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Managing Distance Sales VAT Thresholds

This article applies to:Avalara AvaTax Update

To help reduce the administrative burden on companies and encourage them to start trading across Europe, each country in the European Union sets national Value-Added Tax (VAT) registration thresholds. Foreign companies selling into these countries don't need to register for VAT if their sales are below the distance selling thresholds.

By default, AvaTax Update assumes that your sales into countries that charge VAT have exceeded the country's distance sales threshold, and that you've registered for VAT. If your business is below the sales threshold for a country and you haven't registered for VAT, add that country to the below-threshold list in your settings.

AvaTax Update doesn't track your total sales against the sales threshold for each country, so keep an eye on your sales and adjust your distance sales threshold settings as your business grows and changes. Find VAT thresholds by country, along with more information on VAT and similar taxes around the world, on Avalara VATLive.

Adding and deleting distance sales threshold settings

Tell AvaTax Update where your business is below national VAT thresholds.

  1. In AvaTax Update, go to Settings > Manage below-threshold sales. If you need to set below-threshold countries but don't see this setting in your account, talk to your account manager about adding a global entitlement subscription to your account (some AvaTax Update accounts don't have this turned on by default).
  2. Below-threshold records can be stored for each unique combination of origin and destination country. The list on the Cross-Border Sales Below Threshold page shows any below-threshold combinations that have already been set. To add a new one, click Add a below-threshold cross-border combination.
  3. Set the country you're shipping from in the Ship-from country dropdown, and the country that you're shipping to in the Ship-to country dropdown
  4. Choose whether the threshold applies to sale or purchase invoices in the Threshold type dropdown
  5. Set the starting and ending dates for this threshold combination in the Effective and Expires fields
  6. Click Save to add the below-threshold combination to the list

To delete a below-threshold country combination and begin calculating VAT in the destination country, click the trash can icon next to its entry in the list.

Only account and company administrator users can change these settings.

Understanding below-threshold sales

Being below the VAT sales threshold in a country changes the way taxes are calculated for your business in that country.

  • Sales of goods into countries where you're below the VAT threshold calculate taxes based on where you're shipping from (the transaction's origin)
  • Sales of goods into countries where you're above the VAT threshold calculate taxes based on where you're shipping to (the transaction's destination)

Distance sales thresholds only apply to the sale of physical goods. Sales of digital products always calculate taxes based on the transaction's destination.

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