VAT on International Transactions (Services & Goods): A Comprehensive Guide
1. Introduction: The Challenges of International VAT Compliance
In today’s interconnected global market, borders have practically dissolved when it comes to trade and services. Bulgarian businesses enter into agreements daily with partners established in Germany, the US, the UK, and dozens of other nations. However, every single international transaction prompts a vital question for a company’s accounting department: “Where is Value Added Tax (VAT) due, and who is responsible for declaring and paying it?”
Errors in determining the VAT treatment of international transactions are among the most frequent reasons for penalties imposed by the National Revenue Agency (NRA) in Bulgaria. While every nation maintains its own domestic regulations, within the European Union (EU) there is a harmonized framework centered on the concept of the “place of supply.” In this comprehensive guide, we will analyze how VAT applies to international transactions involving both goods and services under B2B (business-to-business) and B2C (business-to-consumer) models, outline the mandatory registrations, and show you how to correctly document your cross-border operations in 2026.
2. B2B Transactions for Services: The General Rule under Article 21, Paragraph 2 of the Bulgarian VAT Act
When providing services to a foreign corporate client, your first step must be to verify whether the recipient is established within an EU Member State or in a third country (outside the EU).
A. Supplying Services to EU Businesses
The general place of supply rule for services supplied to a taxable person (B2B) is set out in Article 21, Paragraph 2 of the Value Added Tax Act (corresponding to Article 44 of the EU VAT Directive). The place of supply is defined as the place where the recipient has established their business.
Example: A Bulgarian IT agency develops software for a company in Germany. Since the client is a German business, the place of supply is Germany. The Bulgarian agency issues an invoice without Bulgarian VAT, indicating “reverse charge” (обратно начисляване) and citing the legal basis (Article 21, Paragraph 2 of the VAT Act or Article 44 of Directive 2006/112/EC). The recipient in Germany then self-assesses and remits German VAT.
B. Supplying Services to Non-EU Businesses (Third Countries)
The same principle applies here – the place of supply is outside the EU (where the client is established), so Bulgarian VAT is not charged.
Example: Supplying marketing services to a corporation in the United States. The place of supply is the US, and the invoice is issued without VAT, citing Article 21, Paragraph 2 of VATA.
C. Mandatory Registration under Article 97a of VATA
It is crucial to note that if a Bulgarian company (not registered for VAT under the standard scheme) intends to supply services to an EU business, or receive services from an EU business (such as advertising from Google or Meta), it must apply for a special VAT registration under Article 97a of VATA. The application must be filed at least 7 days before the service is provided or received. This special registration does not allow you to claim input VAT refunds on Bulgarian purchases, nor does it require you to charge VAT on domestic sales; its sole purpose is tracking cross-border B2B services.
3. B2C Transactions for Services (Business to Consumer)
When selling services to individuals or non-business entities (B2C), the rules differ and are highly dependent on the type of service and the location of the client.
A. General Rule under Article 21, Paragraph 1 of VATA
The general B2C rule states that the place of supply of services to a non-taxable person is the place where the supplier is established. Therefore, if a Bulgarian business provides a standard service to a French citizen, it must charge 20% Bulgarian VAT.
B. Exceptions for Non-EU Customers (Article 21, Paragraph 5 of VATA)
The law outlines key exceptions for intellectual/consultancy services when supplied B2C to clients outside the EU. These services include the transfer of copyrights, patents, and licenses, advertising services, services of consultants, engineers, lawyers, accountants, translators, data processing, and supply of information, financial, banking, and insurance services. When a Bulgarian company supplies these services to an individual located in the US, the place of supply is outside the EU, and no Bulgarian VAT is charged.
C. Digital Services and the OSS (One Stop Shop) Scheme in the EU
Telecommunications, broadcasting, or electronically supplied services (e.g., online courses, streaming, e-books, software downloads for personal use) provided B2C to clients in the EU follow specific rules. VAT is due in the consumer’s country at their local rate. To simplify administration, businesses can use the OSS (One Stop Shop) scheme. If the total annual value of these B2C electronic sales in the EU is under EUR 10,000, the company can charge Bulgarian VAT (20%). If the sales exceed EUR 10,000, the company must register for OSS and charge the VAT rate of the customer’s member state (e.g., 19% for Germany, 22% for Italy), filing and paying the VAT quarterly through the NRA.
4. International Trade of Goods (B2B and B2C)
VAT treatment of physical goods depends on whether they cross the EU external border or remain within the Union.
A. B2B Intra-Community Supplies (ICS) of Goods
When a Bulgarian company sells goods to a business in another EU country, and the goods are physically shipped from Bulgaria, it constitutes an Intra-Community Supply. ICS is subject to a 0% VAT rate (Article 53 of VATA). To justify this rate to the NRA, the supplier must secure the following documentation: a valid VAT number of the buyer in their respective EU member state (verified via VIES), an invoice listing both parties’ VAT numbers, a transport document (CMR, bill of lading) proving the goods left Bulgaria, and written confirmation from the buyer that the goods arrived at their destination. Without these documents, the NRA will charge 20% VAT during a tax audit.
B. Exports of Goods Outside the EU (B2B and B2C)
Shipping goods to a destination outside the EU (e.g., Switzerland, the US) is subject to a 0% VAT rate as an export (Article 28 of VATA). The exporter must prove the zero rate by supplying a customs export declaration showing the goods left the EU.
C. Distance Selling of Goods in the EU (B2C)
This governs e-commerce. When an online store ships goods to consumers in the EU, the same EUR 10,000 EU-wide threshold applies. Once exceeded, the merchant must charge the destination country’s VAT via the OSS portal.
5. Frequently Asked Questions (FAQ)
Q1: Do I need to charge VAT when selling services to a business in the EU?
No. Under the general B2B rule of Article 21, Paragraph 2 of VATA, the place of supply is where the recipient is established. You must issue an invoice without VAT, display the client’s VAT number with their country prefix (e.g., DE for Germany), and include the note “reverse charge” (обратно начисляване). These sales must be reported in your monthly VIES declaration.
Q2: How are service sales to businesses outside the EU (e.g., USA) taxed?
Services provided B2B to companies outside the EU are not subject to VAT because the place of supply is outside the EU. The invoice is issued without VAT, referencing Article 21, Paragraph 2 of VATA. These transactions are not included in VIES declarations, as VIES only covers EU sales.
Q3: How do I handle digital service sales to consumers in the EU?
For B2C digital services, VAT is due in the customer’s country. If your annual sales of these services are below EUR 10,000, you can charge Bulgarian VAT (20%). If they exceed EUR 10,000, you must register for the OSS scheme with the NRA and charge the VAT rate of the customer’s member state.
Q4: What is an Article 97a VAT registration, and when is it required?
This is a special VAT registration for providing or receiving B2B services in the EU. It is mandatory for Bulgarian companies not registered for VAT under the standard scheme that provide services to EU businesses, or buy services from EU vendors (such as advertising from Meta/Facebook or software from Ireland). Registration must be completed at least 7 days before the transaction occurs.
Q5: What is a VIES declaration, and what transactions are reported in it?
The VIES declaration is a monthly return filed by VAT-registered businesses to report B2B intra-community supplies of goods and services. It allows EU tax administrations to cross-check whether the EU buyers self-assessed the appropriate VAT in their own countries.
Q6: Do I need to charge VAT when exporting goods outside the EU?
No. Goods exported to third countries are subject to a 0% VAT rate under Article 28 of VATA. You must retain the customs export declaration confirming the goods exited the EU, otherwise, the NRA will charge 20% VAT on the transaction.
Q7: What is B2B Intra-Community Supply of goods, and how is it proven?
An ICS is the sale and shipping of goods from Bulgaria to a VAT-registered business in another EU country. It is subject to a 0% VAT rate and is proven with a valid VIES VAT number of the buyer, the invoice, a signed CMR transport document, and a delivery receipt.
Q8: What happens if an EU buyer does not have a valid VAT number?
If you sell goods or services to an EU client who claims to be a business but lacks a valid VAT number in the VIES database, the transaction is treated as B2C (consumer sale). You must charge 20% Bulgarian VAT (or apply OSS rules, if applicable) instead of using reverse charge or the 0% rate.
Q9: What is the threshold for using the One Stop Shop (OSS) scheme in the EU?
The OSS threshold for distance sales of goods and digital services B2C to the EU is EUR 10,000 (excluding VAT) per calendar year. Below this threshold, you charge Bulgarian VAT (20%); above it, you must charge the recipient country’s VAT rate.
6. Conclusion: How to Avoid Tax Risks and Penalties
International transactions and VAT compliance require rigorous bookkeeping and continuous tracking of EU and domestic legislation. Mistakenly determining the place of supply or failing to secure transport records can turn a profitable deal into an unexpected tax liability with interest and fines.
To safeguard your business, always verify your clients’ VAT numbers in VIES before invoicing, use precise legal references on all documents, and consult certified tax accountants for complex transactions. Proactive VAT management is key to successful international expansion.