, not where your company is based. For B2C, that usually means charging the customer's country VAT rate (for example, French VAT for a customer in France). For B2B, reverse charge often applies and the customer self-assesses VAT.
How you handle VAT depends on whether your customer is a business (B2B) or a consumer (B2C).
Is Your Product a "Digital Service"?
Not everything a SaaS company sells counts as a digital service for VAT purposes. The EU uses a specific definition: a service must be delivered over the internet and essentially automated with minimal human intervention.
| Service | Digital Service? | Why |
|---|---|---|
|
SaaS subscriptions (cloud software) |
Yes |
Automated delivery, no human intervention |
|
API access |
Yes |
Fully automated, delivered over the internet |
|
Cloud storage and hosting |
Yes |
Automated provisioning and access |
|
Automated online courses (no live teacher) |
Yes |
Self-service, no human delivery |
|
E-book or report auto-delivered on purchase |
Yes |
Automated download |
|
Antivirus or security software |
Yes |
Automated delivery and updates |
|
Streaming services (music, video) |
Yes |
Automated access |
|
Custom consulting via video call |
No |
Human delivers the service |
|
Professional advice delivered by email |
No |
Human involvement required |
|
Manual website design or development |
No |
Creative human work |
|
Live webinars or training with an instructor |
No |
Live human delivery |
|
PDF manually emailed by your team |
No |
Manual delivery by staff |
|
Commissioned creative work (logo, copy) |
No |
Human creative output |
The key test is automation. If the customer clicks "buy" or "subscribe" and gets access without anyone on your team doing anything, it is a digital service. If a human needs to deliver or perform the service, it is not.
Why it matters: digital services are always taxed in the customer's country for B2C sales. Non-digital services generally follow the supplier's country rule for B2C, which is simpler.
Most SaaS products clearly qualify as digital services. But if your product includes consulting, onboarding calls, or manual setup, those components may need to be treated separately.
Selling B2B vs B2C
B2B (customer is a taxable business, usually evidenced by a valid EU VAT number): the reverse charge often applies. You invoice without VAT and your customer self-assesses VAT in their country.
B2C (consumer, or business status not established): you charge VAT at the customer's country rate. Use the One Stop Shop (OSS) to file a single return for all EU countries.
| Your Customer | EU VAT Number? | What You Do |
|---|---|---|
|
Business in another EU country |
Yes |
Invoice without VAT. Reverse charge applies. See reverse charge rules. |
|
Business in your EU country |
Yes |
Charge your country's VAT rate. Normal domestic rules. |
|
Business in another EU country |
No — / not verifiable |
Do not assume reverse charge. Collect other business evidence; if status is not established, treat as B2C and charge VAT (OSS may apply). |
|
Consumer in another EU country |
— N/A |
Charge their country's VAT rate via OSS. |
|
Consumer in your EU country |
— N/A |
Charge your country's VAT rate. Normal domestic rules. |
|
Customer outside the EU |
— N/A | No — EU VAT. Invoice without VAT. |
Always Validate VAT Numbers
Before applying reverse charge, verify that the VAT number is valid, active, and actually belongs to that business. If you apply reverse charge based on an invalid number, you are liable for the uncollected VAT. Use the VatDB API to validate VAT numbers automatically at checkout or signup.
The 10,000€ Threshold
If your cross-border B2C sales are below 10,000€ per year, you can charge your own country's VAT rate instead of the customer's. Most SaaS companies exceed this quickly. Once you do, register for OSS and charge destination country rates.
Non-EU SaaS Companies
The same rules apply. For B2B, reverse charge handles it. For B2C, register for Non-Union OSS in any EU member state. There is no threshold or grace period for non-EU sellers.
Practical Steps
- Collect and validate VAT numbers at signup or checkout using the VatDB API.
- B2B with valid VAT number: invoice without VAT, note "Reverse charge".
- Everyone else: charge the customer's country VAT rate via OSS.
- Keep records for 10 years. Store validation results and invoices.
Frequently Asked Questions
Do I need to charge VAT on my SaaS product?
If you sell to customers in the EU, yes. For B2B sales to customers with valid EU VAT numbers, the reverse charge applies and you invoice without VAT. For B2C sales, you charge VAT at the customer's country rate.
What VAT rate do I charge?
If VAT is due, you charge the standard rate of the customer's country. Rates range from 17% (Luxembourg) to 27% (Hungary). See EU VAT rates by country for the full list. If your customer has a valid EU VAT number, reverse charge applies instead and you invoice without VAT.
Is a free trial or freemium tier subject to VAT?
No. VAT only applies when there is a payment. Free tiers and trials with no charge do not trigger VAT obligations.
What about mixed services (SaaS + consulting)?
If your offering includes both automated software access and manual consulting, you may need to split the invoice. The SaaS portion is a digital service taxed in the customer's country. The consulting portion follows standard service rules.
Do I need to register for VAT in every EU country?
No. Use the OSS scheme to file a single VAT return covering all EU countries. For B2B sales with reverse charge, you do not need to register at all in your customer's country.
How do I validate a customer's VAT number?
Use the VatDB API to validate EU VAT numbers in real-time. The API returns validation status, company name, and address, and provides proof-of-validation records for your audit trail.
Automate VAT Number Validation for Your SaaS
Integrate the VatDB API into your signup or checkout flow. Validate EU VAT numbers in real-time to correctly apply reverse charge or charge the right VAT rate.
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