How Offshore Tax Structures Handle VAT on Services

Offshore structures can be brilliant for income taxes and asset protection, but VAT on services plays by different rules. VAT follows the customer and the place of consumption—not where your company is incorporated. That’s why a British Virgin Islands software company can still owe VAT in France, and a Dubai agency can be pulled into UK VAT despite never touching UK soil. The good news: once you understand how “place of supply,” reverse charge, and special schemes work, you can architect clean, compliant flows that won’t bleed margin or create audit headaches.

VAT, GST, and “Place of Supply”: The frame you need

VAT/GST are consumption taxes. More than 170 countries levy them, and rates in major markets range roughly from 5% (UAE) to 27% (Hungary), with many EU countries clustered around 20–23%. Services are taxed where they’re considered “consumed.” That’s determined by place-of-supply rules, which vary by region but follow a few core patterns:

B2B services: Usually taxed where the customer is established. The buyer often self-accounts under a “reverse charge” if the supplier is not established locally.

B2C services: Often taxed where the supplier is established, but there are big exceptions—particularly for digital, telecom, and broadcasting services, which are frequently taxed where the consumer is located.

Special overrides: Use-and-enjoyment, event-related services, services connected with real estate, and transport can deviate from the general rule.

Offshore incorporation does not exempt you from VAT. If your customer’s jurisdiction taxes a service and locates consumption at the customer’s end, you’ll either need to register, charge VAT, use a special scheme, or ensure your customer reverse-charges.

What “offshore” changes—and what it doesn’t

When people say “offshore,” they might mean zero-VAT jurisdictions (BVI, Cayman), low-VAT regimes (UAE at 5%), or simply “non-EU.” For VAT, the incorporation country of the supplier matters far less than:

Where customers are based (and whether they’re businesses or consumers)

Where the service is actually used and enjoyed

Whether you have a fixed establishment (FE) where human and technical resources perform the service

Whether you’re using platforms or intermediaries that become the deemed supplier

Local thresholds and nonresident registration rules

In practice, most offshore service suppliers face VAT compliance in customer markets. The core strategy is to lean on reverse charge for B2B and to use special schemes or local registration for B2C, especially digital services.

The EU: The most consequential ruleset for global service providers

B2B services: General rule and reverse charge

General rule: Place of supply is where the business customer is established.

Mechanics: If you, a non-EU supplier, invoice an EU VAT-registered business, you typically do not charge VAT. The customer applies the reverse charge and reports both output and input VAT (if recoverable).

Invoice notes: Reference the customer’s VAT number and include a reverse-charge statement (e.g., “VAT reverse charged under Article 196 of Council Directive 2006/112/EC” plus local language variations as needed).

Common pitfalls:

Not verifying the customer’s VAT status. Always validate VAT numbers via the VIES system and keep evidence.

Missing reverse-charge wording on invoices. This can trigger assessments or rejected input claims for your customers, souring relationships.

B2C services: General rule and big exceptions

General rule: Place of supply is where the supplier is established. For non-EU suppliers, this would normally mean no EU VAT charged.

The digital exception: Electronically supplied services, telecom, and broadcasting are taxed where the consumer is located. Non-EU suppliers must either register in each Member State or use the Non-Union OSS (One Stop Shop).

Non-Union OSS for non-EU suppliers

Scope: Since July 2021, non-EU suppliers can use the Non-Union OSS to declare and pay EU VAT due on B2C services whose place of supply is in the EU.

What it covers: B2C services with EU place-of-supply rules, including digital services and several other B2C service categories (not just downloads).

Process: Register once (in any EU Member State offering the Non-Union OSS), file a single quarterly return listing VAT due by Member State, pay one consolidated amount.

Thresholds: Non-EU suppliers don’t get the €10,000 micro-business threshold; that threshold is for EU suppliers with limited cross-border sales. If you sell B2C digital services into the EU from offshore, OSS is usually the simplest route.

Mistakes I see:

Assuming “we’re offshore so we don’t charge EU VAT.” This fails for B2C digital services and other B2C services tied to the consumer’s location.

Misclassifying sales as B2B when the “business” customer doesn’t provide a valid VAT number and is really a consumer.

Use-and-enjoyment overrides

Some Member States apply use-and-enjoyment rules to certain services (e.g., telecom, certain leases, potentially other services). These can shift the place of supply. If your service resembles telecom/data or you lease assets or IP for EU use, check local use-and-enjoyment rules carefully.

Fixed establishment risk inside the EU

A non-EU company with human and technical resources in an EU country that enable it to provide services there may have a VAT fixed establishment. If you have a team in Spain delivering your consulting, Spain can claim your place of supply is Spain. You’d need a Spanish VAT registration and to charge Spanish VAT for relevant transactions. This is a lower threshold than corporate tax permanent establishment. Using local contractors, shared offices, or co-located dev teams can create risk if those resources are effectively at your disposal.

Input VAT recovery for non-EU suppliers

Non-EU suppliers can sometimes recover EU VAT incurred (e.g., on trade show costs) under the 13th Directive. Conditions vary by Member State and often require reciprocity. Deadlines are strict and documentation-intensive. If you regularly incur EU input VAT and aren’t registered, plan for 13th Directive reclamations or consider a registration if it aligns with your supply pattern.

The UK: Similar DNA, separate system

B2B: For most cross-border services, the place of supply is where the customer is established. Non-UK suppliers to UK VAT-registered businesses usually don’t charge VAT; the UK business accounts via reverse charge.

B2C digital services: Non-UK suppliers must register for UK VAT and charge UK VAT to UK consumers, with no threshold.

UK schemes: The UK operates its own version of MOSS for digital services supplied to UK consumers by non-UK suppliers. Registration is separate from the EU OSS.

Watch-outs:

Many offshore suppliers forget to register for UK VAT on B2C digital sales after Brexit changes. HMRC has focused on platforms and payment providers to enforce compliance.

The GCC: Reverse charge heavy, with nuance

UAE, KSA, Bahrain, Oman have VAT (5–15% range), while Qatar and Kuwait have been slower to implement.

B2B services: Often the reverse charge applies when a UAE/KSA business receives services from abroad. Offshore suppliers generally do not register for B2B sales where the local recipient is responsible for reverse charge.

B2C services: Nonresident registration may be required if you make supplies with a place of supply in a GCC state and no reverse charge applies. Digital services regimes are evolving—KSA has implemented simplified nonresident registration; others are catching up.

Practical tip:

Invoicing a GCC business with its TRN/VAT number and reference to reverse charge usually keeps you out of local registration. For B2C or mixed supplies, check the specific country guidance—it’s not uniform across the GCC.

Asia-Pacific: Varied but converging on taxing offshore digital services

Singapore (GST 9% in 2024): Overseas Vendor Registration (OVR) for B2C digital services. Nonresident suppliers exceeding SGD 100,000 in Singapore B2C sales and meeting global turnover conditions must register and charge GST. From 2023, OVR also covers low-value goods; for services, the rule continues for digital services to consumers.

Australia (GST 10%): Offshore suppliers of digital services to Australian consumers must register under a simplified regime once AU$75,000 threshold is met. Marketplaces/platforms can be deemed suppliers.

New Zealand (GST 15%): Similar offshore supplier regime for “remote services” to NZ consumers with NZ$60,000 threshold. Simplified registration available.

Japan, South Korea, Taiwan: Each has introduced rules taxing cross-border digital services to consumers, with vendor or platform obligations.

India: Equalization levy and GST interplay; for OIDAR (online information and database access or retrieval) services to Indian consumers, offshore suppliers often must register and charge IGST.

I regularly see founders underestimate APAC consumer compliance. These regimes are well-enforced via app stores, card processors, and marketplace platforms that require supplier tax IDs before payouts.

Switzerland, Norway, and other non-EU Europe

Switzerland (VAT 8.1% standard): Nonresident suppliers must register if they have global turnover exceeding CHF 100,000 and make taxable supplies in Switzerland not covered by reverse charge. Switzerland expects nonresident providers to comply; the threshold is global, so larger businesses are often pulled in quickly.

Norway (VAT 25% standard): VOEC scheme applies for low-value goods and digital services to consumers. Nonresident suppliers to Norwegian consumers may need to register under VOEC or standard VAT depending on the service.

If you deliver B2C digital services to European consumers outside the EU, scan for local simplified schemes akin to OSS/OVR. They’re designed to be easy to adopt and hard to avoid.

Reverse charge: The offshore supplier’s best friend for B2B

The reverse charge shifts VAT accounting to the business customer. It’s the mechanism that keeps most nonresident B2B service suppliers from registering locally. To use it effectively:

Confirm your customer’s business status and VAT/GST number.

Put reverse-charge wording on the invoice.

Ensure the service falls under rules eligible for reverse charge in that country. Some services may still require local registration (e.g., land-related services, event admissions).

If your customer can’t provide a valid VAT/GST number, you likely have a B2C scenario—even if they call themselves a business—and the reverse charge typically won’t apply.

Digital services and platforms: Where compliance bites hardest

Digital services—SaaS, streaming, apps, e-learning downloads, cloud hosting, and automated online services—are a compliance hotspot. Governments love these taxes: digital is scalable, trackable, and high-margin. Common facts:

EU B2C: Use Non-Union OSS to avoid 27 registrations.

UK B2C: Separate UK registration for digital services to consumers.

APAC: Offshore supplier regimes in Australia, New Zealand, Singapore, Japan, South Korea, and more; thresholds vary.

Marketplaces: App stores and marketplaces increasingly become the “deemed supplier,” collecting and remitting VAT/GST. If a platform is deemed supplier, your liability may shift—but so can your margin and invoicing complexity.

Two quick examples:

A BVI SaaS selling monthly subscriptions to EU consumers: Must register for Non-Union OSS and charge VAT at the consumer’s member-state rate (e.g., 20% France, 19% Germany, 23% Ireland).

A Cayman video streaming service distributing via Apple App Store: Apple is often the deemed supplier for B2C VAT/GST in many jurisdictions, charging VAT and remitting it. Your invoice is to Apple, not the end consumer, simplifying your VAT footprint.

Fixed establishment: The invisible tripwire

VAT fixed establishment (FE) can exist where you have sufficient human and technical resources to supply services. It’s not just a leased office; it’s the people and tools necessary to deliver. Here’s where offshore structures run into trouble:

Embedded teams: If your Warsaw dev team continuously delivers a SaaS from Poland for an offshore company, Poland may claim an FE.

Contracting “as if employees”: Long-term local contractors using your systems, supervised by your managers, can resemble an FE.

Warehousing for services? For pure digital services, this is less about physical goods and more about servers and staff. Servers alone rarely create FE unless you own and control a data center that contributes to supply.

When FE exists, you may have to charge local VAT and lose reverse-charge simplicity. Audit defenses hinge on contract structure, resource control, and the degree of permanence.

Input VAT/GST recovery: Don’t leave money on the table

If you’re not registered locally, you may still recover VAT/GST on costs through refund schemes:

EU 13th Directive: For non-EU businesses, subject to reciprocity. Deadlines and evidence requirements are strict (original invoices, proof of payment, certificates of status).

UK 13th Directive-style: Similar to the EU approach but administered by HMRC post-Brexit.

Other countries: Many allow refunds via nonresident claims or treat the tax as irrecoverable unless you register.

If your recurring costs are significant (e.g., EU marketing spend, trade shows, subcontractors charging VAT), do the math. Sometimes a local registration is more efficient than repeated refund claims.

Invoicing, returns, and mechanics that avoid penalties

Invoice essentials for cross-border B2B:

Customer’s VAT/GST number where applicable

Reverse-charge statement referencing local law

Your tax ID if you’re registered

Clear description of services and date of supply

Currency and exchange rate source (e.g., ECB, HMRC, or local central bank)

Record-keeping: Keep evidence of customer location (two non-conflicting pieces for EU digital B2C), VAT number validation logs, contracts proving business status, IP address logs for digital services, and proof of export (for some services).

Returns cadence: Monthly or quarterly in many regimes; OSS is quarterly. Late filings draw penalties and interest quickly.

Fiscal representation: Some EU countries require a fiscal rep for non-EU suppliers. Budget for fees and bank guarantees if needed.

Structuring techniques that actually help

B2B-first model: If most customers are businesses, orient your contracting and KYC to document B2B status and rely on reverse charge. Build processes to validate VAT numbers at checkout.

Use OSS and similar schemes: For B2C digital services, adopt Non-Union OSS (EU) and register in the UK and APAC as required. It’s better than 27+ separate registrations.

Avoid accidental FEs: Keep offshore delivery genuinely offshore. Use independent contractors rather than quasi-employees; avoid placing managers and teams in one EU state without examining FE risk; assess server/control footprints.

Consider marketplaces: Let platforms be deemed suppliers for B2C sales if your margins can sustain platform fees. This offloads VAT collection and audits.

Single billing entity: Centralize B2C digital sales through one entity registered under OSS and other simplified regimes. Keep intercompany flows simple and priced at arm’s length.

VAT groups: If you do create a local entity for operational reasons, a VAT group can simplify local VAT between related parties. Not available in all jurisdictions, and grouping rules vary.

Industry snapshots: What changes by service type

SaaS and cloud tools

B2B: Reverse charge in most markets if properly documented.

B2C: OSS in EU, UK registration, APAC offshore regimes. Expect to collect VAT/GST in many consumer markets.

Servers and FE: Hosting in third-party clouds rarely creates FE. Onsite dev teams can.

Consulting and marketing agencies

B2B-heavy: Reverse charge works well if clients are established businesses. Keep VAT IDs and engagement letters tight.

Onsite assignments: Event-related or on-the-ground services may follow special place-of-supply rules. You might need local VAT in the event country.

Subcontractors: If EU subcontractors charge you VAT, consider whether local registration or 13th Directive claims make sense.

E-learning and digital content

Automated downloads/streaming: Usually digital B2C—EU OSS, UK VAT, APAC registrations as required.

Live webinars or coaching: Classification can change the place-of-supply. Live, time-specific events sometimes fall under event rules; check jurisdictional detail.

Software licensing and IP services

Complex place-of-supply rules and royalties can trigger withholding tax on top of VAT in some countries. Coordinate VAT with income tax and treaty planning.

Concrete examples with numbers

1) BVI SaaS selling to EU and UK

Revenue: €2,000,000/year, 60% B2B EU, 20% B2C EU, 20% UK B2C.

B2B EU: No EU VAT charged; customers reverse-charge. Ensure VAT IDs and reverse-charge invoice notes.

B2C EU: Register Non-Union OSS. If France accounts for €200,000 of B2C sales at 20%, collect €40,000 VAT for France via OSS.

UK B2C: Register for UK VAT. If £400,000 at 20%, collect £80,000 VAT and file UK returns.

Compliance stack: OSS quarterly filings; UK VAT quarterly; robust customer location evidence.

2) Dubai agency serving EU corporates

All clients are EU VAT-registered businesses. Under EU rules, B2B services place of supply is the customer’s country; reverse charge applies.

Practical steps: Collect VAT numbers, check via VIES, include reverse-charge wording. No EU registration needed if all truly B2B. Watch FE risk if your project managers spend months onsite in a single EU state.

3) Hong Kong consultancy + Polish dev team

HK company bills global clients. But 20 devs sit in Poland under long-term contracts, supervised by HK management.

Risk: Poland claims a VAT FE. Some client services may be “supplied” from Poland, requiring Polish VAT registration and local VAT on B2C or certain B2B supplies.

Solution: Evaluate staffing model, contract structure, and whether a Polish subsidiary with VAT registration and proper intercompany pricing is cleaner.

Step-by-step: How to map VAT on offshore services

1) Inventory your services and buyers

Split by B2B vs B2C, countries of customers, and whether services are digital/automated, live, or bespoke.

2) Determine place of supply per market

EU/UK: Apply general B2B/B2C rules and digital service exceptions; check use-and-enjoyment.

APAC/GCC/others: Identify offshore supplier regimes and thresholds.

3) Decide registration strategy

B2B-first? Lean on reverse charge.

B2C digital? Register for Non-Union OSS (EU), UK VAT, and relevant APAC regimes.

Expect fiscal reps in some EU countries if you do local registrations.

4) Build invoicing and checkout rules

Validate VAT numbers at checkout and flag B2B.

Display prices inclusive of VAT for B2C where mandated.

Store two pieces of location evidence for EU digital B2C (e.g., billing address and IP country).

5) Implement tax technology

Use a tax engine (e.g., Avalara, TaxJar, Quaderno, Stripe Tax) configured for services and B2B/B2C logic.

Map VAT rates and place-of-supply rules. Automate reverse-charge invoice text.

6) Monitor FE risk

Track headcount and contractor deployment by country.

Review where core service delivery resources sit. Reassess when teams grow or become permanent.

7) Manage filings and cash

Calendar OSS/UK/APAC filing deadlines.

Reconcile collected VAT to ledger. Monitor escrow needs.

Plan FX conversions using accepted reference rates.

8) Review annually

Laws change. OSS coverage expanded in 2021; APAC thresholds evolve. Revalidate assumptions yearly.

Common mistakes that cost real money

Treating offshore as VAT-free: You’ll still owe VAT on B2C digital services and may need to rely on reverse charge for B2B.

Mislabeling B2C as B2B: Without a valid VAT number and reasonable checks, tax authorities will treat it as consumer sales.

Missing OSS and local schemes: Failing to register leads to penalties, denied refunds, and even payment processor holds.

Ignoring FE: Teams, contractors, and permanent resources can quietly establish FE and wreck carefully planned structures.

Incomplete invoices: Missing reverse-charge language, customer IDs, or location evidence invites audits and customer complaints.

Forgetting platform rules: Marketplaces may be deemed suppliers. If so, don’t also charge VAT; align contracts and invoicing correctly.

Practical FAQ

Do I need an EU VAT number if all my EU clients are businesses?

Usually no, if you’re a non-EU supplier and clients apply reverse charge. You still need to validate VAT numbers and include proper invoice wording.

I’m a Cayman SaaS selling to EU consumers. Can I avoid charging VAT?

No. Use the Non-Union OSS to collect and remit EU VAT. The UK is separate—you’ll need a UK VAT registration for UK consumers.

We have a remote team of contractors in Romania. Is that a fixed establishment?

Maybe. If those resources are at your disposal and form a stable setup to deliver services, authorities could assert FE. Get a local review of contracts, control, and permanence.

Can I recover EU VAT on trade shows if I’m not registered?

Possibly via the 13th Directive. Expect paperwork and potential reciprocity barriers. If you incur significant EU VAT, consider a local registration strategy.

Will using AWS servers in Frankfurt create an EU FE?

Typically no, not on its own. Owning and controlling infrastructure that’s integral to service delivery might push the boundary, but cloud hosting alone is usually insufficient.

A concise compliance checklist

Classify: List services by type and buyer (B2B/B2C), by country.

Decide place of supply: Apply EU/UK/APAC rules; document logic.

Invoices: Add VAT IDs, reverse-charge statements, and correct VAT rates for B2C.

Evidence: Keep two proofs of customer location for EU digital B2C.

Platforms: Confirm deemed supplier status; avoid double-charging.

FE watch: Audit your people and tech footprint annually.

Tech stack: Implement a tax engine and automate rates and rules.

Returns: Calendar filings, reconcile collections, manage FX.

Review: Reassess annually or with major business changes.

Personal notes from the field

Don’t get cute with “everyone is B2B.” I’ve seen audits reclassify 15–30% of revenue as B2C when VAT numbers were missing or invalid. That’s a nasty retroactive VAT bill plus penalties.

OSS is a gift for non-EU suppliers, but it’s not a silver bullet. If you run events or services with special rules, OSS may not cover them. Keep a list of out-of-scope supplies.

If your sales are predominately B2C in varied countries, using a marketplace that acts as deemed supplier is often cheaper than running dozens of registrations. Yes, their margin hurts, but audit risk and compliance overhead can hurt more.

FE analysis is where plans succeed or fail. If you’ve scaled, invest in a memo that examines your footprints in the EU and UK. That memo is your shield in an audit.

Putting it all together

Offshore entities can absolutely run clean, VAT-compliant service businesses. The trick is aligning your billing model with place-of-supply rules and building processes that classify customers correctly from the first invoice. Lean on reverse charge for B2B, use OSS and analogous schemes for B2C digital, and design your operational footprint to avoid accidental fixed establishments. Once you set the scaffolding—registrations, invoicing text, location evidence, and tech—you’ll find VAT becomes predictable. You’ll also sleep better when marketplaces, payment processors, and tax authorities come knocking, because your structure matches the logic of how VAT on services really works.