Originally published at devtoolpicks.com
EU VAT on digital services is not optional. It applies from your first sale to an EU consumer, regardless of how small your SaaS is. Ignoring it does not make you exempt. It just means you are accumulating a liability.
The good news: there are two clean approaches, and one of them requires almost no work on your part.
The Two Approaches
Option 1: Use a Merchant of Record
A merchant of record (MoR) like Lemon Squeezy, Paddle, or Gumroad acts as the legal seller in each transaction. They collect VAT from your customers, remit it to the relevant EU governments, and send you the net amount. You have zero VAT compliance burden.
This is the right path for most solo indie hackers. You focus on the product. The MoR handles the compliance.
Option 2: Handle VAT Yourself via OSS
If you process payments directly through Stripe, you are the seller of record. You must register for EU VAT, collect the correct rate from each customer, and file quarterly returns through the EU One Stop Shop (OSS) system.
This is more work but gives you full control over pricing and payment flows. It is the right choice if you have pricing reasons to avoid MoR fees (typically 5-10% of revenue) or if you need direct relationships with your payment processor.
The €10,000 Threshold
If you are based in an EU country, there is a €10,000 annual threshold for cross-border B2C sales. Below this threshold, you can charge your home country's VAT rate on all EU sales instead of each customer's local rate.
Once you cross €10,000, you must either register for OSS or use an MoR.
Important: this threshold does not apply if you are based outside the EU. US, UK, Australian, and other non-EU founders owe local VAT from the very first sale to an EU consumer. There is no grace period. Most early-stage non-EU founders solve this by using Lemon Squeezy or Paddle from day one, which eliminates the obligation entirely.
B2B vs B2C: The Distinction That Changes Everything
VAT treatment depends entirely on whether your customer is a business or a consumer.
B2C (consumer): You charge VAT at the customer's country rate. Germany: 19%. France: 20%. Italy: 22%. Hungary: 27%. Luxembourg: 17%. You collect and remit this VAT.
B2B (business): Use the reverse charge mechanism. You charge 0% VAT and note "VAT reverse charge applies" on the invoice. The customer's business accounts for VAT under their own obligations. You owe nothing.
The test is simple: did the customer provide a valid VAT number? Validate it at the EU VIES tool (ec.europa.eu/taxation_customs/vies). Valid number: B2B, zero VAT. No number or invalid: B2C, charge local rate.
Most SaaS billing tools (Stripe, Paddle, Lemon Squeezy) have VAT number collection built in. Turn it on.
The VAT Decision Flow
How OSS Registration Works
If you go the self-registration route, here is the process:
Step 1: Register for Union OSS (EU founders) or Non-Union OSS (non-EU founders) through your country's tax authority online portal. EU founders register in their home country. Non-EU founders register in any EU member state they choose.
Step 2: Collect evidence. You need two non-contradictory pieces of location evidence per sale: billing address, IP address, phone country code, or bank details. Keep records for 10 years.
Step 3: Apply the correct VAT rate. Rates range from 17% (Luxembourg) to 27% (Hungary). Most billing tools can automate this by country.
Step 4: File quarterly returns. Deadlines are the end of the month following each quarter (Q1 due April 30, Q2 due July 31, Q3 due October 31, Q4 due January 31). One return covers all 27 EU member states.
Step 5: Pay. One payment to your member state of registration. They distribute to other countries.
Registration typically takes 30-60 minutes online. The first filing is where most founders struggle, since you need to categorise every B2C sale by customer country and VAT rate.
What Merchant of Record Actually Covers
When you use Lemon Squeezy or Paddle as an MoR, they handle:
- VAT registration in all relevant jurisdictions
- Charging the correct VAT rate at checkout
- Collecting the VAT from customers
- Filing returns in each country
- Remitting VAT to governments
- Managing audits if they occur
You receive payments net of their fees and net of VAT. Your accounting is simpler because the MoR revenue is your revenue, no VAT adjustment needed.
The trade-off is cost. MoR fees typically run 5-10% of revenue on top of payment processing fees. At $5,000/month in revenue, that is $250-500/month. At scale, many founders switch to self-managed OSS to reclaim that margin. For a detailed comparison of MoR options, see the Lemon Squeezy vs Stripe vs Paddle comparison and the Polar vs Lemon Squeezy vs Creem breakdown.
What to Do Right Now
If you are pre-revenue or very early stage: Set up Lemon Squeezy or Paddle from the start. The compliance cost of doing it yourself at early stage is not worth it.
If you are already processing payments via Stripe with EU customers and have not registered for VAT: You have a liability. The practical steps are: register for OSS immediately, account for back VAT owed (your accountant can advise on the right approach for your situation), and turn on VAT collection in your Stripe Tax settings going forward.
If you are above €10,000 in EU B2C sales: Register for Union OSS if you have not already. The quarterly filing is manageable once set up. Tools like Taxually, Quaderno, or TaxJar can automate the reporting.
If you are a non-EU founder just starting: Use an MoR from day one. You have no threshold protection and the compliance overhead of self-managing OSS as a non-EU business is significantly higher than for EU-based founders.
One thing that does not change your obligation: Being small. EU VAT authorities have been increasing enforcement on digital services, and "I didn't know" is not a defense. The rules have applied since 2015 and the OSS simplification has been in place since July 2021.
A note on ViDA: The EU's VAT in the Digital Age (ViDA) reform package was adopted in March 2025 and is in early implementation in 2026. The major changes (mandatory B2B e-invoicing, digital reporting requirements) do not affect solo SaaS founders until 2028-2030 at the earliest. The current OSS rules, thresholds, and B2B reverse charge mechanism described in this post remain in force throughout 2026.
Note: This post covers the general framework and is not tax advice. For your specific situation, consult a VAT accountant or a service like Taxually.
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