VAT and Ecommerce: The Basics to Know

VAT on an online store depends on the rate applicable to the product sold, the seller's tax status, and for sales to individuals in other EU countries, a distance selling threshold beyond which the VAT of the destination country applies via the OSS single window. This article presents a general framework and does not replace an accountant's advice.

The real problem: ecommerce VAT isn't a single, fixed rate

Many project owners think it's enough to apply a single VAT rate across their entire store. In reality, the rate depends on the nature of the product or service, and the applicable VAT can change depending on the customer's country of residence once distance sales to other EU countries exceed a certain threshold. Ignoring this mechanism isn't a neutral choice: it can lead to charging an incorrect rate, with the risk of a tax reassessment.

The real work, then, isn't choosing a "default" rate, but understanding which scenario your business falls into and regularly checking that your store's configuration applies the right rate at the right time.

Disclaimer

This content presents a general, informational framework applicable in France and the European Union, as of the publication date. Tax rules evolve regularly and the precise rules depend on your status, sales volume and the nature of your products. An accountant remains the only reliable resource for applying these rules correctly to your business.

VAT rates applicable in France

In France, the standard VAT rate is 20%, applicable to most goods and services. Reduced rates exist for certain categories: 10% for certain products and services (catering, transport), 5.5% for essential goods and certain cultural goods, 2.1% for a limited number of specific cases. The exact rate applicable to each product in your catalog should be checked precisely, as some categories are open to interpretation.

The intra-EU distance selling threshold

Since the 2021 European reform, a single threshold of €10,000 per year (combined across all distance sales and digital services to individuals in other EU countries) determines the applicable regime. Below this threshold, the seller can continue applying VAT from their own country. Beyond it, they must in principle apply the VAT of each customer's destination country, which requires precise tracking of sales by country.

The OSS single window

To avoid having to register for VAT separately in every EU country where the threshold is exceeded, the One Stop Shop (OSS) lets you centralize the declaration and payment of VAT owed in several countries through a single process with the tax authority of your home country. This system significantly simplifies management for stores that regularly sell in several European countries, but its use requires prior registration and rigorous tracking of sales by country.

Selling outside the European Union

Sales to customers located outside the EU follow different rules, generally related to exports, with mechanisms for French VAT exemption under certain conditions, but potentially subject to VAT or customs duties in the destination country, charged to the customer. This type of international sale deserves specific verification before enabling it on a store.

The VAT exemption scheme for small businesses

Certain statuses, notably sole proprietorships (auto-entreprise), benefit below specific revenue thresholds from a VAT exemption scheme: no VAT charged to customers, nor recoverable on business purchases. These thresholds change regularly, and exceeding them changes the applicable regime, with reporting obligations to set up quickly once the threshold is crossed.

VAT on digital products

Digital goods and services (online courses, software, digital subscriptions) sometimes follow different VAT rules than physical goods, with VAT of the customer's country applying from the first euro in some cases, without the €10,000 threshold that applies to physical goods. This distinction is a frequent source of error for stores that sell both physical products and digital content, as each category must be handled according to its own rules.

The impact on the store's technical setup

Beyond the tax filing itself, VAT management has a direct impact on an online store's technical setup: the system must be able to identify the customer's country, automatically apply the corresponding rate, and keep a reliable record of each transaction for filings. Platforms like Shopify and WooCommerce offer modules to automate part of this calculation, but their initial configuration should be checked with your accountant to ensure it matches your actual situation.

What to remember

• The VAT rate depends on the nature of the product sold (20% as a general rule, reduced rates for certain categories).
• An intra-EU distance selling threshold of €10,000 per year determines whether the customer's country VAT should apply.
• The OSS single window simplifies declaring VAT owed in several EU countries through a centralized process.
• Sales outside the EU follow separate rules related to exports.
• These rules evolve and depend on your precise situation: an accountant remains essential for applying them correctly.

Ongoing tracking, not a one-time setup

An online store's VAT isn't a setting to configure once and forget. Sales volume evolves, new destination countries are added as the business grows, and the rules themselves can change at the national or European level. A regular check-in with your accountant, for example at each closing or with every significant change in international sales volume, helps verify that your store's configuration stays aligned with your actual obligations, rather than discovering an accumulated gap during an audit.

Frequently asked questions

What VAT rate should a French online store apply? The rate depends on the product or service sold: 20% for most cases, reduced rates for certain specific categories, to be checked precisely with an accountant.

What is the intra-EU distance selling threshold? An annual amount of sales to individuals in other EU countries (€10,000) beyond which the destination country's VAT applies.

What is the OSS single window? A system that lets you declare and pay VAT owed in several EU countries through a single process, rather than separate registration in each country.

Does a sole proprietorship (auto-entreprise) have to charge VAT? Below certain revenue thresholds, it benefits from the exemption scheme and doesn't charge VAT. Beyond that, VAT becomes mandatory, to be checked based on your current situation.

In summary

An online store's VAT depends on several combined factors (product, status, country of sale) that aren't settled once and for all. Support for the technical setup of your site can incorporate a flexible VAT rate configuration, but defining rates and tracking thresholds should remain your accountant's responsibility.