The variety of value-added tax (VAT) regimes unique to each European Union (EU) country can make managing distance selling particularly challenging. To prevent tax errors and penalties, ecommerce businesses in France must understand the specific VAT rules of each country they sell to. In this article, we’ll look at how businesses can manage VAT when distance selling.

What’s in this article?

• How does VAT impact distance selling?
  
• Who has to declare VAT for distance selling?
  
• What are the VAT rules for distance sellers?
  
• What are the VAT thresholds for online sales?
  
• How do I declare VAT for distance selling?
  

How does VAT impact distance selling?

When businesses conduct sales through ecommerce platforms, they are responsible for declaring and paying VAT, similar to how they would with traditional, in-person transactions. However, in distance selling, the residence of the supplier, seller, or customer can impact the applicable VAT rate.

The international nature of online sales can present numerous tax-related challenges, including determining the place of taxation, the VAT rate, and the reporting requirements. Distance sellers must stay informed about legislative changes to ensure tax compliance and avoid potential penalties.

Who has to declare VAT for distance selling?

VAT applies to all distance selling conducted in France, including both traditional ecommerce and dropshipping sales. Online sellers, whether businesses or individuals, are responsible for paying VAT.

With Stripe Tax, businesses can automate VAT declarations for remote sales with just one click. A variety of tools ensure compliance through a reliable and easy-to-integrate solution.

What are the VAT rules for distance sellers?

Since July 1, 2021, the VAT One Stop Shop (VAT OSS) program has simplified VAT rules for distance sales within the EU.

As a result, businesses pay VAT in their own countries (e.g., a business in France pays VAT in France) on all sales up to a certain limit. After reaching that sales threshold, businesses pay VAT in the countries they are selling to (e.g., a business in France selling to a customer in Germany pays VAT in Germany). Businesses pay and declare all tax through the OSS portal.

To combat tax fraud and revenue losses from distance selling, France—like other member countries—introduced new control and anti-fraud measures in 2024. These measures specifically aim to enhance the reporting requirements for online platforms and improve transaction traceability.

The Finance Act of 2024: New measures and goals

In response to the growth of ecommerce and complex online business models, such as dropshipping, the government in France enacted the Finance Act of 2024. Its regulations and reporting requirements specifically target the distance selling of goods imported from third countries. These measures are meant to:

• Ensure the fair taxation of all transactions
  
• Combat tax fraud
  
• Prevent the erosion of the tax base
  
• Enhance tax control in the ecommerce sector
  
• Improve transaction traceability
  
• Increase the accountability of online platforms
  
• Recover lost tax revenue
  
• Foster fairer competition among market participants
  
• Simplify VAT collection on online transactions
  

Businesses, whether located in France or abroad, must now adjust their business practices to meet the legislation’s new requirements.

Dropshipping and VAT avoidance

The evolution of online retail has made it possible for dropshipping businesses to avoid VAT obligations by selling products that are shipped directly from a supplier in a non-EU country. However, French legislation now prevents dropshippers from avoiding their VAT obligations.

Article 112, I-A and G of the Finance Act of 2024 specifies that when the conditions for import taxation are not fulfilled, VAT becomes payable in France and is the seller’s responsibility.

Additionally, certain distance selling transactions that were previously classified as occurring outside the EU are now “territorialized” in France, meaning they are subject to French VAT. This applies particularly when the VAT amount on imports is lower than what would be payable for a sale in France.

What are the VAT thresholds for online sales?

To determine when and where a business must declare VAT for distance selling, it is necessary to understand sales thresholds.

The distance selling threshold

To simplify VAT rules for distance sales, the EU established a distance selling threshold of €10,000, effective as of July 1, 2021. If an ecommerce business’s total annual sales in a given country stay below the €10,000 threshold, they apply the VAT of their own country. For annual sales above the threshold, the seller must apply the VAT of the customer’s country.

This means that a distance seller in France who sells a product to a customer residing in Germany will apply French VAT to the transaction—even if the seller delivers the product to Germany. However, once the French seller's annual sales across the EU reach €10,000, all subsequent sales will need to apply the VAT of the country of delivery. If, for example, the seller made additional sales to customers in Germany, the seller would apply German VAT to those sales.

Basic VAT exemption thresholds

In France, when a business surpasses the sales thresholds for the basic VAT exemption, it enters into a grace period. This allows the business to continue using that VAT regime for a specified period—up to an increased threshold. Once sales exceed the new threshold, the business must begin charging VAT on its sales.

How do I declare VAT for distance selling?

To standardize VAT declaration procedures across the EU, each member state has established a VAT One Stop Shop (VAT OSS). This system allows businesses to centralize their declaration obligations.

Thanks to the VAT OSS—as well as the Import One Stop Shop (IOSS), which is for non-EU businesses—it’s simple for sellers to manage their tax obligations within the EU.

In France, businesses can fulfill their VAT obligations by submitting their declaration online via the secure business dashboard on the impots.gouv.fr website, using form no. 3517-S-SD.