The European Union (EU) remains one of the most attractive markets for e-commerce brands but in 2026, success depends on more than just demand. VAT compliance, customs treatment, and regulatory enforcement have become critical to both customer experience and margin control.
Over the past few years, the EU has moved from simplified cross-border rules to a system built on full taxation, increased visibility, and stricter enforcement. With VAT applied to all imports, the expansion of IOSS, and the removal of duty-free thresholds, brands are now operating in an environment where every shipment is taxable and closely monitored.
At the same time, broader customs reforms are reshaping how low-value e-commerce shipments are processed across the EU.
How EU VAT Works for B2C Imports
VAT applies to all goods imported into the EU—there is no longer a VAT de minimis threshold. When a customer places an order, VAT must be calculated based on the destination country, with rates typically ranging from 17% to 27% (around 21% on average).
While consumers ultimately bear the cost, the responsibility for collecting and remitting VAT depends on the shipping model. Under a Delivered Duty Paid (DDP) model, brands collect VAT at checkout and manage the import process upfront. Under a Delivered Duty Unpaid (DDU) model, customers are charged VAT (and often additional fees) at delivery.
The End of the €150 Advantage
For years, low-value shipments under €150 benefited from simplified customs treatment and exemption from duties.
Effective July 1st 2026, the EU ended the €150 duty de minimis threshold, meaning that all imports—regardless of value—are now subject to customs duties in addition to VAT.
In parallel, several EU countries have already introduced parcel-level handling or logistics fees, creating a new layer of costs on top of VAT and duties.
Read more in our EU Customs Changes Ongoing guide
How IOSS Works for EU Imports
For shipments valued at €150 or less, the Import One-Stop Shop (IOSS) remains the primary mechanism for simplifying VAT compliance.
With IOSS:
- VAT is collected at checkout
- A single monthly filing covers all EU sales
- Shipments clear customs faster
This continues to be critical for maintaining a smooth delivery experience and supporting a DDP model.
However, IOSS only addresses VAT—not duties or new handling fees. As the €150 threshold is phased out, brands must account for additional import costs beyond VAT, even when using IOSS.
Brands that don’t register or comply with this program could face:
- Delays in customs clearance, potentially up to twice as long
- The need for customs clearance in each destination country rather than a centralized clearance process in a single member state
- Increased customs clearance and brokerage fees
- Ineligibility for claiming VAT refunds on returns or undeliverables
- Ineligibility for reduced VAT rates for specific items
Read more about IOSS in our article: Benefits of Import One Stop Shop (IOSS)
Choosing the Right VAT Compliance Strategy
Many e-commerce brands are moving toward a Seller of Record (SOR) model with partners like Passport. In this setup, Passport handles VAT collection, IOSS usage, and remittance on behalf of the brand, enabling a DDP experience without requiring the brand to manage registrations or filings across multiple jurisdictions.
For brands that prefer to maintain control, registering for IOSS directly is another option. While it simplifies VAT reporting, it still requires ongoing compliance management, including record retention for up to 10 years and the use of an EU-based intermediary for non-EU businesses.
More complex approaches—such as registering for VAT in multiple countries or establishing a legal entity in the EU—are typically reserved for brands with local inventory or significant operational scale due to their cost and administrative burden.
Other options to comply with EU VAT regulations:
- Registering for Individual VAT Numbers: Registering for a VAT number in each EU country you ship to is typically the most expensive approach with an estimated first-year cost of over €215,000. It’s also the most time-consuming with the need to individually enroll, reconcile, and report VAT in every member state separately.
- Registering for an IOSS Number: While registering for an IOSS number greatly reduces the amount of paperwork to fill out, you’ll still be met with an estimated first-year cost of over €5,000. Some additional considerations include the need to maintain eligible sales records for 10 years and finding a fiscal intermediary located in the EU.
- Setting Up a Legal Entity in the EU: Applying to be a legal entity requires registration fees, setting up a local office, appointing a director, and registering for One Stop Shop (OSS). On top of that, your company will need to reconcile and report VAT by country monthly, attend annual meetings in the EU, and pay corporate taxes.
- Pay VAT on Import: Brands can still have the shipping carrier or consumer pay VAT upon import, but there are significant negative supply chain impacts. You’ll experience higher transportation costs, increased brokerage fees, and longer transit times as shipments must clear customs for each customer’s destination country.
How Passport Can help
Here at Passport, we understand the intricacies that come with international shipping, especially with EU VAT regulations. Our Seller of Record® (SOR) program is designed to give e-commerce brands a simpler way to access the EU market with a seamless enrollment process and enhanced shipping experience.
Ready to expand your business to the EU with Passport’s Seller of Record solution? Reach out to our compliance experts.
Authored by Thomas Taggart
Head of Global Trade | Passport
Thomas Taggart is a cross-border commerce leader with more than 20 years of experience in international shipping and regulatory affairs. As the Head of Global Trade, Thomas helps ecommerce brands go global by simplifying international trade, tax, and product compliance issues. Prior to Passport, he brought international shipping solutions to market through multiple roles in UPS’s product development organization.
Frequently Asked Questions
Do I need to charge VAT on all EU orders?
Yes. VAT generally applies to imported goods entering the EU, regardless of value. The applicable VAT rate depends on the destination country and the product being sold.
What is the difference between DDP and DDU shipping?
DDP (Delivered Duty Paid): The brand collects applicable duties, VAT, and other import charges at checkout and manages import clearance, creating a smoother customer experience.
DDU (Delivered Duty Unpaid): The customer pays duties, VAT, and any applicable clearance fees upon delivery, which can result in surprise charges, delays, refused shipments, and higher cart abandonment.
What is IOSS and when should I use it?
The Import One-Stop Shop (IOSS) is an EU VAT reporting system for shipments valued at €150 or less. It allows brands to collect VAT at checkout and file a single monthly VAT return for eligible EU sales, simplifying VAT compliance and helping speed customs clearance.
Does IOSS cover customs duties?
No. IOSS only simplifies VAT collection and reporting. It does not eliminate customs duties, handling fees, or other import charges that may apply.
What happens if I don’t register for IOSS?
Without IOSS, VAT is typically collected during import or at delivery. This can increase customs processing times, generate additional brokerage or clearance fees, and create a less predictable delivery experience for customers.
Are shipments under €150 still exempt from EU customs duties?
No. As of July 1, 2026, the EU has removed the €150 duty-free (de minimis) threshold. Low-value ecommerce imports may now be subject to customs duties in addition to VAT and any applicable handling or clearance fees. IOSS still applies for VAT reporting on eligible shipments under €150 but does not eliminate customs duties.
What is a Seller of Record (SoR)?
A Seller of Record (SoR) is a third party, such as Passport, that assumes responsibility for key tax and compliance obligations when selling internationally. This can help brands simplify VAT compliance, manage import requirements, and offer a DDP experience without maintaining multiple local registrations.
Do I need a VAT number in every EU country?
Not necessarily. Depending on your business model, solutions such as IOSS or working with a Seller of Record may reduce or eliminate the need for multiple VAT registrations. However, businesses storing inventory within the EU or operating locally may still have additional registration requirements.
How long do I need to keep VAT records?
Businesses using IOSS are generally required to retain transaction records for 10 years to comply with EU VAT regulations.
What are the penalties for EU VAT non-compliance?
Non-compliance can result in fines, shipment delays, customs inspections, additional administrative costs, and increased regulatory scrutiny. It may also negatively affect customer experience through unexpected charges or delayed deliveries.
How can I reduce friction for EU customers?
Offering a DDP checkout experience, collecting applicable duties and VAT upfront, and using solutions such as IOSS or a Seller of Record can reduce surprise charges, improve delivery reliability, and create a better customer experience.
Will EU VAT and customs rules continue to change?
Yes. The EU continues to modernize its customs and VAT framework, with additional reforms expected through 2028. Brands should monitor regulatory developments and ensure their compliance and pricing strategies remain up to date.
Will the new EU customs rules increase costs for low-value ecommerce orders?
Yes. Since July 1, 2026, low-value ecommerce imports are no longer exempt from customs duties. In addition, several EU Member States have introduced their own clearance or handling fees, and an EU-wide customs handling fee is expected to take effect later in 2026. Together, these changes increase landed costs for many ecommerce shipments.
Do national clearance fees apply even if VAT is prepaid through IOSS?
Yes. National clearance and handling fees are separate from both VAT and customs duties and may still apply even when VAT has been prepaid through IOSS.
Will these EU customs changes affect checkout or delivery experiences?
They can. Brands that do not accurately calculate duties, taxes, and fees may see more surprise charges at delivery, longer customs clearance times, or lower conversion rates. Solutions like Passport’s Seller of Record and cross-border infrastructure help brands manage these requirements while delivering a more predictable customer experience.
If goods are cleared in one EU country but delivered to another, where is the fee charged?
It depends on the country’s regulations. Some national fees are assessed based on the customs clearance location, while others are based on the final delivery destination. Brands should review the specific rules that apply in each market.
How do I know if a fee is charged per parcel or per customs declaration line item?
It depends on the regulation. Some national fees apply once per parcel, while others—including the EU’s temporary €3 customs duty and the planned €2 EU-wide customs handling fee—apply per customs declaration line item. This means shipments containing multiple product categories may incur multiple charges.