The European Union (EU) had a population of 453 million people as of 2017.

The European Commission (EC) estimates that about 80% of the economic activity in the 27 member states depends on trade. That means that the greater part of European sales take place beyond the borders of the member states.

For example, in 2016 there were 331.9 million Euros in online commerce across the EU. That’s 66.3% of all online shopping sales. This trend is expected to continue.

Most importantly, according to the EU, only 18% of online consumers in the EU have an annual income above 50,000 Euros, which makes them hyper-focused on price. Above-average-income consumers prefer to purchase quality items that will last longer rather than cheaper, faster-to-market commodities. For more information, see this guide by the American Marketing Association (AMA).

The Importance Of VAT For Small Businesses

If you are a small business owner with an online store selling across the EU, you need to pay VAT on all sales unless you are a registered EU business. As a foreign company that operates within the EU, you are required to charge VAT on all purchases made from within the EU. There are exceptions for certain goods and services, but you must follow the law.

If you are selling goods that are typically for personal use (e.g., clothing, gifts, etc.), you don’t have to pay VAT. You only have to pay the tax if your goods are bought for commercial use.

Why Shouldn’t All Online Retailers Charge VAT?

If you are a small business owner with an online store selling across the EU, you need to pay VAT on all sales unless you are a registered EU business. As a foreign company that operates within the EU, you are required to charge VAT on all purchases made from within the EU. There are exceptions for certain goods and services, but you must follow the law.

If you are selling goods that are typically for personal use (e.g., clothing, gifts, etc.), you don’t have to pay VAT. You only have to pay the tax if your goods are bought for commercial use.

If you are VAT-registered and you sell to commercial users, you can claim back the VAT you paid on the goods you sold. When you sell goods to non-commercial users, you must keep records for at least three years to be able to claim any VAT credits.

In some countries, such as Germany, France, and Hungary, companies operating online shops must register with the tax authority to be able to charge VAT.

What Is The Most Popular Way For EU Businesses To Pay VAT?

According to the EU, about 80% of all online shops are registered for VAT in at least one of the countries they operate in. This is mainly due to the fact that using a registered VAT number is more convenient for online sellers as well as easier to comply with when collecting invoices.

Here are the most popular methods for EU businesses to pay VAT online:

Pay By Billing Cybersignature

The simplest and most popular way for EU businesses to pay VAT is to use their billing address as the shipping address when checking out. When the vendor receives the order, they will charge the VAT, and then email the invoice to the business owner’s email address.

This is known as online banking. When using this method, you don’t need to register for VAT, but some online merchants find it simpler to use a registered VAT number instead.

Use An Invoicing Service

There are many companies that provide businesses with online invoicing and shipping, ensuring that paying for goods is a quick and simple process. Companies like Revolutum, WorldPay, and Stripe provide services that make paying for things online easier for consumers and businesses alike. These companies will charge VAT to your account, and you don’t need to do anything except for verifying your identity when the service provider contacts you about the order.

Use Different Buyer Email Addresses For Shipping And Invoicing

Depending on your sales volume, you may want to consider using different email addresses for the purchase and shipping processes. For example, if you are paying by credit card, you might want to use the billing address as the shipping address.

In the case of an online shop selling to several countries, using different email addresses for shipping and invoicing can help you get the payment and shipment information from customers in the correct country. If a customer from the UK buys an item from a French vendor, for example, they will need to provide additional information, such as their delivery address. Using different email addresses for shipping and invoicing allows you to provide this additional information without needing to worry about double-entering data.

Register For VAT

If you are registered for VAT in one of the countries in which you operate, you can save a great deal of paperwork by simply registering for VAT in the other countries in which you operate. This is known as country-selecting, and it enables you to benefit from double-taxation treaties between the EU and the countries in which you are registered. If you are operating in a country that is not part of the EU, but is a part of a tax treaty, you should register for VAT there as well. It’s worth noting that country-selecting is not always the best option, especially if you are not VAT-registered in the country in which you operate.

If you are registered in any one of these five countries, you can use this VAT registration to claim back the VAT you paid in the other four countries. When you are abroad, registering for VAT is still the simplest and most popular way for businesses to pay VAT.

How Does VAT Affect The Price Of Goods?

When you register for VAT, it is mandatory for the vendor to include a tax-exempt amount on all invoices. Although this is very helpful for online sellers, it isn’t necessarily the best policy for every business. Depending on the method used to collect the payment, the price of many goods could go up by as much as 17%. In other words, if you sell goods to a commercial entity that is not VAT-registered, you could end up paying more in taxes than you would have without selling to a VAT entity.

Here’s how VAT affects the price of goods:

Pay By Check

If you decide to pay for goods with a check, VAT will not be charged on the transaction, but the cost of the item will be included in your next monthly invoice.

If you are using this method, you must either register for VAT or, if you are selling to a commercial entity that is not VAT-registered, you will have to add the tax on your own. In either case, you are in for a lot of extra work.

Pay By PayPal

If you decide to pay for goods with PayPal, VAT is not charged on the transaction and the cost of the item will not be included in your next PayPal invoice. This is because PayPal does not collect or hand over sales tax except in the states of Washington and New York. Additionally, some states require that you collect sales tax from your own customers.

Credit Card

If you pay for goods with a credit card, VAT is generally not charged on the transaction, but there are exceptions. For example, if you are using a credit card during an online purchase in Germany, VAT is charged. In case you are wondering, the same rule applies to Amex and Diners Club credit cards.

In general, if you decide to pay for goods with a credit card, VAT is not charged on the transaction, but there are exceptions. For example, if you are using a credit card during an online purchase in Germany, VAT is charged. In case you are wondering, the same rule applies to Amex and Diners Club credit cards.

Delivery

Delivery charges vary by country, but generally speaking, the cost of delivery is included in the item’s price. If you are looking for a specific product that is not in stock, delivery fees will be charged. In the event that you paid for shipping with a credit card, you will be responsible for paying the delivery fee. If you want to avoid any charges, you must pay for shipping with a non-credit card or with a check.