Selling on Amazon Europe & VAT - The Definitive Guide
One of the common reasons sellers on Amazon.com don't expand their businesses to Europe is VAT. It's a source of confusion for many, even to those already selling in Europe. As a result, we asked our friends at SimplyVAT to provide a definitive guide to VAT for sellers, both current and potential, on Amazon Europe. We hope you like this guest post, and thank Simply VAT for sharing their expertise on this topic.
The Bottom Line for Amazon Europe Sellers
If you sell goods in any European Union (EU) country, you may have an obligation to become Value Added Tax (VAT) registered in one or more EU countries, especially if you are using Amazon’s European network of fulfilment centres. Now that we have established this, let's learn more about VAT.
What is Value Added Tax (VAT)?
VAT in the EU is levied on goods and services throughout the EU. It is a transactional tax which is applied every time value is added – from the raw material supplier, to the manufacturer, to the wholesaler and retailer, and finally to the end consumer. It is very popular with the local tax authorities, as governments get revenue every step of the supply chain.
Especially interesting to the tax authorities is the VAT revenue collected from online sales – as they get to keep it. It is because of this that EU tax authorities are becoming increasingly proactive in hunting down non-compliant online sellers. Indeed, new legislation is being introduced across the EU to ensure online sellers can no longer ignore their VAT obligations.
Be very clear - selling online will expose you to VAT obligations in the EU. Ignorance of the VAT rules is no defense. Not accounting for VAT properly or not reporting it at all can have a significant impact on your business. The tax authorities issue penalties and interest charges for non or late VAT compliance - sometimes up to 400% of the VAT owed.
Amazon Europe Sellers & VAT
The 10 points below highlight the key things you need to know about VAT as an Amazon Europe Seller, best practices and how to ensure you are compliant.
1. The Impact of Using Fulfilment By Amazon
Using Amazon warehouses across the EU creates a taxable supply, and you must register for VAT immediately in any country that your stock is stored.
This means, if you are subscribed to Amazon’s Pan European FBA service, you will need to register for VAT in 7 countries to comply (Amazon has warehouses in each of these countries) – UK, France, Germany, Italy, Spain, Poland and Czech Republic.
2. Import VAT
At the first port of entry into the EU, local import VAT will be charged on the cost value of the goods you are importing. For example, in the UK the import VAT on standard goods is at 20%. These costs have to be paid straight away.
If you are not VAT registered, your customer is usually left to pay the import charges before they can receive delivery of the goods. This is often unexpected by the customer and does not give the best customer experience.
3. Register for VAT to Improve your Customer’s Experience
If you become VAT registered, either voluntarily (or you have to VAT register as you are using a fulfilment centre in that country), you are now the ‘importer of record’. This means all the VAT is accounted for by you. Import VAT charged to you can now be reclaimed by you via the VAT return. When the customer buys the goods from you on the website, you collect the VAT and pay it over to the tax authority on the next VAT return – and your customer does not get any unpleasant surprises!
4. The EU VAT Distance Selling Rules
Once you are VAT registered in one EU country, sales delivered from that country to local private customers or customers in other EU countries are governed by the EU VAT distance selling rules. These rules state that local VAT is charged on any sales to any consumers within Europe until the set distance selling thresholds are exceeded in any one country.
The thresholds are €35,000 (or equivalent) in all EU countries, except:
- €100,000 (or equivalent) in Germany, Netherlands, Luxembourg
- £70,000 (or equivalent) in the UK
A VAT registration will be needed in every EU country where sales exceed the threshold.
5. Know the Different EU VAT rates
Each EU country has a standard rate of VAT and a reduced rate of VAT (in the UK and Ireland we also have a zero-rate of VAT). The VAT rate applied will depend on the type of goods for example foodstuffs can be as little as 0% VAT in the UK and Ireland. Standard VAT rates across the EU range from 17% to 27%. It is important to charge the correct VAT amount in the country where your goods are being sold.
6. VAT Returns
Once VAT registered, you will have to file VAT returns at the frequency and to the deadlines the local tax authority wants. In some countries filing VAT returns has to be done monthly eg. in Germany and France, in others it is quarterly e.g. the UK, Belgium and Spain. Also some tax authorities require an additional Annual VAT Summary to be filed as well.
7. Invoice Compliance
In some EU countries, it is compulsory to provide the customer with a VAT invoice. Make sure you know which country required what information, for example, an invoice can be in any currency, however, the VAT amount has to be in the currency of the country where the VAT is being reported e.g. GBP in the UK; Euros in Germany or France.
8. Other Compliance Reporting Obligations
When stock is sold or transferred between EU countries, there is additional reporting obligation which is called the ‘EC Sales List’, for example, if stock is moved from the UK warehouse to a German warehouse, this will need to be reported on an EC Sales List as well as the UK VAT return.
Another potential obligation is the filing of the Intrastat Declarations. These are statistical reports that are obligatory once set thresholds are exceeded in each EU country. There are thresholds for both ‘dispatches’ and ‘arrivals’. See list here. You will need to monitor sales, for example, from the UK to any EU countries when ‘dispatches’ have reached £250,000, intrastat declarations will be required.
9. Fiscal Representation
If your business is based outside the EU, some EU countries require you to have Fiscal Representation. A Fiscal Representative is jointly and severely liable for the VAT you will owe and because of this, there are additional fees associated which can include a bank guarantee.
10. Is your pricing right to stay competitive in your chosen market?
Unlike the USA where sales tax is added after the sale, in Europe, VAT should always be included in the price shown to consumers.
How much will your margins be affected with the application of the different VAT rates? Will you still be making a profit once you have collected the local VAT on your sales? It is always useful to carry out research in the local markets to see how much your competitors are charging and whether you will be able to compete.
Don’t let VAT be a barrier to your European expansion plans
Get in touch with Simply Vat to discuss how we can help you comply with VAT in Europe, and allow you to focus on growing your business!