VAT on digital services sold abroad: a guide for SaaS companies and agencies

Business customers (B2B)

For most services supplied to a business customer outside the UK, the place of supply is where the customer belongs. You don't charge UK VAT; the customer accounts for VAT in their own country under the reverse charge. Keep evidence that the customer is in business (such as a VAT number) and show on the invoice that the reverse charge applies. These sales still go on your UK VAT return as outside-the-scope supplies.

Consumers in the EU (B2C digital services)

Electronically supplied services, such as software subscriptions, apps, downloads and online courses, sold to EU consumers are taxed in the consumer's country, at that country's rate. For a UK business there's no threshold: the first sale creates the obligation. Rather than registering in every EU country, you can register for the Non-Union One Stop Shop (OSS) in one EU member state and file a single quarterly return covering all your EU consumer sales.

• Charge the VAT rate of the customer's country
• Hold two pieces of non-contradictory evidence of where the customer is, such as billing address, IP address, bank country or SIM country
• File the OSS return quarterly and keep records for ten years

Agencies: services that aren't 'digital'

Web design, development and marketing services are usually not electronically supplied services, even if they're delivered by email or online, because they involve significant human input. Sold to an overseas business, they generally follow the B2B rule above. Sold to an overseas consumer, the rules differ by service type and destination, so check before invoicing.

Outside the EU, and using a merchant of record

Other countries have their own rules for foreign digital sellers (Norway, Switzerland and Australia, for example), and in the US some states charge sales tax on software once you pass their thresholds. Many SaaS businesses use a merchant of record, such as Paddle or Lemon Squeezy, that sells to the customer itself and handles overseas VAT and sales tax for you. That changes how you account for the income, so it's worth setting up properly from the start.

UK customers and registration

UK VAT registration is compulsory once your UK taxable turnover goes over £90,000 in a rolling 12 months. Sales that are outside the scope of UK VAT, like most B2B services to overseas customers, don't count towards that threshold, but they still need to be recorded correctly.

Sources: GOV.UK: place of supply of services, GOV.UK: VAT registration threshold, European Commission: One Stop Shop, Avalara: EU VAT on digital services.

This guide is general information, correct at the date shown, and not advice for your specific situation. Rules change, so check the current position before acting.