Trading goods and services between businesses in different European Union member states follows specific VAT rules designed to facilitate the single market while ensuring proper tax collection. This guide explains the fundamentals of intra-community B2B transactions, including when zero-rate VAT applies, what documentation you need, and how to stay compliant with current regulations.
An intra-community supply occurs when goods are transported from one EU member state to another as part of a commercial transaction between two VAT-registered businesses. Under EU VAT rules, these supplies can be zero-rated by the seller, meaning the seller does not charge VAT. Instead, the buyer accounts for VAT in their own country through the reverse charge mechanism.
For zero-rating to apply correctly, several conditions must be met. Both the supplier and customer must be registered for VAT and have valid VAT identification numbers. The goods must physically leave the supplier's member state and arrive in another member state. The supplier must obtain and retain evidence proving the goods were transported. Since January 2020 under the Quick Fixes directive, having a valid customer VAT number is a substantive condition—not just a formality—for applying zero-rate treatment.
The zero-rate treatment eliminates VAT at the point of sale but does not eliminate VAT liability entirely. The customer becomes responsible for declaring the transaction and accounting for VAT at their local rate. They typically also claim an input VAT deduction for the same amount, making the net VAT impact zero for fully taxable businesses. This system ensures VAT is ultimately collected in the country of consumption rather than the country of origin.
The Quick Fixes directive, effective January 1, 2020, introduced four significant changes to EU VAT rules for cross-border trade. Understanding these requirements is essential for compliance:
The customer's VAT number must be valid and recorded in VIES at the time of the transaction. This is no longer merely a formal requirement but a substantive condition for zero-rating. If you supply goods to a customer without validating their VAT number (or the number proves invalid), you may be denied zero-rate treatment and become liable for VAT in your country, even if the goods were actually transported to another member state.
You must have at least two pieces of non-contradictory evidence showing the goods left your country and arrived in another member state. Acceptable evidence includes signed CMR transport documents, bills of lading, air freight invoices, insurance certificates for transport, bank documents showing payment for transport, or official customs documents for non-EU transit. These documents must come from two independent parties not controlled by either the seller or buyer.
When goods are sold through multiple parties but transported directly from the first seller to the final buyer, only one supply in the chain can be treated as the intra-community supply qualifying for zero-rating. The Quick Fixes clarify how to determine which supply this is, generally attributing the transport to the supply made to the intermediary unless that intermediary provides a VAT number from the dispatch country.
The directive harmonized rules for call-off stock arrangements, where goods are transported to another member state to be held until called upon by a known customer. Under harmonized rules, this does not trigger an immediate intra-community supply. Instead, the supply occurs when the customer withdraws goods from stock, simplifying compliance for businesses that stock inventory close to customers.
Invoices for intra-community supplies must contain specific information to support zero-rate treatment:
Both your VAT number and your customer's VAT number must appear on the invoice. Include the full company names and addresses corresponding to these numbers. The invoice should clearly indicate that the supply is an intra-community supply exempt from VAT, often using phrases like "Intra-community supply - Article 138 VAT Directive" or "Zero-rated intra-community supply."
Standard invoice requirements also apply: sequential invoice number, invoice date, detailed description of goods, quantities, unit prices, and total amount. Include any agreed payment terms and delivery conditions. If using Incoterms, specify which term applies as this affects transport responsibility and can be relevant for determining who arranges evidence of shipment.
Keep copies of all invoices and supporting documentation for the retention period required by your country—typically 7 to 10 years. Electronic storage is acceptable in most jurisdictions provided records are readily accessible and can be provided to tax authorities on request.
Under Quick Fixes, you need two non-contradictory items of evidence from specified categories to prove goods were transported between member states. The regulations create two presumption situations:
When you arrange transport as the seller, the presumption of transport applies if you have at least two of these documents from independent parties: signed CMR or transport document, bill of lading, air freight invoice, invoice from goods carrier. Alternatively, one document from this list combined with one of: insurance policy for transport, bank payment records for transport costs, official customs documents regarding transit through non-EU territory, or receipt from warehouse operator in destination country.
When the customer arranges transport, you need the same evidence plus a written statement from the customer confirming goods were transported by or on behalf of the acquirer, specifying the destination member state. This statement should be received by the end of the month following the supply at the latest.
Even without meeting presumption requirements, you can still apply zero-rating if you can demonstrate through other means that goods were actually transported. However, meeting the presumption requirements provides a safe harbor that tax authorities must accept unless they have evidence to the contrary.
Cross-border service supplies follow different rules than goods. The place of supply for B2B services is generally the customer's country, meaning the supplier does not charge VAT and the customer accounts for it through reverse charge. Unlike goods, there is no transport requirement—the service is simply treated as supplied where the customer is established.
For B2B services, you must still validate the customer's VAT number to confirm they are a taxable person and to determine the correct VAT treatment. The invoice should indicate "Reverse charge - Article 196 VAT Directive" or similar notation showing the customer is responsible for accounting for VAT.
Some services have special place of supply rules that override the general B2B rule. These include services connected with immovable property (taxed where the property is located), passenger transport (taxed based on distances covered), cultural and entertainment services (taxed where physically performed), and restaurant services (taxed where provided). Always verify the specific rules for your service type.
Intra-community transactions must be reported through several mechanisms:
Zero-rated intra-community supplies appear on your domestic VAT return as exempt supplies. The exact box or line depends on your country's return format. These amounts do not contribute to your output VAT liability but must be accurately reported for compliance monitoring.
Most EU countries require periodic submission of EC Sales Lists detailing intra-community supplies by customer VAT number. These lists enable cross-checking between seller and buyer declarations across member states. Reporting frequency varies—monthly or quarterly depending on your transaction volume and country requirements. The customer's full VAT number and the total value of supplies to that customer during the period must be reported.
Businesses exceeding annual intra-EU trade thresholds must submit Intrastat declarations providing detailed statistics on goods movements. Thresholds vary by country—some have separate thresholds for arrivals (imports) and dispatches (exports). Intrastat requires product classification codes, quantities, values, and other data. This statistical reporting is separate from VAT reporting but covers the same underlying transactions.
Avoid these frequent errors that can result in VAT assessments and penalties:
Failing to validate customer VAT numbers before applying zero-rate treatment. Since Quick Fixes, this is not just poor practice but can directly result in losing the right to zero-rate the supply.
Insufficient transport documentation. Keep robust evidence of shipment for every intra-community supply. If you cannot prove goods left your country, tax authorities may assess VAT regardless of your invoice treatment.
Incorrect invoice information. Missing VAT numbers, wrong company details, or absent reverse charge references create problems during audits and may lead customers to reject invoices.
Late or inaccurate EC Sales List submissions. These reports are cross-checked automatically, and discrepancies trigger enquiries from multiple tax authorities simultaneously.
Treating all transactions uniformly when different rules apply. Goods, services, digital products, and chain transactions each have specific requirements. Applying the wrong treatment can result in under-collected or over-collected VAT.
Not all B2B cross-border transactions qualify for zero-rate treatment. Situations where you may need to charge VAT include:
Sales to customers without valid VAT numbers. Even if the customer is a business, without VIES-validated VAT registration, you cannot apply intra-community zero-rating.
Goods that remain in your country. If goods are collected by the customer without transport documentation, or if transport is arranged but goods never actually leave, zero-rating does not apply.
Supplies of services with special place of supply rules that locate the supply in your country.
Sales through local stock held under consignment or similar arrangements where the supply is deemed to occur domestically.
In these cases, apply your domestic VAT rate and ensure invoices reflect the correct VAT treatment.
