EU VAT for SaaS: What You Need to Know
If you sell software to customers in the European Union, you need to handle VAT. There’s no way around it.
The good news: it’s not as complex as it seems once you understand the rules. The bad news: the EU just made it more complex with the ViDA reforms. Here’s everything you need to know.
The Basics
VAT (Value Added Tax) is a consumption tax applied to goods and services in the EU. Each country sets its own rate (currently ranging from 17% in Luxembourg to 27% in Hungary).
When you sell digital services to EU customers, the buyer’s country determines the VAT rate, not yours.
B2B vs B2C: Two Different Worlds
B2B (Business to Business)
If your customer is a VAT-registered business in the EU:
- Reverse charge applies — the buyer handles VAT, not you
- You must validate their VAT number (mandatory, not optional)
- Your invoice shows €0 VAT with “Reverse charge applies” noted
- You still need to report the sale in your EU Sales Listing
B2C (Business to Consumer)
If your customer is an individual or non-VAT-registered business:
- You charge VAT at their country’s rate
- You collect and remit VAT to their tax authority
- Use the OSS (One-Stop-Shop) scheme to file in one country
- You need proof of customer location (two non-contradictory pieces of evidence)
VAT Rates by Country (2026)
| Country | Standard Rate | Digital Services |
|---|---|---|
| Germany | 19% | 19% |
| France | 20% | 20% |
| Netherlands | 21% | 21% |
| Spain | 21% | 21% |
| Italy | 22% | 22% |
| Ireland | 23% | 23% |
| Poland | 23% | 23% |
| Hungary | 27% | 27% |
| Luxembourg | 17% | 17% |
| Sweden | 25% | 25% |
VAT Number Validation
For B2B sales with reverse charge, you must validate the customer’s VAT number. The official system is VIES (VAT Information Exchange System), but it’s notorious for:
- Frequent downtime
- Slow response times (3-5 seconds)
- No caching mechanism
- Rate limiting without clear documentation
This is why developers use third-party validation APIs — you get faster responses, caching, and better reliability.
The ViDA Reforms (2024-2028)
The EU’s “VAT in the Digital Age” package is rolling out in phases:
- 2024: New rules for platform economies
- 2025: Expanded deemed supplier rules
- 2026: Digital reporting requirements begin
- 2028: Real-time reporting and e-invoicing mandatory
For SaaS companies, the key change is more reporting requirements and stricter validation rules. Automating your VAT handling now will save significant pain later.
Practical Implementation
If You’re Using a Merchant of Record (Recommended)
Services like Polar.sh, Paddle, and Lemon Squeezy handle VAT for you:
- They collect VAT from customers
- They remit VAT to authorities
- They handle refunds, chargebacks, and compliance
- You receive a net payout
This is the path of least resistance for indie hackers and small SaaS companies.
If You’re Handling VAT Yourself
You need to:
- Register for OSS in one EU country
- Validate VAT numbers for B2B sales
- Charge correct rates for B2C sales
- Determine customer location (IP + billing address)
- Issue compliant invoices
- File quarterly OSS returns
- Maintain records for 10 years
Key Requirements for Your Checkout
- Collect billing country (determines VAT rate)
- Ask for VAT number on B2B purchases
- Validate VAT number in real-time
- Calculate and display correct VAT amount
- Store two pieces of location evidence
- Issue compliant invoice with VAT breakdown
Common Mistakes
- Not validating VAT numbers — Reverse charge without validation means you’re liable for the VAT.
- Using your own country’s rate — It’s always the buyer’s rate for digital services.
- Ignoring small states — Luxembourg (17%) and Hungary (27%) exist. One rate doesn’t fit all.
- Not keeping records — 10-year retention requirement. Automate this from day one.
The Simplest Path
For most indie SaaS founders:
- Use a Merchant of Record (Polar.sh, Paddle) for B2C sales
- Use a VAT validation API for any B2B invoicing you handle directly
- Automate everything from the start — retrofitting compliance is painful
Building your own VAT handling? The EU VAT Validation API handles number validation, rate lookups, and reverse charge determination. Free tier available.