Your internet sales are doing well, and you have received orders from all over the world. What do you need to know to make sure your business is complying with VAT rules?
The first step is to distinguish between ordinary internet sales and electronic services.
Internet sales or electronic services?
European VAT rules distinguish between sales or services contracted through the internet and services delivered automatically through a website or platform.
Services contracted through the internet include online shops or consultants with a website where products or services can be requested. If the product or service can also be ordered by phone, email or in person, the website is simply one of the channels used to make contact.
Electronic services are different. They are supplied over the internet with little or no human intervention, such as downloading digital files, accessing a web app, hosting, software updates or platform-based digital access.
Remote teaching by a tutor through a video call, for example, would not normally be treated as an electronic service because there is meaningful human intervention.
The place of taxation
For VAT, the key question is where the supply is considered to take place. The answer depends on what is being sold, who the customer is, and where the customer is located.
As a simple starting point, sales to Spanish clients usually follow Spanish VAT rules.
Sales within Spain
Sales that are not classified as electronic services are taxed under the general IVA rules.
Any sale to a client located in mainland Spain or the Balearic Islands normally needs to include Spanish IVA, unless a specific exemption applies.
For VAT purposes, clients located in Ceuta, Melilla or the Canary Islands are outside the Spanish VAT territory.
Sales to clients outside Spain
For clients located in other EU countries, VAT treatment depends on whether the client is a business or a final consumer.
If the client is an EU business with a valid VAT number and the reverse charge mechanism applies, the invoice can normally be issued without Spanish IVA.
If the client is not a business but a final consumer in another EU country, the answer depends on whether you are selling goods, ordinary services or electronic services.
For clients located outside the EU, Spanish VAT often does not apply, but the specific treatment depends on the nature of the sale and where the service is effectively used.
Sales to final consumers in other EU countries
For cross-border B2C e-commerce inside the EU, the modern VAT system is no longer based on separate distance-selling thresholds for each country.
Today there is a common EU threshold of 10,000 euros for certain cross-border B2C supplies, including intra-EU distance sales of goods and telecommunications, broadcasting and electronic services.
Below that threshold, a Spanish business may generally apply Spanish VAT, unless it opts to apply destination-country VAT.
Above that threshold, VAT is normally due in the customer's EU country. Instead of registering separately in every Member State, many businesses use the One Stop Shop (OSS) to declare and pay VAT centrally.
Electronic services
Electronic services are services delivered through the internet with little or no human intervention.
Common examples include:
- Accessing or downloading digital files.
- Hosting services.
- Software updates.
- Access to a web app, membership platform or digital tool.
How electronic services are taxed
For B2C electronic services supplied to consumers in another EU country, VAT is generally linked to where the customer is located.
If the total annual amount of relevant cross-border B2C EU sales remains below 10,000 euros, the seller may normally keep applying VAT in the Member State where the business is established.
Above that amount, the business usually needs to apply the VAT rate of the customer's country. OSS can simplify the reporting, so the business does not need separate VAT registrations in each country for those sales.
In practice, your invoicing software should be configured to identify the customer's location and apply the right VAT treatment.
Why this matters
Online businesses often sell across borders before their VAT setup has caught up with reality.
This is especially common for SaaS businesses, course creators, marketplaces, subscription platforms, digital downloads and online sellers shipping to customers in several EU countries.
If your sales model includes EU business clients, final consumers, platforms or digital services, it is worth reviewing your VAT setup before the volume grows.