Selling into the EU from outside it: where to incorporate, VAT, OSS and IOSS

Companies based in the US, the UK and elsewhere often find EU customers arriving before any plan to serve them. The first question is usually whether to set up an EU company. For tax, that is the second question. The first is what VAT the sales carry, and whether anything the company does in the EU already gives it a taxable presence there.

VAT on sales to EU customers

• Business customers, services. For most services supplied to EU businesses, the customer accounts for VAT under the reverse charge, and the supplier usually does not need to register.
• Consumers, digital services. Software, streaming, apps and other electronically supplied services to EU consumers carry VAT at the rate of the customer's country from the first sale. A non-EU supplier can register in a single member state under the non-Union OSS scheme and file one return covering all EU sales.
• Consumers, goods shipped from outside the EU. For consignments with an intrinsic value up to €150, the IOSS scheme lets the seller charge VAT at checkout so the parcel clears customs without further VAT. Most non-EU sellers must appoint an EU intermediary to use it. Above €150, import VAT is due at the border. The EU has agreed to remove the customs duty exemption for low-value parcels, and the transitional arrangements should be checked before pricing.
• Goods held in EU stock. A warehouse in the EU usually requires VAT registration in that country, and sales from it to consumers in other member states can be reported through the Union OSS scheme.
• Marketplaces. Where goods are sold through an online marketplace, the marketplace is often treated as the supplier for VAT, which changes who registers.

Permanent establishment

Corporate tax follows a different test. A non-EU company becomes taxable in an EU country if it has a permanent establishment there: typically a fixed place of business, such as an office or, in some cases, a warehouse doing more than preparatory work, or a person who habitually concludes contracts on its behalf. Salespeople, a country manager working from home, or a founder living in the EU and running the business from there can all create one. VAT registration does not create a permanent establishment, and having none does not remove the VAT obligations.

EU entity or not

An EU company becomes worthwhile when there is real activity in the EU to put in it: staff, stock, contracts signed locally, or customers who insist on an EU counterparty. It brings its own filings, bookkeeping and corporate tax, and it needs substance to be respected, including local management for the decisions it takes. Profits between the EU company and the parent must be priced at arm's length. For a company with no people in the EU and purely remote sales, the VAT schemes alone are often sufficient.

Payments and banking

Some payment providers, banks and enterprise customers prefer or require an EU entity, a euro account and SEPA payments. Opening an EU bank account for a company with no EU presence can be slow. Payment platforms can often collect in euros for a non-EU company, which covers many early-stage needs.

Before you sign

• Classify what you sell (goods, digital services, other services) and to whom (businesses or consumers) for each EU market.
• Register for the right VAT scheme before the first taxable sale.
• Check whether anyone working in the EU could create a permanent establishment.
• Decide on an EU entity only when there is real activity for it to carry out.
• Review customs and low-value parcel changes before setting prices for shipped goods.

If you are about to start selling into the EU, call us before you sign the first distribution or hiring contract. The first 30-minute consultation is free, your dedicated consultant is available 24/7, and every request is answered within 24 hours.

General information, not advice. Tax rules change and depend on your facts. Greyridge Global coordinates and delivers cross-border tax and corporate work through appropriately licensed professionals in each jurisdiction. Legal, tax, immigration, fiduciary, and regulated services are provided by qualified advisors engaged for your matter. Nothing on this page is tax or legal advice.