VAT Calculation When Selling Goods to the EU

By Alexander Maasik

Jul 19, 2021|3 min read

When selling goods to the customers of the EU, sellers must calculate, collect, and pay VAT for all packages sent to the EU, regardless of their value.

But what many sellers don’t know, is that you must also pay VAT for all the extra costs associated with the sale. And if you make a mistake, you’ll be the one saddled with extra problems.

Let’s look at an example. When selling a package that contains a printed book (€20) and a T-shirt (€15) and sending it to each country in the EU, the costs will be very different. If we assume the cost of transport to be the EU is the same €10, the difference of VAT ranges from €3.99 to €11.25. And the price you must ask your customer ranges from 48.99 to 56.25 (on an order worth €35).

And the EU rules do not allow you to collect a flat average rate. All the taxes must be collected and paid precisely based on the EU trade rules.

So how does all this work?

Different countries, different VAT rates.

The first thing to keep in mind is that while the EU has the same export rules, the tax rates (and reduced tax rates) are different for each EU country. Meaning, there are differences between selling goods to Finland or Germany.

A seller must be able to calculate taxes based on the tax rates of all the countries they are transporting goods to. The seller must also know which goods fall under the reduced tax rate (a printed book) in that specific country and for which goods must the VAT be paid in full (the t-shirt).

VAT is not only paid for the goods sent.

The mistake sellers often make is that they apply the VAT only for the price of the package.

However, VAT must also be paid for all the other costs shown on the invoice. That includes transport, insurance, and anything else the buyer pays extra for.

But it gets even more complicated. When these other costs are marked separately at the invoice, they must be divided proportionally between goods with different VAT rates on the invoice. To calculate the correct VAT amount for additional costs.

So, coming back to our package of a printed book and a T-shirt. We’ll find out that for the €10 transportation fee, we need to pay standard VAT for 40% (because the t-shirt is worth 40% of the package) and the reduced rate for 60%.

Doing this work manually is not scalable.

As all goods entering the EU must be declared in customs and VAT applies to every item sent there, the only way to stay compliant with these rules, is to use an automated Duty & Tax Calculation service.

To make this process painless, Eurora™ has developed a Duty & Tax calculation engine that enables full visibility of VAT and other duties in any currency for the destination country in a shopping cart. Eurora™’s database covers VAT and duty rates, de minimis thresholds, and active free trade agreements for each country in the EU (and many others) and is automatically updated as changes are introduced.