By
August 11, 2026
How Does VAT Work for Digital Services Sold Overseas?
If a UK company sells digital services to customers outside the UK, the VAT treatment depends mainly on who the customer is and where they belong.
For many digital services:
Overseas business customer → UK VAT generally not charged
Overseas consumer → UK VAT generally not charged, but VAT or a similar tax may be due in the customer's country
HMRC currently confirms that digital services supplied to consumers outside the UK are not liable to UK VAT, although they may be subject to VAT in the country where the customer is based.
That means selling digital products internationally can create tax obligations outside the UK even when there is no UK VAT to charge.
This guide explains how VAT works when a UK company sells digital services overseas.
Digital services can include certain services supplied electronically with little or no human intervention.
Examples may include:
However, simply delivering something over the internet does not automatically make it a digital service for VAT purposes.
For example, live consultancy delivered through Zoom is generally a professional service rather than an automated digital service.
The exact nature of the service matters.
The place of supply determines where a service is treated as supplied for VAT purposes.
HMRC states that if the place of supply is in the UK, UK VAT applies. If the place of supply is in another country, the service is generally outside the scope of UK VAT.
For international digital services, you therefore need to determine:
Is the customer a business or consumer?
↓
Where does the customer belong?
↓
What exact digital service is being supplied?
↓
Where is the place of supply?
↓
Does UK VAT apply?
↓
Could foreign VAT or sales tax apply?
For many business-to-business (B2B) services, the general VAT rule places the supply where the business customer belongs.
For example:
UK SaaS company
↓
US business customer
↓
Customer belongs in USA
↓
Place of supply generally USA
↓
UK VAT generally not charged
The transaction will normally be treated as outside the scope of UK VAT where the general B2B rule applies.
Suppose a UK company sells an annual SaaS subscription to a business in California.
The price is:
£2,000 per year
If the normal B2B place-of-supply rule applies:
Subscription: £2,000
UK VAT: £0
Customer pays: £2,000
The reason no UK VAT is charged is generally because the place of supply is outside the UK.
It is not a zero-rated UK sale.
This distinction is extremely important.
The transaction is a UK taxable supply, but VAT is charged at 0%.
The service is treated as supplied outside the UK, so UK VAT does not apply.
Therefore:
Digital service to US business → potentially outside UK VAT
is different from:
Goods exported from UK → potentially zero-rated
Both may result in £0 UK VAT, but the VAT classifications are different.
Suppliers of electronically supplied services need to determine both the customer's business status and location. HMRC specifically highlights this requirement for electronically supplied services.
Useful evidence could potentially include:
A customer does not necessarily need a VAT number to be treated as a business.
For example, many US companies do not have European-style VAT numbers.
HMRC currently states that digital services supplied to consumers outside the UK are not liable to UK VAT.
However, the service may be liable to VAT or another consumption tax where the customer lives.
This is particularly important for international B2C businesses.
For example:
UK digital company
↓
Consumer in France
↓
No UK VAT
↓
French/EU VAT may apply
or:
UK digital company
↓
Consumer in USA
↓
No UK VAT
↓
US state sales tax may potentially apply
No UK VAT does not mean the transaction is tax-free.
Suppose a UK company sells a downloadable design package to a customer in New York.
If the transaction qualifies as a digital service supplied to a consumer outside the UK:
Digital product: £50
UK VAT: £0
The company should then consider whether the sale creates US sales-tax obligations.
Suppose a UK company sells a monthly digital subscription to a consumer in Spain.
The service is supplied electronically and the customer belongs in Spain.
UK VAT would generally not apply.
However, EU VAT may be due in Spain.
HMRC confirms that EU VAT is due on digital services supplied by UK businesses to EU consumers under the destination-country rules.
Potentially, yes.
When a UK company sells qualifying digital services directly to consumers in EU countries, VAT can become due in the customer's EU member state.
For example:
Customer in France → French VAT
Customer in Germany → German VAT
Customer in Italy → Italian VAT
The applicable rate is generally determined by the customer's location and the EU rules applying to the transaction.
UK businesses should not rely on the historic EU-wide digital-services threshold that once applied while the UK was part of the EU VAT system.
HMRC's post-Brexit guidance states that EU VAT is due on digital services supplied by UK businesses to EU consumers regardless of the value of those sales.
Businesses should therefore check current EU registration and One Stop Shop arrangements before making B2C digital sales into the EU.
The EU's One Stop Shop (OSS) system can help businesses report VAT due on qualifying B2C sales across EU member states through one registration rather than registering separately in every country in some circumstances.
A UK company may potentially use an appropriate non-EU OSS arrangement where eligible.
The scheme is administered under EU rules rather than through UK VAT registration.
The appropriate structure should be checked based on the company's activities.
No.
A UK VAT number does not automatically cover VAT obligations in EU countries.
A company can therefore simultaneously have:
UK VAT registration
and
EU VAT reporting obligations
for international digital sales.
These are separate systems.
Generally, qualifying digital services supplied to US consumers are not subject to UK VAT because the consumer belongs outside the UK.
For US business customers, the general B2B rule may also place the supply in the United States.
However, the company should separately investigate US sales tax.
The United States does not operate one national VAT system comparable to the UK.
Sales tax can instead depend on individual states and local rules.
Potentially.
Depending on its sales and activities, a UK digital company may create sales-tax obligations in one or more US states.
Relevant factors can include:
Different states also classify digital products and SaaS differently.
A digital service may be taxable in one state and receive different treatment in another.
SaaS can fall within electronically supplied services depending on how it operates.
Examples could include:
For B2B customers, the general B2B place-of-supply rule will often apply.
For B2C customers, digital-services location rules can make VAT or similar taxes due where the consumer belongs.
Sometimes.
This is a particularly important distinction.
An automated online course containing pre-recorded videos, automated assessments and downloadable resources may potentially constitute an electronically supplied service.
However:
Live instructor-led online training
can have different VAT treatment.
The amount of human involvement can matter.
Businesses selling courses internationally should therefore classify the service carefully rather than treating every online course as a digital service.
Qualifying ebooks and electronic publications may be digitally supplied products.
The UK VAT liability of electronic publications to UK customers is a separate issue from determining the place of supply when selling internationally.
For an overseas consumer, the customer's location can determine which country's tax rules apply.
Software supplied purely as a digital download can potentially constitute an electronically supplied service.
For example:
Customer pays online
↓
Software automatically downloaded
↓
No meaningful human intervention
This may fit the digital-services framework.
Custom software development performed personally for a customer may instead be treated as a professional service.
Apps distributed electronically can fall within digital-services rules.
However, the VAT position may also depend on whether the app is sold:
Directly by your company
or
Through an app store or marketplace
That distinction can change who is responsible for accounting for VAT.
HMRC states that where digital services are supplied to consumers through a third-party digital platform or marketplace, the platform may be responsible for accounting for VAT instead of the underlying supplier.
This can apply where the platform controls key parts of the transaction.
Businesses should therefore review the platform agreement and tax statements.
Do not automatically duplicate VAT that has already been accounted for by the platform.
Suppose a UK company develops an app and sells it to consumers through a major app store.
The platform:
In qualifying circumstances, the platform may be treated as making the supply to the consumer for VAT purposes.
The developer's transaction with the platform can then have separate VAT treatment.
A digital company should distinguish between:
Your website → Consumer
Your company may need to determine customer location and account for destination-country VAT itself.
Marketplace → Consumer
The marketplace may potentially account for consumer VAT where the applicable platform rules make it responsible.
The accounting treatment should follow the actual arrangement.
Digital service providers generally need reliable evidence of where customers belong.
Depending on the tax regime, evidence could potentially include:
Destination-country tax authorities can have specific evidence requirements.
Your checkout process should therefore collect enough information to support the VAT treatment.
Not always.
For international digital sales, businesses may need multiple pieces of non-conflicting location evidence depending on the jurisdiction.
The customer's billing address is useful, but it should not always be treated as conclusive by itself.
Digital businesses should configure payment and checkout systems to retain appropriate customer-location information.
VPNs can make IP-based location less reliable.
A digital seller should therefore avoid depending only on the customer's IP address.
Other evidence such as:
Billing address + payment-card country
can help support the customer's location.
The exact evidence requirement depends on the tax system being applied.
Certain electronic and telecommunications services can be affected by use and enjoyment rules.
These rules can change the normal place of supply where a service is effectively used somewhere different from the location indicated by the basic rule.
HMRC provides examples where electronically supplied or related services that would normally be outside the UK can become subject to UK VAT to the extent they are actually used in the UK.
These rules are specialised and should be reviewed where relevant.
This depends on whether the service is treated as supplied in the UK.
Services whose place of supply is outside the UK are generally outside the scope of UK VAT.
Businesses with large overseas revenues should therefore classify turnover correctly when determining their UK VAT-registration position.
Do not simply assume:
All worldwide sales count
or:
No overseas sales count.
The VAT treatment of the specific supply matters.
Potentially, subject to the normal VAT recovery rules.
A UK digital company may incur qualifying UK VAT on:
The company's right to recover VAT should be assessed according to the nature of its business activities and the normal input-VAT rules.
Digital businesses commonly purchase services from overseas providers.
Examples include:
Where a UK business purchases services from outside the UK, the UK reverse charge can apply. HMRC confirms that businesses buying services from overseas may need to account for VAT using this mechanism.
This is separate from the VAT treatment of the company's own overseas sales.
Yes.
A UK company can invoice overseas customers in foreign currencies such as:
The company should still maintain appropriate accounting records and use the required currency conversions where necessary for UK VAT reporting.
Depending on the transaction, an invoice may contain:
Avoid simply putting:
VAT 0%
on every overseas digital-services invoice.
Often, the correct treatment is:
Outside the scope of UK VAT
rather than zero-rated.
Your accounting system should distinguish between:
UK taxable digital sales
Overseas B2B sales
Overseas B2C sales
EU VAT sales
Marketplace sales
and
Other foreign tax transactions
Using one generic “0% VAT” code for all overseas sales can make VAT Returns and overseas tax reporting inaccurate.
For international digital sales, consider retaining:
Digital businesses should ideally automate these records because manual tracking becomes difficult at scale.
Refunds can require VAT adjustments.
Suppose your company sells an annual subscription and collects foreign VAT.
If the subscription is later refunded, the company may need to adjust the corresponding VAT in the relevant foreign VAT Return or reporting scheme.
Marketplace sales can be handled differently where the platform itself accounted for the consumer VAT.
A genuinely free trial may not create the same tax point as a paid subscription.
However, once the customer begins paying for the digital service, VAT or foreign tax obligations may arise.
Businesses using:
Free trial → automatic paid subscription
should ensure the first taxable payment is correctly recorded.
Discounts can affect the value on which VAT is calculated.
For example:
Subscription: €100
Discount: €20
Taxable consideration: €80
The applicable destination-country VAT may generally be calculated by reference to the amount actually charged under the relevant rules.
Before selling a digital service internationally, ask:
Is this genuinely a digital service for VAT purposes?
↓
Is the customer B2B or B2C?
↓
Where does the customer belong?
↓
Does UK VAT apply?
↓
Does destination-country VAT or sales tax apply?
↓
Am I selling directly or through a marketplace?
↓
Who accounts for consumer VAT?
↓
Do I have enough customer-location evidence?
↓
Do I need EU OSS or another foreign registration?
↓
Is my accounting system using the correct tax code?
This process should be built into the checkout and bookkeeping system rather than handled manually after year end.
UK companies should avoid:
The VAT treatment depends on customer status and location. Digital services supplied to consumers outside the UK are generally not subject to UK VAT, but destination-country VAT or similar taxes may apply.
Generally not where the customer belongs in the United States and the relevant place-of-supply rules place the service there. US sales tax should be considered separately.
UK VAT generally does not apply, but EU VAT can be due in the consumer's member state.
For many B2B services, the general rule places the supply where the business customer belongs, meaning UK VAT generally does not apply where the customer belongs overseas.
It can be, particularly where the service is automated and supplied electronically with minimal human intervention.
Some automated online courses can qualify, while live instructor-led teaching may receive different treatment.
For certain digital services supplied through qualifying third-party platforms, the platform can be responsible for accounting for consumer VAT.
Usually this is the wrong terminology. Where the place of supply is outside the UK, the transaction is generally outside the scope of UK VAT, not zero-rated.
It depends on where the supply is treated as taking place. Services whose place of supply is outside the UK generally fall outside UK VAT.
Yes. A transaction can have no UK VAT while still being liable to VAT, GST or sales tax in the customer's country.
So, how does VAT work for digital services sold overseas?
For many B2B sales:
UK digital company
↓
Overseas business
↓
Place of supply where business customer belongs
↓
Generally no UK VAT
For B2C digital sales:
UK digital company
↓
Overseas consumer
↓
Generally no UK VAT
↓
Destination-country VAT or sales tax may apply
For EU consumers in particular, UK businesses should recognise that EU VAT can be due in the customer's member state even where the value of sales is relatively small.
The most important principle is:
No UK VAT does not mean no tax.
A UK company selling SaaS, downloads, subscriptions, apps or other automated digital services internationally should determine:
Customer type → Customer location → Place of supply → UK VAT treatment → Foreign VAT/sales-tax obligation → Marketplace responsibility
Getting these rules into your checkout and accounting systems from the beginning is much easier than trying to correct thousands of transactions later.
This article provides general information only and does not constitute tax, accounting, financial or legal advice. UK and international VAT, GST and sales-tax rules can change and depend on the transaction and customer location. Check current HMRC guidance and the tax rules in relevant customer jurisdictions.
