The delivery of goods to private individuals within the European Union (EU) is subject to different rules than the delivery of goods to businesses. One example is that B2C sellers can pay VAT in their own country up to a certain revenue level. This revenue limit is known as a delivery threshold.

In this article we’ll discuss what the delivery threshold is in the EU, when it applies, and when it does not. We also explore the difference between what’s known as the “destination country principle” and the “country of origin principle,” as well as how the Federal Central Tax Office (Bundeszentralamt für Steuern or BZSt) taxes sales above the delivery threshold using the One Stop Shop (OSS).

What’s in this article?

• What is the delivery threshold in the EU?
  
• How high is the delivery threshold?
  
• Destination principle versus country of origin principle
  
• When does the delivery threshold not apply?
  
• How does the BZSt tax sales above the delivery threshold using the OSS?
  
• What happens if a business exceeds the delivery threshold?
  

What is the delivery threshold in the EU?

The delivery threshold is a sales limit that applies to businesses in the EU. Up to this limit, companies can supply goods to private individuals in other member countries without having to pay VAT in those countries. The delivery threshold only applies to a seller if it makes sales to customers in other EU countries, and if:

• The customers are private individuals (or persons equivalent to private individuals) who are not subject to acquisition tax.
  
• The goods are transported or shipped by the business itself to the country in question (i.e., there is no collection delivery).
  

As long as a sale meets these conditions and does not exceed the delivery threshold, VAT applies in the seller’s country of origin. If sales exceed the threshold, the seller must register for VAT in the target country (i.e., the country it is selling to) and pay the applicable VAT there.

How high is the delivery threshold?

Up until June 30, 2021, the mail order regulation pursuant to Section 3c of the VAT Act (UStG) applied to intracommunity distance sales by businesses in Germany. During this time, delivery thresholds varied by EU country, and sellers therefore had to use different thresholds depending on the countries they sold to. In order to simplify intracommunity distance sales, however, a new distance selling regulation was implemented to supplement the UStG. Since July 2021, a uniform delivery threshold has applied across the EU: revenue cannot exceed €10,000 net per calendar year.

Here’s an example: A business in Germany delivers goods worth €8,000 net to private customers in France in the first half of the year. The sales are below the delivery threshold and the tax authority in Germany can therefore tax the transactions at the domestic tax rate. Then, in August of the same year, the business makes further sales to customers in France worth €2,500 net, thereby exceeding the delivery threshold of €10,000. As a result, tax authorities must tax all sales of goods that have exceeded the threshold with French VAT. The same applies to all revenues from deliveries of goods by the relevant business to France in the following calendar year. The basis for taxation in this scenario is known as the “destination country principle” versus the “country of origin principle.”

Destination country principle vs. country of origin principle

The destination country principle and the country of origin principle are two different concepts for taxing cross-border goods and services within the European Union.

Destination country principle

Under the destination country principle, the destination country (i.e., the country where goods are being delivered) levies VAT. This means that the tax rate and tax regulations of the destination country apply. When a business’s sales in a given EU country exceed the delivery threshold, the business must register in that country for tax purposes, and collect and pay the applicable VAT there. For intracommunity sales within the EU, the destination country principle applies primarily to ensure fair taxation and avoid companies deliberately selling in countries with lower tax rates in order to secure unfair price advantages.

Country of origin principle

Under the country of origin principle, taxation occurs according to the regulations and tax rates of the country from which the goods originate (i.e., the seller’s country). This means that authorities will tax sales in the country of origin, regardless of where the business delivers goods. As long as a business does not exceed the delivery threshold of the destination country, the relevant tax authority calculates VAT according to the country of origin principle. If the business exceeds the threshold, the destination country principle applies.

When does the delivery threshold not apply?

In some cases, the delivery threshold does not apply and special regulations apply instead. The main exceptions are below.

Goods subject to excise duty

The destination country must generally tax goods subject to excise duty. According to Section 1a, Paragraph 5 of the VAT Act, this includes mineral oils, alcohol and alcoholic beverages, as well as tobacco products. The delivery threshold does not apply to these goods. In addition, corresponding fees do not apply when calculating the revenues for the delivery threshold.

New vehicles

Similarly, the destination country principle applies to the purchase of new vehicles, according to Section 1a Paragraph 5 of the VAT Act. The destination country must tax new vehicles regardless of the sale amount.

Acquisition thresholds

Private individuals and persons treated as private individuals can only accept the cross-border delivery of goods up to a certain value within a calendar year. EU member states individually set this limit, known as an “acquisition threshold.” If a customer exceeds this limit, tax authorities will treat the customer like a business for tax purposes. The customer will then have to pay taxes on the goods they purchase in their country. In Germany, the customer must apply for a VAT identification number from the Federal Central Tax Office when this occurs.
Below you will find an overview of the acquisition thresholds of EU member states as of January 1, 2021, from the Industrie und Handelskammer (IHK).

Acquisition thresholds of EU member states

*The national currency in Hungary is the forint (HUF), but VAT law requires the delivery threshold amount to be in euros.

Acquisition threshold waiver

According to Section 1a, Paragraph 4 of the VAT Act (UStG), customers have the option to voluntarily waive the application of an acquisition threshold. According to regulations, the use of a VAT identification number for the supplying businesses acts as a waiver. If a business invokes this waiver, it will be valid for two calendar years.

How does the BZSt tax sales above the delivery threshold using the OSS?

Businesses that deliver goods valued above the delivery threshold to other EU member states must register for VAT in those countries and pay VAT there. This involves a lot of administrative effort, particularly when making sales in multiple countries.

For this reason, the Federal Central Tax Office (BZSt) offers a way for B2C distance sellers to record intracommunity sales made within the EU: via the One Stop Shop (OSS). The OSS is an online portal through which businesses can centrally manage their tax obligations across multiple EU countries. If a business exceeds the delivery threshold, it can use the OSS to settle the sales tax owed with a payment by bank transfer—along with its quarterly sales report. The BZSt will, in turn, use the OSS to pay the sales tax owed to the respective EU member states. This means that the delivery threshold does not need to be taken into account separately by the BZSt in the OSS.

For sales tax to be processed by the BZSt, the business must provide the following information:

• Destination countries
  
• Net sales amounts for each destination country (amounts should be in the respective national currencies)
  
• Tax rates applied to the goods
  
• VAT amounts to be paid
  
• VAT identification number
  

Stripe Tax can help when it comes to processing VAT. Tax enables businesses to collect and report their taxes for global payments. The system calculates the correct tax amount automatically, and users can see at a glance whether their sales exceed the delivery threshold. Stripe Tax also offers access to all relevant tax documents and can make applying for tax refunds quick and easy.

What happens if a business exceeds the delivery threshold?

Businesses that exceed the delivery threshold can either use the OSS to tax their sales or register in the relevant EU member states, pay tax on their sales there, and submit separate tax returns locally. As soon as it looks like a business will exceed the delivery threshold, they should choose one of these two options.

Anyone who accidentally or intentionally exceeds the threshold and does not address their owed taxes in the respective EU countries accordingly is committing a criminal offense. Further, filing an incorrect tax return or failing to file can be considered tax evasion. If businesses have any doubts about their tax obligations, they should seek the services of tax advisors in either their own country or the destination country, as applicable.