Which VAT rate applies in international invoicing?

International invoicing, or sales invoices outside Finland, may seem a complex and difficult topic. This article explains how value added tax or VAT applies in international commerce. After reading the article, you will be able to correctly invoice international sales and test which VAT rate applies to your sales.

Proceed directly to selecting the international VAT rate here

Which VAT rate applies in international invoicing?

The choice of the correct VAT rate depends on several factors and their combinations. To find out the correct VAT treatment, it's important to know:

• Do you sell and ship physical goods or products, or do you sell intangible services such as consulting?
• Is the buyer a business or a consumer?
• To which country are you selling the goods or service? Is the country an EU member state or not?

The most common situations in international commerce are the sale of services to EU countries and income received from abroad from affiliate marketing or online store sales, for example.

VAT on sales when you sell services to a business established in an EU member state

Invoicing a business in another EU country is done using the reverse charge mechanism, in which case the VAT rate is 0% for the seller. In this case the buyer, which is a business established in an EU country, takes care of reporting and paying the VAT on the invoice in its country. As the seller, you have a duty to ensure that the buyer has a valid VAT ID.

A part of your sales may be subject to VAT in Finland

For example, when you sell services such as training or coaching services to consumers in another EU country, the Finnish VAT rate applies. In this case, you invoice your customers according to the VAT rate in Finland. There may also be exceptions to this in the case of electronic services, such as language courses or personal training programmes that can be bought and used online almost independently of the seller.

When selling electronic services to consumers in another EU country, either the One Stop Shop (OSS) system is applied or, if the volume of the sales exceeds €10,000 in a year, the seller must register as liable to pay VAT in the buyer's country. In small-scale sales of up to €10,000 a year, you can invoice buyers using the VAT rate applied in Finland.

Correct VAT in international sales invoicing?

Answer the options below to find out which VAT rate you need to use when invoicing internationally.

Are you selling goods or services? Additional information about the difference between goods and services Goods refer to physical items and energy commodities such as electricity and gas. Services refer to all other intangible work, such as consulting, design or software development.

Products

Services

Clear selections

What is classified as an electronic service?

Electronic services are a separate category in the Value Added Tax Act due to the fact that exceptions apply to their sales when the service is sold to consumers in an EU country.

The definition of electronic service does not depend on whether the service is digital, but rather whether it is produced mainly automatically or with only minimal input from the seller.

Under section 69(j) of the Value Added Tax Act, electronic services refer to the following services, among others:

Websites and other digital services

• Handover and maintenance of websites (hosting services)
• Cloud services
• Sale and maintenance of software

Digital content

• Downloadable guides, e-books and reports
• Automated data and analytics services
• Other intangible services obtained directly via the internet

Characteristics of electronic services

The main rule is that the definition of electronic service encompasses services which are:

1. Automated digital services
2. Scalable and easily replicable online services
3. Services that can be delivered without continuous human involvement.

Identifying what is an electronic service is important, as this determines how VAT is applied to the sale. Check from the VAT selector which VAT rate you must use when selling electronic services to EU countries.

Avoiding common mistakes with VAT in international sales

This list helps you avoid common mistakes when applying VAT to international sales.

• If the business is established in the EU, check the buyer's VAT number (VAT ID) More about the VAT number If the buyer does not have a valid VAT number (VAT ID), the sale is treated in the same way as when selling to a consumer, even if the buyer is a business.
  Tip: you can check the validity of the VAT number (VAT ID) in the VIES system: Vies on-the-Web (Opens in a new tab).
• Check whether the country belongs to the EU
  You can check the list of EU countries which are part of the VAT area via the Tax Administration's website (in Finnish) (Opens in a new tab).
• Keep track of the volume of sold electronic services and goods sold to consumers in other EU countries (€10,000 threshold)

By checking the above points, you have made progress in finding out the correct VAT procedure for international sales. You can try out different options using the VAT selector in this article before submitting a quote to the customer or invoicing the sold goods or service.