VAT stands for Value Added Tax and is a tax on consumer expenditure. It is collected on business transactions, imports and moving goods between EU countries. It’s a tax that VAT-registered traders in the EU add to the price of the goods they sell, and pass on to the national tax authorities when they file their tax returns.
If you sell goods in any EU country, it’s likely you may be required to register for Value Added Tax (VAT).
How complex is it?
You might have heard that VAT, or value-added tax, is complex and a headache to deal with. While VAT does take some time and planning, the opportunity for European expansion can make the effort worthwhile.
“We knew VAT was complex, but that didn’t slow us down,” says Dan McCarthy of Blink Home Security, who expanded from the US to the UK in 2016 and now sells across all five European marketplaces. “We found that while it does take some initial work, it was very manageable overall, especially with the right help. Given that our Europe business has been doubling year over year, I’m glad we didn’t let VAT delay our expansion.”
The cost of VAT in time and resources
Total costs will vary depending on your business, but for most sellers the first-year cost is between $500 and $1,000.
“Most sellers launching in Europe only register and file VAT in the UK,” says Diana Melkumova of the Amazon Global Selling team. “Using provider discounts, this will cost them around $500 for the first year.”
Amazon’s Solution Provider Network provides a list of vetted European tax advisors.
“Initially, I probably spent around 10 to 20 hours with a European accounting service just learning the requirements and weighing our options,” Dan says.
“As long as you’ve got a good European accountant, the ongoing filing and details are very manageable. At this point, we’ve developed a regular cadence so that staying on top of VAT only takes me an hour or two each quarter.”
How VAT differs from US sales tax
There are many differences between VAT and US sales tax. But there are two in particular that all non-EU-based sellers who consider selling in the EU should know about.
1. VAT is payable upon import. When sending goods to a US fulfillment center, you don’t have to pay sales tax in the US. However, as soon as you ship inventory to Europe (for example to a fulfillment center when using Fulfillment by Amazon, or FBA), you must pay that country’s import VAT.
“For our business, the initial cash outlay for import VAT was a substantial amount,” Dan says. “However, we were confident that our sales velocity would be sufficient to minimize that loss in working capital between paying VAT at customs and final product sale.”
2. VAT is included in the sale price. Unlike in the US, where sales tax is added to the list price, VAT is included in the list price in the EU. Let’s say that you sell a product on Amazon.com for $100. To sell it for the equivalent price in the UK, you would list it on Amazon.co.uk for $120 (assuming 20% VAT). This is important to remember when analyzing competitive pricing on Amazon’s European marketplaces.
“Sellers sometimes assume that VAT is collected and paid to the tax authorities by the customer or online marketplace” says Melanie Shabangu of AVASK, one of the VAT solution providers on Amazon’s Solution Provider Network. “This means that when a VAT quarter is due, they have not collected and saved the VAT liability themselves and the payment has to be made purely out of profits. This can easily be avoided by marking up your products in such a way that VAT is included in the retail value, knowing the VAT rate you should be charging.”
Where to register for VAT
If you store inventory in Europe you are required to have a registered VAT where your goods are stored. Many selling partners start their EU journey by storing goods and registering for VAT in Germany and UK. Here’s why:
- Germany and the UK are Europe’s largest opportunities for ecommerce meaning that inventory within the country is important to reach more customers with faster shipping options. Check out Amazon Europe’s fulfillment options to find the one that works best for you!
- Mitigates the risk disruption with logistics due to Brexit.
- The information required for UK and Germany VAT are simpler than other European countries.
When the business grows and expands, further registrations for VAT might be needed.
While each Amazon seller is solely responsible for being VAT compliant, Amazon can provide resources and tools for your VAT registrations and filings in EU countries.
We recommend that you get professional advice from a European tax expert. It’s the responsibility of each Amazon seller to ensure they are VAT-compliant and you should seek professional advice if you are unsure of your obligations.