VAT on EU Sales: The OSS Scheme Explained

If your business sells goods or digital services to consumers in other EU countries, there is a good chance you are covered by the EU rules on distance selling and the accompanying OSS scheme. Here is a practical overview of what the rules mean for you as a small or medium-sized business owner, who is affected, and what concrete steps you need to take.

What is the OSS scheme?

OSS stands for One Stop Shop and is an EU-wide VAT scheme introduced on 1 July 2021 as part of a broader reform of the EU's VAT rules for e-commerce. The purpose is straightforward: instead of having to register for VAT in every EU country you sell to, you can report and pay all your EU VAT in one place, through the Danish Tax Agency's OSS portal in Denmark.

Previously, the threshold for when you were required to register in another EU country varied from country to country, typically ranging from 35,000 to 100,000 euros in turnover. The OSS reform replaced these individual thresholds with a single EU-wide threshold of 10,000 euros per year for combined sales to consumers in other EU countries.

Who is affected?

The OSS scheme is relevant to you if you:

• sell physical goods to private individuals (B2C) in other EU countries through an online shop or similar distance selling,
• supply digital services such as software, streaming, e-books, or online courses to EU consumers, or
• provide certain services related to immovable property, cultural events, transport, or catering in other EU countries.

If you sell exclusively to other businesses (B2B) with a valid VAT number, different rules apply. In those cases the buyer's business typically applies the reverse charge mechanism, and the OSS scheme is not relevant to you.

The 10,000-euro threshold is exclusive of Danish VAT and is calculated across all EU countries combined. Once you exceed the threshold, you are required to charge VAT at the rate applicable in the country where the customer is located and remit it at the local rate.

How to register for OSS

The process is fortunately quite straightforward:

1. Create access to the Danish Tax Agency's OSS portal via TastSelv Erhverv at skat.dk. You can register from the date you exceed the threshold, or as early as the beginning of the quarter in which you expect to exceed it.
2. Collect sales data by country. You need to know how much you have sold to consumers in each individual EU country during the relevant quarter.
3. Calculate VAT using the correct country's rate. Denmark has a VAT rate of 25 per cent, but France applies 20 per cent, Germany 19 per cent, and Luxembourg 17 per cent. You must use the rate for the country where the customer is based, not the Danish rate.
4. Report and pay every quarter. The deadline is the last day of the month following the end of the quarter (for example, 31 July for the second quarter). Both the report and the payment are submitted together through the OSS portal, and the Danish Tax Agency distributes the amounts to the relevant countries.
5. Retain documentation for at least 10 years. The EU requires you to be able to document customers' location, for example through IP address, the country of issue of the payment card, or billing address.

The most common mistakes made by small and medium-sized businesses

Many businesses overlook their OSS obligations simply because they have not been keeping track of whether they have passed the 10,000-euro threshold. Others register for OSS but then forget to update VAT rates when EU countries adjust them, which happens regularly. A third classic mistake is continuing to charge Danish VAT at 25 per cent to foreign consumers when the applicable rate in the customer's country is actually lower, or conversely applying a rate that is too low.

It is also important to remember that OSS only covers B2C sales. If you mix B2B and B2C sales within the same system, it is critical to keep a clear distinction between the two so you do not over-report or under-report through OSS.

What happens if you do not comply?

If you exceed the 10,000-euro threshold without using OSS (or without registering locally in the relevant countries), you risk:

• back-payment of VAT in the countries you have sold to,
• fines and interest from foreign tax authorities,
• administrative complications from having to de-register and re-register for OSS.

EU member states are increasingly exchanging information about cross-border sales, and enforcement activity has intensified since 2021.

Frequently asked questions

Does OSS also apply to sales of physical goods from a Danish warehouse? Yes. If you sell physical goods directly to consumers in other EU countries through distance selling, for example via your online shop, you are covered once you exceed the 10,000-euro threshold. OSS handles both digital services and physical goods.

Do I still need to register for VAT in each EU country? No, that is precisely the purpose of OSS. You handle all reporting through the Danish portal. You do, however, still need to register locally in a given country if you store goods there, for example through Amazon's FBA programme, as this creates a fixed establishment.

Can I deregister from OSS if my turnover falls below 10,000 euros again? Yes, but be aware that you must remain registered for at least two calendar quarters before you can deregister, and the deregistration only takes effect from the start of a new quarter.

Keep on top of your EU VAT with Legiant

The OSS scheme simplifies the process, but it still requires ongoing oversight of sales figures, foreign VAT rates, and quarterly deadlines. Legiant automatically monitors your exposure to EU VAT rules, alerts you as you approach relevant thresholds, and helps you stay on top of your documentation requirements, so you can focus on running your business rather than getting lost in spreadsheets. Try Legiant for free and see how straightforward compliance can be.