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VAT on Digital Services to Non-EU Countries – Guide for Businesses
This article explains when and how VAT applies to digital services sold to customers outside the European Union. Whether you are a Bulgarian company exporting digital content or a foreign supplier working with Bulgarian clients, the following guide will help you stay compliant and avoid costly mistakes.
What Qualifies as a Digital Service?
Under EU and Bulgarian VAT rules, a digital service is any product or service delivered electronically without direct human interaction. This includes:
- Software and mobile applications sold or licensed online;
- E-books, music, and video streaming platforms;
- Online courses, webinars, and digital learning content;
- Cloud storage, hosting, and SaaS platforms.
In short, if your customer receives access, data, or functionality online without manual processing, it likely qualifies as a digital service.
VAT Rules: Within and Outside the EU
VAT treatment depends on where your customer is located and whether they are a business (B2B) or a consumer (B2C):
| Customer Location | B2B Transactions | B2C Transactions |
|---|---|---|
| EU Member State | Reverse charge applies – customer accounts for VAT. | VAT charged in customer’s country through OSS (One-Stop Shop). |
| Outside the EU | No Bulgarian VAT – supply outside EU VAT scope. | No Bulgarian VAT, but check local tax rules abroad. |
For non-EU customers, your supplies are outside the scope of EU VAT. However, this does not mean you can ignore local regulations. Countries such as the United Kingdom, Australia, and Canada require foreign digital suppliers to register for VAT, GST, or sales tax if they exceed certain revenue thresholds.
Practical Implications for Your Business
When selling to customers outside the EU, do not charge Bulgarian VAT. On your invoice, include the note:
“Supply of digital services to a non-EU customer – outside the scope of EU VAT.”
Before issuing the invoice, always confirm the customer’s location and status (business or private individual). A clear client onboarding process can prevent future tax disputes.
Proof and Documentation
To justify the VAT treatment, you must keep reliable evidence that your customer is established outside the EU. Acceptable proof includes:
- Customer’s billing address and country of residence;
- IP address or geolocation data confirming non-EU location;
- Bank or payment details indicating the country of origin;
- Signed contracts or service agreements.
Store this documentation for at least ten years, as required under EU VAT record-keeping rules.
Common Mistakes to Avoid
- Charging VAT when the sale is outside EU scope;
- Failing to verify the client’s business status for B2B transactions;
- Ignoring foreign tax registration obligations in target markets;
- Not maintaining proper evidence of the customer’s location.
In 2025, VAT on digital services remains a key issue for cross-border business. If you are selling from Bulgaria to non-EU customers, your sales are outside the scope of Bulgarian VAT. Yet, compliance does not end there – many countries have introduced their own digital tax rules.
Consult a professional accountant before expanding internationally. Proper planning today prevents penalties tomorrow.
ASB Accounting Services Bulgaria is here to support your business with expert accounting, VAT compliance, and cross-border tax solutions.