Let’s say you’re a EU based company that has sold a digital product priced at €25.
Your invoices should have VAT included (€25 + VAT based on customer location) when:
Your customer lives in your country.
Your customer lives in another EU country and doesn’t have a VAT number.
Your invoices should have VAT exempted when:
Your customer lives in another EU country and does have a VAT number.
Your customer lives outside EU.
Complementary considerations
If your business stays below €10,000 in cross-border sales of digital goods per year, throughout the EU, then you can charge the VAT rate of your home country on all those cross-border sales, keeping your tax scheme simple.
The taxes of a digital product have to be applied in a exclusive way, othwerwise you’re assuming dynamic pricing based on customer location.
B2C and B2B have different implications in terms of VAT.
State of the Art
If you are using Stripe, they’ve started rolling tax feature to reduce the friction on your side. Alternatively, I wrote some software to simplify the things:
req-country – Given a request, get the country associated with it. ISO 3166-1 alpha-2 compliant.
country-vat – Given a request, get the country associated with it. ISO 3166-1 alpha-2 compliant.
is-european – Check if a country is part of the EU (European Union) or EEA (European Economic Area). ISO 3166-1 compliant.
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