VAT on international digital services: when it applies and when it doesn't

2C digital service inside the EU is taxed at the consumer country's VAT rate. If you sell digital services internationally, VAT rules vary by country. We explain when VAT applies and how a US LLC simplifies things.

A B2C digital service inside the EU is taxed at the consumer country's VAT rate (between Luxembourg's 17% and Hungary's 27%) and is reported via the OSS one-stop shop.

VAT (IVA) on international digital services is one of the most confusing areas of international tax law. Here's a practical guide for digital service providers, including the Merchant of Record solution.

The basic rule: where is the customer?

For digital services (software, ebooks, online courses, streaming, etc.), VAT rules have been changing globally. The general principle: the VAT is due in the country where the customer is located, not where the service provider is.

This creates complexity for international digital service businesses that sell to customers in dozens of countries simultaneously.

B2B vs. B2C: different rules

B2B (Business to Business):

When you sell digital services to another business, the reverse charge mechanism usually applies. The customer accounts for VAT in their own country. You (the supplier) generally don't need to register for VAT in the customer's country. You issue an invoice without VAT, and your client handles the rest. This is the simplest scenario and the most common for freelancers and agencies.

B2C (Business to Consumer):

When you sell directly to consumers, you may need to collect and remit VAT in the customer's country. EU rules require this for sales to EU consumers. This is where things get genuinely complex. potentially requiring VAT registration in every country where you have customers.

How a US LLC changes the picture

When your US LLC provides digital services to international clients:

For B2B sales: Your LLC invoices the business client without VAT. In most cases, the reverse charge applies. Your US LLC doesn't charge VAT. The customer handles their own country's VAT. Clean, simple, professional. This is how most Exentax clients operate.

For B2C sales to EU consumers: Technically, non-EU businesses selling digital services to EU consumers should register for EU VAT (via OSS or individual country registration). The rules apply regardless of where the service provider is incorporated. In practice, this is where the Merchant of Record solution becomes valuable.

Practical reality: Many small digital businesses operating through US LLCs don't register for EU VAT unless their sales to EU consumers exceed significant thresholds. This is an area where you need country-specific legal advice.

Sales tax in the US: a different beast

The US has no federal VAT. Instead, individual states have sales tax. The rules for digital services vary dramatically by state.

For most non-resident LLC owners providing digital services to US clients: sales tax obligations are complex and depend on your "nexus" (connection to a state). Generally, if you have no physical presence or significant economic activity in a state, you may not have sales tax obligations there. But this is a rapidly evolving area. post-Wayfair (2018), economic nexus thresholds can trigger obligations even without physical presence.

The Merchant of Record solution

If VAT and sales tax compliance is overwhelming, consider using a Merchant of Record (MoR) service. This is the most practical solution for digital product sellers:

DoDo Payments (Recommended for digital products)

DoDo Payments is a Merchant of Record specifically designed for digital products and SaaS businesses:

Acts as the seller of record: legally, DoDo is the one selling to the end customer
Handles global VAT, sales tax, and GST automatically: calculates, collects, and remits taxes in 100+ countries
You don't need to register for VAT in 40+ jurisdictions
Accepts payment methods from every major market (cards, wallets, bank transfers)
Fees: Typically 5% + payment processing fees. higher than Stripe alone, but includes complete tax compliance
Your LLC simply receives the net amount after taxes and fees
Invoices to customers include all required tax information automatically

Best for: SaaS businesses, digital product sellers, course creators, ebook sellers who sell directly to consumers globally.

Paddle (Alternative MoR)

Similar to DoDo, focused on SaaS businesses:

Merchant of Record for global tax compliance
Handles VAT, sales tax for SaaS subscriptions
Invoice management and dunning (failed payment recovery)
Higher fees but complete compliance included

Gumroad (For digital product sellers)

Gumroad acts as the seller in many jurisdictions:

Simplified selling for ebooks, courses, templates
Handles much of the VAT complexity
Higher commission rates

Comparison: Stripe vs. DoDo vs. direct invoicing

What we recommend

For B2B services with business clients: A US LLC with Stripe US simplifies things significantly. Invoice without VAT, reverse charge applies. This is most freelancers and agencies.
For B2C digital products with global consumers: Use DoDo Payments as Merchant of Record. Your LLC receives net proceeds. Zero tax registration headaches.
For significant B2C EU sales: If you don't use an MoR, register for EU VAT via OSS (One-Stop Shop).
For mixed businesses: Stripe for B2B, DoDo for B2C consumer sales.
For quick client payments: Relay payment links (powered by Adyen) for simple invoicing.

The MoR (Merchant of Record) solution explained

A Merchant of Record is a company that becomes the legal seller of your product to the end consumer. This means:

When to use a MoR:

Selling digital products (courses, e-books, software) to consumers worldwide
B2C SaaS with customers in 10+ countries
Digital downloads and subscriptions
Any scenario where you'd otherwise need to register for VAT in multiple jurisdictions

When NOT to use a MoR:

B2B services (reverse charge applies. your client handles VAT)
Physical goods (requires different logistics)
Selling only to clients in your own country

Closing out, here are related pieces that sit naturally next to this article: Taxes with international clients in Spain: what nobody tells you and Do US bank accounts report to your home tax authority? The honest answer help round off the context.

VAT rates reference (digital services)

Before going further, put numbers on your case: the Exentax calculator compares, in under 2 minutes, your current tax bill with what you would carry running a US LLC properly declared in your country of residence.

> Free consultation, no strings attached

Without a MoR, managing compliance across all these jurisdictions is a full-time job. With DoDo Payments connected to your Mercury account, it's automatic.

Book your strategic consultation and we'll analyze your specific VAT situation.

Banking and tax facts worth clarifying

Fintech and CRS information evolves; here is the current state:

Notes by provider

Mercury operates with several federally chartered partner banks and FDIC coverage via sweep network: mainly Choice Financial Group and Evolve Bank & Trust, with Column N.A. still in some legacy accounts. Mercury is not itself a bank; it is a fintech platform backed by those partner banks. If Mercury closes an account, the balance is typically returned by paper check mailed to the account holder's registered address, which can be a serious operational problem for non-residents; keep a secondary account (Relay, Wise Business, etc.) as contingency.
Wise ships two clearly different products: Wise Personal and Wise Business. For an LLC you must open Wise Business, not the personal account. Important CRS nuance: a Wise Business held by a US LLC sits outside CRS because the account holder is a US entity and the US is not a CRS participant; the USD side operates via Wise US Inc. (FATCA perimeter, not CRS). In contrast, a Wise Personal opened by an individual tax-resident in Spain or another CRS jurisdiction does trigger CRS reporting via Wise Europe SA (Belgium) on that individual. Opening Wise for your LLC does not bring you into CRS through the LLC; a separate Wise Personal in your own name as a CRS-resident individual does report.
Wallester (Estonia) is a European financial entity with an EMI/issuing-bank licence. Its European IBAN accounts are within the Common Reporting Standard (CRS) and therefore trigger automatic reporting to the tax administration of the holder's country of residence.
Payoneer operates through European entities (Payoneer Europe Ltd, Ireland) that are also in scope for CRS for clients resident in participating jurisdictions.
Revolut Business: when paired with a US LLC, it operates under Revolut Technologies Inc. with Lead Bank as its US banking partner. The account delivered is a US account (routing + account number); no European IBAN is issued to a US LLC. The European IBANs (Lithuanian, Belgian) belong to Revolut Bank UAB and are issued to European clients of the group. If you are offered a European IBAN tied to your LLC, confirm exactly which legal entity holds that account and which regime it reports under.
Zero tax: no LLC structure delivers "zero tax" if you live in a country with CFC/tax transparency or income attribution rules. What you achieve is no double taxation and correct reporting at residence, not elimination.

We set it up without you losing a weekend

Thousands of freelancers and entrepreneurs already operate their US LLC fully legally and properly documented. At Exentax we handle the entire process: formation, banking, payment gateways, bookkeeping, IRS filings and compliance in your country of residence. Book a free consultation and we will tell you honestly whether the LLC makes sense for your case, with no absolute promises.

References: sources on structures and jurisdictions

The comparisons and quantitative data on the jurisdictions cited here rely on official sources updated to today:

United States. Delaware General Corporation Law and Limited Liability Company Act, Wyoming Limited Liability Company Act (Title 17, Chapter 29), IRS Form 5472 instructions and IRC §7701 (entity classification).
Andorra. Llei 95/2010 de l'Impost sobre Societats (10% IS), Llei 5/2014 del IRPF and the active/passive residency framework of the Govern d'Andorra.
Estonia. Estonian Income Tax Act (deferred-distribution corporate tax at 20/22%) and official documentation of the e-Residency programme.
Spain. Ley 27/2014 (IS), Ley 35/2006 (IRPF, arts. 8-9 on residency and art. 100 on CFC) and the inbound-expat regime (art. 93 LIRPF, "Beckham Law").
OECD. Pillar Two (GloBE) and OECD Model Tax Convention with Commentaries.

Choosing a jurisdiction always depends on the holder's actual tax residency and on the economic substance of the activity; review your specific case before taking any structural decision.

VAT on international digital services: the map that saves you audits

Selling digital services (SaaS, infoproducts, subscriptions, downloads) to clients in several countries from Spain is one of the spots where the tax authority opens the most cases. Rules changed years ago but many still apply "no-VAT invoice and done". Here is what you need sorted.

B2C inside the EU: OSS or local rate. Selling infoproducts or subscriptions to end consumers (B2C) in other EU countries means you apply the client's country VAT from the first euro if you exceed 10,000 EUR annually in total B2C EU. Without OSS you would have to register in each country. With OSS (Model 369) you declare quarterly from Spain.
B2B inside the EU. Reverse charge: invoice without Spanish VAT, showing the client's VAT-ID and the wording "art. 69.One LIVA / reverse charge". Your client self-assesses VAT in their country. VIES registration required (form 036, boxes 582-584) - without this, your client may reject the invoice.
B2C outside the EU. Invoice without Spanish VAT. Some countries (UK, Australia, Canada, Switzerland, Norway) require local VAT registration if you exceed their annual threshold. Your sales platform (Stripe, Paddle, Lemonsqueezy) may act as Merchant of Record and absorb it - that is Paddle's value proposition.
B2B outside the EU. Out of scope of Spanish VAT. Clean invoice with wording "Out of scope - supplier not established in client's territory". No Spanish VAT obligations; your client complies with their local rules.

What we are asked the most

Does Stripe act as Merchant of Record for me? Not by default. Stripe is a payment processor: you are the seller before the end client and their tax authority. For the VAT liability to shift, you need Paddle, Lemonsqueezy or FastSpring (explicit MoR).

What if I sell from a US LLC instead of Spain? It changes a lot. The LLC sells without Spanish VAT because it is not established in Spain; but if your residence is Spain, the LLC activity may be attributed and fall back into IRPF. The LLC does not eliminate VAT on its own.

At Exentax we review your exact mix (B2B/B2C, EU/non-EU, sales platform) and set up OSS, VIES and the right invoice wording - so that on audit day the flow ties on its own.

_More on this topic: LLC in the United States: complete guide for non-residents._

How we work at Exentax

Our team specialises in international tax structures for residents of Spanish-speaking countries operating online businesses. We combine local knowledge of Spain, Andorra and Latin America with operational experience setting up entities in Delaware, Wyoming, Estonia and other jurisdictions. Every case starts with a free consultation in which we evaluate residency, activity and goals, and we honestly tell you whether the proposed structure makes sense or whether a simpler alternative is enough.

On the same topic

What if HMRC, the IRS or my local tax authority asks about my LLC?

It's the question every client raises in the first consultation, and the short answer is: your LLC isn't opaque, and a properly declared structure closes any inquiry in standard forms. Your tax authority can request the state Certificate of Formation (Wyoming, Delaware or New Mexico), the EIN issued by the IRS, the signed Operating Agreement, the Mercury or Wise statements for the year, the Form 5472 plus pro-forma 1120 you filed, and the bookkeeping that reconciles income, expenses and movements. If all of that exists and is delivered in order, the inquiry doesn't escalate.

What tax authorities do pursue, and rightly, is sham ownership (nominees, paper residency) and undeclared foreign accounts. A well-structured LLC is the opposite: you appear as beneficial owner in the BOI Report when applicable (verifiable at fincen.gov/boi), you sign the bank accounts and you declare the income where you actually live. The structure is registered with the state Secretary of State, with the IRS and, when European banks are involved, inside the CRS perimeter of the OECD standard.

The mistake that really sinks an inquiry isn't having an LLC; it's not attributing the income correctly in your domestic return, not declaring foreign accounts when the year-end balance exceeds the local threshold (€50,000 in Spain via Modelo 720; the equivalent FBAR / Form 8938 in the US for residents; T1135 in Canada), and not documenting related-party transactions between the member and the LLC. Those three fronts are worth closing before any request arrives, not after.

## What an LLC does NOT do

- It does not exempt you from tax in your country of residence. If you live in Spain, France, Germany or Portugal, you are taxed there on worldwide income. The LLC organises your US side (zero federal tax for non-resident SMLLC pass-through, absent Effectively Connected Income); it does not switch off your domestic taxation. The income tax is computed on the attributed profit, not on the dividends actually paid.

- It is not an offshore vehicle or a BEPS scheme. It is a US entity recognised by the IRS, registered in a specific state with physical address, registered agent and annual informational filings. Classic offshore jurisdictions (BVI, Belize, Seychelles) leave no public trace; an LLC leaves a trace in five different places.

- It does not protect you if you commingle funds. The pierce the corporate veil doctrine kicks in as soon as a judge sees the LLC and the member behaving as the same wallet: mixed accounts, personal expenses paid from the LLC, no signed Operating Agreement, no bookkeeping. Three suspicious transactions are enough.

- It does not save you social security contributions at home. If you are self-employed in Spain, France or Germany, your monthly social contribution remains identical. The LLC handles the trading side with international clients; your personal contribution is independent.

- It does not exempt you from declaring foreign accounts. Spain residents file Modelo 720 / 721; UK residents, the SA106; Portugal residents, the Anexo J of Modelo 3 IRS; Germany residents, the Anlage AUS. Those obligations belong to the individual, not to the LLC.

At Exentax we cover those five fronts every year alongside the US federal calendar (Form 5472, pro-forma 1120, FBAR, state Annual Report and BOI Report when applicable). The goal is that no inquiry finds a loose end and that the structure withstands a 5-to-7-year retroactive review.

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