VAT for US Sellers Selling to Europe

How VAT Differs From US Sales Tax

VAT and US sales tax are both consumption taxes collected on retail transactions, but they work differently in important ways. US sales tax is collected only at the final retail sale, the rate is determined by the customer's location, and the seller remits tax to the state. VAT is collected at every stage of the supply chain (manufacturer to distributor to retailer to consumer), with each party charging VAT on their sale and receiving credit for VAT paid on their purchases. The net effect is that VAT is ultimately borne by the final consumer, but the collection mechanism involves every business in the chain.

VAT rates are generally higher than US sales tax rates. Standard VAT rates in the EU range from 17% (Luxembourg) to 27% (Hungary), with most large EU countries at 19% to 25%. The UK standard VAT rate is 20%. Canada's federal GST rate is 5%, with provincial additions bringing the combined rate to 13% to 15% in most provinces. Australia's GST rate is 10%. These rates apply to the full retail price including shipping in most cases.

Another key difference: VAT is tax-inclusive. In Europe, the price shown to the consumer includes VAT, unlike in the US where sales tax is added at checkout. If you sell to EU customers, your pricing strategy needs to account for VAT being included in the displayed price, which means your effective revenue per unit is lower than the listed price.

EU VAT for US Sellers

The EU's Import One-Stop Shop (IOSS) system, implemented in July 2021, simplified VAT collection for non-EU sellers shipping goods valued at 150 euros or less to EU customers. Under IOSS, a US seller can register for a single VAT identification number through one EU member state and use it to collect and remit VAT on all EU sales across all 27 member states. Without IOSS, each shipment arriving in the EU is subject to VAT and customs processing at the border, which creates delays and unexpected charges for customers.

To use IOSS, a US seller must appoint a fiscal representative (an intermediary) based in the EU, as non-EU businesses cannot register directly. The fiscal representative files IOSS returns on your behalf and acts as your point of contact with EU tax authorities. Several companies offer IOSS registration and filing services for US sellers, typically charging $200 to $500 per month depending on transaction volume.

With IOSS, you charge VAT at the rate of the customer's country at checkout. A customer in France pays 20% VAT, a customer in Germany pays 19%, and a customer in Sweden pays 25%. Your ecommerce platform or tax software calculates the correct rate based on the shipping address. You then remit all collected VAT through a single monthly IOSS return to your registration country, which distributes the funds to the appropriate member states.

For shipments valued over 150 euros, IOSS does not apply. The customer (or their customs agent) pays VAT and any customs duties at the point of importation. This import VAT is typically collected by the carrier (DHL, FedEx, UPS, postal services) and passed on to the customer, often with an additional customs processing fee. For US sellers with high-value products, this means the customer pays more on delivery than the price at checkout, which can cause delivery refusals and negative customer experiences.

UK VAT for US Sellers

The United Kingdom, after Brexit, has its own VAT rules separate from the EU. For shipments valued at 135 British pounds or less from overseas sellers, the seller must register for UK VAT, charge 20% VAT at the point of sale, and remit it to HM Revenue and Customs (HMRC). This rule applies to all non-UK sellers shipping directly to UK consumers, with no minimum sales threshold, meaning even a single sale to a UK customer technically triggers a registration obligation.

In practice, many small US sellers either absorb the risk of non-compliance or use UK-based fulfillment to simplify VAT handling. If you sell through a UK marketplace (Amazon UK, eBay UK, Etsy with UK sales), the marketplace collects and remits UK VAT on your behalf under the UK's version of marketplace facilitator laws, similar to the US approach.

For shipments valued over 135 pounds, VAT and customs duties are charged at the point of importation, similar to EU rules for goods over 150 euros. The customer pays the import VAT plus any applicable customs duties on delivery.

Canadian GST/HST for US Sellers

Canada requires non-resident sellers to register for GST/HST if they meet certain sales thresholds. For sellers of physical goods shipped to Canada, registration is generally not required unless you have a physical presence (warehouse, office, employee) in Canada. However, for sellers of digital products and services to Canadian consumers, Canada requires registration if your annual revenue from Canadian sales exceeds CAD $30,000.

The GST rate is 5% federally, with provincial sales taxes adding 6% to 10% in most provinces, for a combined rate of 13% to 15%. The exact rate depends on the province. Ontario uses a harmonized HST of 13%. Quebec has a 9.975% provincial sales tax (QST) in addition to the 5% GST. British Columbia has a 7% PST plus 5% GST. The rate calculation is more complex than US sales tax because of the federal/provincial split.

Australian GST for US Sellers

Australia requires overseas sellers to register for GST and charge 10% GST on goods valued at AUD $1,000 or less if the seller's Australian revenue exceeds AUD $75,000 per year. For shipments over AUD $1,000, GST and customs duties are assessed at the border. Marketplaces (Amazon Australia, eBay Australia) collect GST on behalf of third-party sellers for low-value goods.

The AUD $75,000 threshold applies to your total Australian sales, not per-transaction. If you sell $75,000+ worth of products to Australian customers across all channels, you must register with the Australian Taxation Office (ATO), charge 10% GST at checkout, and file quarterly GST returns.

When International VAT Matters for US Sellers

Most small to mid-sized US ecommerce sellers do not have significant international VAT obligations because the majority of their sales are domestic. International VAT becomes relevant when you sell through international marketplaces (Amazon UK, Amazon EU, eBay UK/EU), as the marketplace handles VAT collection, when you ship directly to international customers from your own store and your volume exceeds the registration thresholds, or when you sell digital products to international customers, where thresholds tend to be lower.

If your international sales are occasional (a few orders per month) and below registration thresholds, most US sellers handle VAT pragmatically by shipping DDU (Delivered Duty Unpaid), meaning the customer pays any import VAT and duties on delivery. This is simpler but creates a worse customer experience. If international sales are a significant and growing part of your business, proper VAT registration and compliance provides a better customer experience (DDP shipping with VAT included at checkout) and eliminates the risk of non-compliance.

Avalara is the primary tax automation platform that handles international VAT alongside US sales tax, making it the recommended solution for sellers who need both domestic and international tax compliance in a single platform. TaxJar is US-focused and does not handle international VAT, so sellers with international obligations need a separate solution or Avalara.