Is the topic of Value Added Tax (VAT) for your business a daunting prospect? A major shift took place in 2023 for online retailers and small businesses operating across European borders. A new EU-wide accounting regulation has dramatically simplified VAT obligations for distance sales within the European Union. This reform is a key part of the EU’s broader strategy to harmonise digital commerce, reduce red tape, and promote business growth across the single market.
The Old System: Complex and Costly
Before the 2023 regulation, EU-based sellers who exceeded specific annual revenue thresholds in other Member States (typically €35,000 to €100,000) were required to:
- Register for VAT in each target country.
- Hire local accountants or legal representatives.
- Navigate language barriers and different national rules.
- Submit individual VAT returns for each country where they sold goods.
This patchwork system significantly increased the administrative burden, discouraged cross-border sales, and often led to unintentional non-compliance and penalties.
The 2023 Reform: A Single Point of Compliance
With the 2023 reform, the EU has introduced a streamlined VAT accounting model for online cross-border sales, leveraging the One-Stop Shop (OSS) system. In short, a one-stop shop for all VAT matters set-up, one process and one management.
How It Works:
Single VAT Registration: Sellers only need to register for VAT in their home country.
OSS Registration: Sellers need to leverage the OSS system to register their intent and reporting for VAT obligations across the European Economic Area (EEA)
Quarterly Reporting: Instead of filing separate VAT returns in every Member State, businesses file one consolidated OSS return every quarter through their domestic tax authority.
Local Filing, EU Coverage: For example, a German seller submits their OSS VAT return to the Finanzamt, while a Bulgarian seller submits to the NRA (НАП). These tax authorities then distribute the VAT to the relevant countries.
This unified approach dramatically reduces administrative complexity, saves on professional fees, and eliminates the need to monitor multiple national VAT rules.
Why It Matters for Online Sellers
The 2023 regulation is a game-changer for:
SMEs and startups: Lower barriers to entering international markets.
E-commerce platforms: Easier integration of multi-country sales logistics and invoicing.
Digital entrepreneurs and dropshippers: Fewer compliance headaches and more scalability.
It also enhances transparency and VAT collection for EU Member States, reducing the VAT gap (estimated at nearly €100 billion annually).
What’s the Catch?
While the system is greatly simplified, sellers still need to:
Correctly classify sales as cross-border B2C transactions.
Monitor thresholds for each type of good/service (especially digital services, which fall under separate VAT rules).
Keep digital records for 10 years in accordance with EU regulations.
Sellers must also ensure they are registered for OSS and not using the old Mini One Stop Shop (MOSS) system, which applied to digital services only before being expanded in 2021.
Final Thoughts
The 2023 EU regulation marks a bold and business-friendly step toward modernising e-commerce in Europe. By simplifying VAT registration and reporting across Member States, it encourages small and medium-sized businesses to think bigger and go cross-border, with less red tape and more room to grow.