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FLEX. Logistics
We provide logistics services to online retailers in Europe: Amazon FBA prep, processing FBA removal orders, forwarding to Fulfillment Centers - both FBA and Vendor shipments.
In an increasingly digital economy, the supply of electronic services across borders has become a major growth opportunity for e-commerce sellers. At the same time, the regulatory landscape in the European Union (EU) demands careful attention — especially when it comes to value added tax (VAT), the “place of supply” rules, and how transactions differ depending on whether you are selling business-to-consumer (B2C) or business-to-business (B2B).
For logistics and e-commerce service providers like FLEX Logistics, understanding these rules is essential not only for compliance but also for designing service offers that integrate physical fulfilment with digital-services compliance. In this article we’ll cover the key rules for cross-border electronic services in the EU, highlight helpful statistics, and give practical advice for e-commerce sellers offering digital services (or combining them with goods) across Europe.
What are “Electronic Services” / “Electronically Supplied Services”?
In the EU context, “electronically supplied services” (ESS) are services which are delivered over the internet or an electronic network, and whose supply is essentially automated and involves minimal human intervention. Examples include: software supply and updates, website hosting, distance maintenance of programs/equipment, provision of digital content (music, films, games, online magazines), database access, streaming and broadcasting.
Why this matters: the VAT place of supply rules for these services differ from many other services, especially in the B2C context (sales to private consumers). For e-commerce sellers offering digital services (or platforms facilitating them), this means you must pay close attention to where your customer is, and how VAT is applied.
B2B vs B2C in the EU: The Crucial VAT Distinction Every E-commerce Seller Should Understand
When selling electronic services across the EU, understanding whether your customer is a business or a consumer is critical. The VAT treatment differs significantly between B2B (Business to Business) and B2C (Business to Consumer) transactions, affecting how you charge, report, and remit tax. Getting this distinction right ensures compliance, avoids penalties, and allows e‑commerce sellers to scale efficiently across European markets.
B2B (Business to Business)
When a supplier provides services to another taxable person (business) in the EU, the general rule is that the “place of supply” is where the business customer is established. As a result, the reverse-charge mechanism often applies: the business customer accounts for the VAT in their member state.
For example: an EU-based company providing hosting services to an EU-registered business customer in another member state would normally issue an invoice without charging VAT and the customer would self-account under the reverse charge.
B2C (Business to Consumer)
When services are provided to private individuals (consumers) in the EU, the rules are more stringent. For electronically supplied services in particular, the VAT is due where the consumer resides (“destination principle”). This means a supplier must charge VAT at the rate of the consumer’s member state, not (necessarily) the supplier’s.
For e-commerce sellers providing digital services to EU consumers, this means tracking consumer location, applying the correct VAT rate, and complying with registration/reporting rules.
Why the difference matters for e-commerce sellers
For B2B: fewer VAT registration burdens in customer countries (via reverse charge)
For B2C: increased burdens — you may need to register for VAT (or use a simplified scheme) in each member state (or via a one-stop shop) where you have consumers
Compliance risk is higher in B2C digital services because you’re required to apply multiple member-state VAT rates and ensure correct place-of-supply logic
Navigating EU VAT for Cross-Border Digital Sales: Simplifying OSS, Thresholds & Place of Supply
Selling electronic services across the EU comes with complex VAT obligations, but understanding key rules can make compliance much simpler. From the One-Stop Shop (OSS) and Import One-Stop Shop (IOSS) to thresholds, the destination principle, and upcoming reforms, e-commerce sellers need a clear roadmap to stay compliant while expanding their business across borders.
1. One-Stop Shop (OSS) and Import One-Stop Shop (IOSS)
Since 1 July 2021, the EU introduced major changes to the cross-border e-commerce VAT regime. The “Union” One-Stop Shop (OSS) allows sellers to register in one member state and report VAT on cross-border B2C supplies of goods and services to customers in all EU member states.
According to the European Commission, in 2024 more than €33 billion in VAT revenues were collected via the EU’s e-commerce VAT systems: over €24 billion declared via Union OSS, €2.8 billion via non-Union OSS, and €6.3 billion through IOSS — representing a 26 % increase compared to 2023.
For e-commerce sellers offering electronic services to EU consumers, the OSS regime is a major simplification: one registration, one return. But you still must apply the correct VAT rate based on consumer location.
2. Thresholds and destination principle
For B2C electronic services, many sellers previously applied VAT based on their own country. But the destination principle now applies for ESS: VAT is due in the consumer’s country.
In addition, an EU-wide threshold (currently €10 000 net per year) for B2C cross-border distance sales of goods/services exists: if your annual EU sales to consumers exceed €10 000, you must apply VAT of the customer country rather than your own.
For example: A company established in Poland selling digital subscriptions to consumers across the EU will need to register via OSS if sales exceed the threshold and apply VAT at the rate of each consumer’s member state.
3. Place of supply rules for ESS
Specifically:
For B2B: place of supply is the customer’s location.
For B2C electronic services: place of supply is the consumer’s location (i.e., where the customer resides) — meaning supplier must apply VAT at that rate.
4. Upcoming reforms: VAT in the Digital Age (ViDA)
The EU is modernising its VAT system further. The VAT in the Digital Age Package (ViDA) will bring new reporting obligations, e-invoicing, and further simplifications for online platform economy, expected progressively from 2025 onwards.
For e-commerce sellers of digital services, this means you should monitor regulatory evolution and build flexibility into your compliance processes.
Statistics & Market Context: Why It Matters for E-commerce Sellers
The EU collected over €33 billion in 2024 via the OSS/IOSS e-commerce schemes.
Sales of electronically supplied services within the EU are subject to the destination principle, and the regulatory burden for cross-border digital services is rising.
As per OECD data, the approach for cross-border services is aligned: “by reference to the customer’s location (for B2B) and to the customer’s usual residence (for B2C)”.
This means that online sellers targeting EU consumers with digital services face increasing compliance complexity, which can impact their cost structure, pricing, and ability to scale seamlessly across EU markets.
Practical Implications for E-commerce Sellers & How FLEX Supports You
Implication 1: Know your customer (business vs consumer)
When you supply electronic services, you must determine whether your customer is a taxable business or a consumer. This determines whether you apply reverse charge, or you must charge VAT at the consumer’s country rate. Mistakes can lead to VAT liabilities and administrative burdens.
Implication 2: Determine your VAT registration / OSS strategy
If you are selling digital/electronic services to EU consumers (B2C), you must consider registration under OSS, account for the correct member-state VAT rates, issue compliant invoices and keep records. The threshold of €10 000 and the destination principle are critical.
Implication 3: Set your pricing, billing and systems correctly
When you must charge VAT at the rate of the consumer’s member-state, this affects your checkout system, billing logic, tax engine, and potentially your pricing strategy (you may absorb VAT, pass it on, or adjust net price).
Implication 4: Combine physical fulfilment with digital offerings (value-added)
Many e-commerce businesses bundle digital services with goods (e.g., software licence, online training, streaming content). For such mixed models, you’ll need to ensure proper classification: is the primary supply goods or services? How are VAT rules applied? Logistics providers like FLEX, who support cross-border fulfilment, must integrate with this digital-services compliance model.
How FLEX can help
At FLEX, we specialise in cross-border fulfilment for e-commerce sellers. Here’s how our offer aligns with digital service sellers:
EU-wide logistic footprint: For sellers offering digital services plus physical goods (or hybrid offerings), efficient fulfilment across EU member states is vital.
Integrated compliance awareness: While we are not a tax adviser, we help you navigate logistics, shipping and returns across EU borders — which supports your cross-border digital and goods supply chain.
Scalability and market expansion: By combining digital service delivery with reliable physical shipment/fulfilment, sellers can expand into EU consumer markets while remaining compliant with VAT rules.
Operational efficiency: With correct logistics in place, you can focus on digital service offering, while we handle the physical side — reducing complexity so you can handle the digital-services regulatory side more easily.
Key Takeaways & Checklist for Digital Service E-Commerce Sellers in the EU
Identify whether your sale is B2B (business customer) or B2C (consumer).
For B2B digital services across borders in the EU: apply the reverse charge mechanism, and typically do not charge VAT (customer self-accounts).
For B2C electronic services: VAT is due in the consumer’s member state (destination principle).
If your annual EU B2C sales of digital services exceed €10 000, you must register for VAT via OSS and apply the consumer country’s VAT rate.
Ensure your billing systems capture consumer location, apply correct VAT rate, and support a one-stop shop regime where applicable.
Monitor forthcoming reforms (ViDA, digital reporting, e-invoicing) as regulatory complexity will continue to increase.
Combine your digital services offering with physical goods/fulfilment where relevant, and partner with a logistics provider like FLEX to support your cross-border operations efficiently.
Keep records for each member state, track VAT rates per country (they vary widely across EU), and build in compliance processes.
Final Insights: Navigating Cross-Border Digital Services and VAT Compliance
As the supply of electronic services crosses borders more fluidly, e-commerce sellers in the EU face an environment of opportunity — and compliance challenge. Understanding the difference between B2B and B2C rules, leveraging the OSS regime, applying correct place of supply logic, and integrating your digital-service strategy with logistic and fulfilment operational excellence are crucial for sustainable growth.
With its EU wide fulfilment capability and e-commerce expertise, FLEX Logistics is well-positioned to support sellers who combine digital service delivery with physical fulfilment, helping them scale across EU markets while staying aligned with cross-border electronic-services rules. By marrying regulatory awareness with operational execution, you can expand your digital-services business in Europe confidently.
