Understanding VAT, Customs Duties, and Tax Collection for EU Shipments

Understanding VAT, Customs Duties, and Tax Collection for EU Shipments

When shipping to the EU, it's important to understand the difference between VAT, customs duties, and how tax collection works for B2B vs B2C transactions. This guide will help you navigate EU tax requirements when using Ship&co.

What is the Difference Between VAT and Customs Duty?

VAT (Value Added Tax) and customs duty are completely different types of taxes:

• VAT: A consumption tax applied in the destination country. This is similar to sales tax and is calculated as a percentage of the product's value.
• Customs Duty: An import tariff charged when goods enter a country. This is based on the product type, origin, and value.

VAT Number vs IOSS: When to Use Each

The method for handling VAT depends on whether you're selling to businesses (B2B) or consumers (B2C):

VAT Number (for B2B transactions only)

A VAT number is used exclusively for business-to-business transactions. When selling to a business with a valid VAT number in the EU, you can use reverse charge mechanism where the buyer is responsible for accounting for the VAT.
To add a VAT number to a shipment in Ship&co, please refer to this article.

IOSS (for B2C transactions)

IOSS (Import One-Stop Shop) is a system for business-to-consumer sales. It allows sellers to collect and remit VAT on sales up to €150 to EU consumers. When you use IOSS:

• You collect VAT at the point of sale on your website
• You report and pay the VAT through the IOSS system
• The customer doesn't pay VAT upon delivery
• Your IOSS number must be included on the customs declaration

For more information about IOSS setup on Ship&co, please refer to this article.

Current EU Import Rules (Until Spring 2026)

Current EU regulations for imports from non-EU countries are as follows:

• Orders under €150: Only VAT is charged (no customs duty)
• Orders over €150: Both VAT and customs duty are charged

These rules apply whether you ship DDU (Delivery Duty Unpaid) or DDP (Delivered Duty Paid).

Note: These rules are subject to change. The EU may implement new regulations starting in Spring 2026. Please stay informed about regulatory updates.

Understanding DDU, DAP, and DDP

DDU (Delivery Duty Unpaid) / DAP (Delivered At Place)

DDU and DAP mean similar terms when shipping with Express courrier to your customers - the shipper does not pay duties and taxes in advance. DAP is the term that DHL uses instead of DDU. When shipping DDU/DAP:

• The recipient pays all applicable taxes and duties upon delivery
• Normally, the local delivery carrier pays the taxes and duties on behalf of the recipient at the time of customs clearance, and then bills the recipient upon delivery or afterwards
• The shipper is not responsible for these charges

DDP (Delivered Duty Paid)

When shipping DDP:

• The shipper pays all duties and taxes in advance
• The recipient receives the package without any additional charges
• The shipping carrier will later bill the shipper for these fees by including them in the invoice they issue.

Who Pays What: Different Scenarios

Scenario 1: B2C with IOSS (Orders up to €150)

• Customer pays VAT at checkout on your website
• You remit VAT through IOSS
• Customer pays nothing upon delivery
• Include the IOSS number on the customs declaration

Scenario 2: DDU/DAP Shipping

• Customer pays all taxes and duties upon delivery
• Under €150: Customer pays VAT only
• Over €150: Customer pays VAT + customs duty

Scenario 3: DDP Shipping

• You (the shipper) pay all taxes and duties
• Customer pays nothing upon delivery
• Charges appear on the invoice that your shipping carrier issues later

Scenario 4: B2B with Valid VAT Number

• Buyer provides their EU VAT number
• Reverse charge applies - buyer accounts for VAT
• Include buyer's VAT number on the customs declaration
• Customs duty may still apply depending on the value

Important Considerations

• If your customer already paid VAT through IOSS at checkout, no additional VAT is charged at delivery (for orders up to €150)
• IOSS only applies to B2C sales up to €150
• VAT numbers only apply to B2B transactions
• Always clearly communicate to customers whether taxes/duties are included in the price or will be collected upon delivery
• EU regulations are subject to change - stay informed about updates

Important Update: EU 150 EUR Customs Duty Exemption to be Removed in 2026

On November 13, 2025, the European Commission announced that the current 150 EUR customs duty exemption threshold will be removed starting in 2026. 
This means all parcels imported from non-EU countries to EU consumers will be subject to customs duties, regardless of their value. Currently, parcels under 150 EUR are exempt from customs duties (though still subject to VAT), but this exemption will no longer apply. 
However, the exact implementation date and the specific mechanism for calculating customs duties during the transition period have not yet been announced. For the most current information, please refer to the official EU announcement.

Need More Help?

If you have questions about adding an IOSS number, VAT collection, or creating shipping documents for your EU shipments, please contact our support team.