VAT For Amazon Sellers
Want to finally understand what VAT actually is?
Looking to get your VAT set up for selling on Amazon Europe?
This article will cover everything you need.
If you just want to hire an expert to do it all for you, we recommend Avask Accounting - use coupon code AMZAVASK100 and you'll get a £50 discount on VAT registration!
the vAT opportunity
I attended a meetup of Amazon Sellers in Bangkok in September 2016 and met a very successful seller, with a 6 figure monthly revenue on Amazon.com. We talked a little about his strategic plans for the future - in short, it involved launching more products on Amazon.com.
Thinking it would be of interest to him, I brought up the opportunity of selling on Amazon Europe - a growing market, with lower competition than Amazon.com.
However, he quickly interrupted, ”US Sellers like me stay away from Europe because of VAT. I looked at it and it’s just too complicated”.
In that moment, two things came to mind:
- He was overstating the complexity of VAT. It’s quite similar to sales tax in the US. As we’ll see in this post, it’s not that complicated and by aligning with the right accountant, it’s easy to take care of.
- This perception of VAT being so complicated is a positive thing for those who sell on Amazon Europe, and will likely help avoid the oversaturation seen on many niches on Amazon.com.
Now, let’s explain what VAT is.
What is VAT?
Value Added Tax (“VAT”) is a consumption tax that is applied to transactions involving goods and services in Europe.
Let’s look at a quick and simple example to illustrate how it works from a seller’s perspective:
- A seller in the UK plans to sell a product for £100 - this will provide his desired profit margin
- However, a 20% VAT rate applies in the UK - this must be added to the price of the product when sold
- As such, the retail / listing price will be £120 (£100 + 20% VAT)
- And so, a buyer pays £120 to acquire this product from the seller
- The seller receives £120 - the seller will keep £100, while the VAT portion of the sale (£20) must be passed on to the UK government
VAT is charged at different rates throughout Europe. The current standard VAT rates for Amazon Europe’s Big 5 are as follows:
- UK – 20%
- Germany – 19%
- France – 20%
- Italy – 22%
- Spain – 21%
In each country, some goods and services are subject to lower or even 0% VAT.
For example, the following have a 0% VAT rate in the UK - children’s clothing, books, foodstuffs, passenger transport, medical and pharmaceuticals. You can find details of these exceptions here.
Now that you understand basics of VAT, let’s look at how it will impact your business as an Amazon Europe seller.
Selling on Amazon Europe - How VAT works
Do you need to register for VAT when starting out?
There are two times when you need to register for VAT in a particular country in Europe:
1. Country of storage rule
If you keep your inventory in a country in Europe, you need to register for VAT there.
We recommend you send and store all of your inventory in the UK - you will then have to register for VAT in just 1 country (the UK) when getting started as an Amazon Europe seller.
However, and importantly, you’ll still be able to list your products on the other Amazon European marketplaces (Germany, France, Italy & Spain) and sell to customers throughout Europe - by signing up for Amazon’s European Fulfillment Network, they will ship your products from the UK to customers throughout Europe.
If you opt for Pan-EU FBA, your inventory will be stored throughout Amazon’s European warehouse network in 7 countries - UK, Germany, France, Italy, Spain, Poland and Czech Republic. That would result in you need to register for VAT in 7 different countries - a significant expense and a lot of work when getting started.
Assuming you follow our advice, you will be shipping and storing all of your inventory in the UK.
Due to the country of storage rule, you will then register for VAT only in the UK when starting out.
2. Sales rule
The other case when VAT registration is required in a European country is when you reach a predetermined level of sales to customers in that country in a calendar year.
When your Amazon Europe business grows and sales increase, this may result in you having to register for VAT in more countries.
Here are the sales thresholds for Amazon Europe’s Big 5:
Illustrative Example - An Amazon.com seller expands to Europe at the start of 2018. He ships and stores all inventory in the UK, & has the following sales in 2018:
Registering for VAT
There are 2 ways to register for VAT and get your UK VAT number. This is very important, as it’s needed when to set up your Amazon Europe seller account. It will also be needed when shipping your stock to the UK.
1. Setting up a UK company
Creating a UK company will provide you with a UK VAT number.
However, you’ll then also have to pay UK taxes on profits generated by your UK company.
2. Hiring an expert to apply on your behalf
The perfect approach if you have a company outside the UK.
Hire a company like Avask Accounting and they will do all the work for you.
They will apply on your behalf and you’ll then receive a UK VAT number for your VAT dealings, but won’t have to deal with any UK profit related taxes.
For planning purposes, I would factor in about 3 weeks to apply for and receive your UK VAT number, but it may take longer.
Importing - VAT & EORI
Your UK VAT number will also be used when importing your stock into Europe.
For importing, you will also be required to have an Economic Operator Registration and Identification Number (EORI) - it’s a number that allows customs in the EU to identify your shipments.
You can apply for your EORI number at gov.uk/eori - it will take about 4 working days for this.
Calculating import VAT
When importing products from outside the EU to the UK, here’s how to estimate the VAT that you’ll have to pay once your stock is cleared through UK Customs:
Import VAT = 20 % * ([Cost to buy your goods] + [UK Duty] + [Shipping Cost & Insurance])
This UK VAT & Duties Calculator can help you estimate this.
This may look complicated, but it’s included here for reference purposes only. By working with the right tax advisor, you won’t have to deal with this level of detail.
Important note - your VAT and EORI numbers must be included on shipping invoices when sending stock to the UK.
By doing so, you’ll receive a VAT refund certificate - your VAT advisor will be able to use this to decrease the amount of VAT that you pay / remit to the UK government.
Let’s look at this in an example:
- Over the past 3 months, a seller has collected £10,000 worth of UK VAT from sales to customers.
- When importing goods in the UK, the seller paid a total of £5,000 in import VAT.
- As such, the seller will be required to pay the net amount of £5,000 (10,000 less 5,000) to the UK VAT authorities.
VAT returns / VAT reporting
In the example above, how will the seller pay the £5,000 to the UK tax authorities?
This will be completed by submitting a UK VAT Return.
You’ll need to do VAT returns in the countries where you are VAT registered.
And so, if you follow our advice when starting out - shipping and storing all of your inventory in the UK - you’ll just have to submit UK VAT returns.
How often do you need to file VAT returns?
- Quarterly (every 3 months) for the UK and Spain
- Monthly for Germany, France and Italy
Due to the documentation and calculations involved in submitting VAT returns, it’s highly recommended you work with an expert for this. This will ensure mistakes are not made and allow you to focus on growing your business.
If you do not file your VAT returns on time, you will be subject to penalties and fines by the local tax authorities.
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How VAT impacts pricing
Let’s refer back to an earlier example.
- A seller in the UK plans to sell a product for £100
- A 20% VAT rate applies in the UK and must be added to the price when sold
- As such, the retail / listing price on Amazon UK is £120 (£100 + 20% VAT)
- When a customer pays £120 for this product, £100 will be for the seller’s account (less Amazon’s referral and fulfillment fees) - while the VAT portion of the sale (£20) must be passed on to the UK government
As we can see, VAT is included in the price shown to consumers.
It’s important to factor this into your analysis before listing on Amazon. The key question to ask - will your product be competitively priced in the market when VAT is added?
I hope this article has helped to demystify VAT!
Ultimately, it’s a tax that needs to be accounted for in your pricing and like other taxes, filed and paid for at the right time.
To ensure you focus on what you do best (growing your business), we recommend you consult an expert to get this set up correctly and managed going forward.
Not yet selling on Amazon EU? Check out our all-in-one service that helps sellers successfully launch on Amazon EU. It covers everything you’ll need, including translations and VAT!
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Grow and succeed on Amazon
Tips and insights to help you grow your Amazon business in US & Europe
Grow and succeed on Amazon
Tips and insights to help you grow your Amazon business in US & Europe