The key factors that determine if you have an obligation to register for VAT are: your business’ country of establishment, the location of your inventory, and your level of sales (read more about the ‘VAT thresholds’ in EU countries). In general, when you sell your products on Amazon’s European marketplaces, VAT registration will likely be required for at least one EU country. To see if VAT registration is required, take this brief test.
Learn the basics about VAT
Reaching millions of new customers across Europe with Amazon can allow you the opportunity to grow your sales significantly. A basic understanding of VAT, the European equivalent of US sales tax, is critical for your market entry strategy. In this article, we’ll offer an overview of VAT, what it means for your business, and information on how to handle it.
We knew VAT was complex, but that didn’t slow us down.Dan McCarthyBlink Home Security
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 service providers on Amazon’s Service 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.”
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 service providers on Amazon’s Service 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.
Where to register for VAT
The time it takes to become VAT registered can vary. To avoid delays, start the process as soon as you register your EU seller account.
VAT Services on Amazon
Use VAT Services on Amazon to manage your VAT registration, filing and submission requirements. Amazon works with global tax service providers to enable VAT compliance in UK, Germany, France, Italy, Spain, Poland and Czech Republic.
Low Cost: As a special ongoing promotion, we are providing the first year of service free* – which includes VAT registration and filings. In addition to the first year free promotion, for Year-2 you only need to pay €400 per year per country for your on-going VAT filing report submissions.
Automated VAT Filings: You benefit from online and fully automated VAT filings integrated within Seller Central for your Amazon transactions.
Customer Support: Your tax service provider will guide you step by step through your VAT Registration and once you begin your online VAT filing, you will receive dedicated customer support from Amazon.
Low Cost: As a special ongoing promotion, we are providing the first year of service free* – which includes VAT registration and filings. In addition to the first year free promotion, for Year-2 you only need to pay €400 per year per country for your on-going VAT filing report submissions.
Automated VAT Filings: You benefit from online and fully automated VAT filings integrated within Seller Central for your Amazon transactions.
Customer Support: Your tax service provider will guide you step by step through your VAT Registration and once you begin your online VAT filing, you will receive dedicated customer support from Amazon.
3rd party service providers
Given the complexity of VAT, and how different it is from US sales tax, many sellers hire a European tax expert. Many of these VAT experts provide a free first consultation to discuss your specific need.
Tip: Some service providers offer both tax and shipping services to help sellers expand to Europe. For example, First choice shipping provides both services with promotions specific to Amazon sellers.
Tip: Some service providers offer both tax and shipping services to help sellers expand to Europe. For example, First choice shipping provides both services with promotions specific to Amazon sellers.
Here are some popular picks from the service provider network.
4 steps for handling VAT
“One of the most common issues we deal with is sellers having their European accounts suspended because of issues with the local VAT authority,” says Diana of Amazon Global Selling. “The vast majority of these problems could have been easily avoided if they had spent some time upfront planning and understanding their VAT obligations.”
1
Get expert guidance to understand VAT obligations early on
Given the complexity of VAT, and how different it is from US sales tax, most sellers hire a European tax expert. Many of these VAT experts provide a free first consultation.
“VAT isn’t something I would trust to your local US accountant,” says Elena Castañeda of Bling Jewelry, who expanded from the US to the UK in 2010. “We found a great VAT firm, AVASK, through Amazon’s Service Provider Network, who guided us through the entire process, from planning to ongoing filing.”
“VAT isn’t something I would trust to your local US accountant,” says Elena Castañeda of Bling Jewelry, who expanded from the US to the UK in 2010. “We found a great VAT firm, AVASK, through Amazon’s Service Provider Network, who guided us through the entire process, from planning to ongoing filing.”
2
Strategize and prepare to launch
“As soon as you’ve started thinking about selling in Europe, make sure you do your research on VAT,” says Lavina Hasija of Amazon’s European Marketplace team. “Have an expert work with you from the start. VAT will impact your strategy from the beginning, including pricing and fulfillment.”
Pricing Applicable VAT rates vary by country and product category, among other factors. Confirm with your VAT advisor what rate you must apply to your display price.
“Our pricing varies by country and is based on an algorithm that builds in VAT for each country,” says one seller. “We generally try to match what our net in the US would be, taking into consideration extra shipping costs, VAT, currency exchange rates, etc.”
Dan of Blink Home Security says, “I wish that I’d gotten my VAT registration started earlier, as that process took us longer than expected, and we couldn’t send the shipment until we had the VAT registration number.”
Pricing Applicable VAT rates vary by country and product category, among other factors. Confirm with your VAT advisor what rate you must apply to your display price.
“Our pricing varies by country and is based on an algorithm that builds in VAT for each country,” says one seller. “We generally try to match what our net in the US would be, taking into consideration extra shipping costs, VAT, currency exchange rates, etc.”
Dan of Blink Home Security says, “I wish that I’d gotten my VAT registration started earlier, as that process took us longer than expected, and we couldn’t send the shipment until we had the VAT registration number.”
3
Launch and adapt as you grow
As your sales grow over time, other fulfillment options might make more sense for your business. Through Pan-European FBA, Amazon moves your inventory among seven European countries based on customer demand. This means the seller must be VAT registered in all seven countries.
“We transitioned to Pan-European FBA due to the benefits of quicker shipping times, cheaper shipping costs, and the fact that we were close to a sales velocity that would justify registering for VAT in all seven required countries anyway,” says one seller. “After transitioning, we saw a sales increase that justified the upfront spend on additional VAT registrations.”
“We transitioned to Pan-European FBA due to the benefits of quicker shipping times, cheaper shipping costs, and the fact that we were close to a sales velocity that would justify registering for VAT in all seven required countries anyway,” says one seller. “After transitioning, we saw a sales increase that justified the upfront spend on additional VAT registrations.”
4
Outsource the filing of your taxes
As you launch and grow your Amazon Europe business, tax filing will be required monthly or quarterly, depending on the country. Rather than manage the reporting yourself, outsource it to a European VAT service.
“A good VAT service should be monitoring your European sales and guiding you regarding any changes in your VAT obligations as your business grows,” Dan says.
“A good VAT service should be monitoring your European sales and guiding you regarding any changes in your VAT obligations as your business grows,” Dan says.
Common mistakes to avoid
While Amazon’s local language requirements do mean you need to do a little planning before you get started, don’t let them stop you from selling in Europe. Just remember Bernie’s three-step framework to handle listing translations and customer questions, and you should be able to scale your language capabilities as your European sales grow.
Trying to figure out VAT yourself
Unless you’re a tax expert, don’t try to handle this on your own.
“As soon as you know you’re interested in selling in Europe, hire a European tax specialist,” Dan says. “VAT is complex. You can waste countless hours and end up just as confused trying to figure it all out just reading information online. For something this complex, hire someone who is passionate about VAT and will ensure your European taxes are well managed.”
“As soon as you know you’re interested in selling in Europe, hire a European tax specialist,” Dan says. “VAT is complex. You can waste countless hours and end up just as confused trying to figure it all out just reading information online. For something this complex, hire someone who is passionate about VAT and will ensure your European taxes are well managed.”
Asking your US accountant about VAT
Most US accountants are not VAT experts. Even asking them for general advice about VAT is not recommended.
“A lot of our sellers say their US accountant scared them off selling in Europe because of VAT,” Diana says. “Talk to a European tax specialist. They’ll be able to give you better advice in understanding your requirements and options.”
“A lot of our sellers say their US accountant scared them off selling in Europe because of VAT,” Diana says. “Talk to a European tax specialist. They’ll be able to give you better advice in understanding your requirements and options.”
Hiring a VAT expert who doesn’t understand Amazon in particular
Not all VAT experts understand the specific requirements of Amazon Europe sellers.
“Previously, we hired a VAT specialist service that seemed to have less knowledge of Amazon in particular,” says the seller whose European sales top $900,000 annually. “That ended up hurting us in the long run. We had to spend more time gathering tax data for them and they made more errors. Find a specialist who has done VAT for Amazon-specific companies, as it is a fairly unique business model that most VAT experts may not understand completely.”
“Previously, we hired a VAT specialist service that seemed to have less knowledge of Amazon in particular,” says the seller whose European sales top $900,000 annually. “That ended up hurting us in the long run. We had to spend more time gathering tax data for them and they made more errors. Find a specialist who has done VAT for Amazon-specific companies, as it is a fairly unique business model that most VAT experts may not understand completely.”
Ignoring or delaying your VAT registration
Doing so can lead to your account being suspended. Given the potentially long processing time, begin VAT registration as soon as you know that it’s required.
“Sellers might inadvertently send their inventory to the UK without the required VAT registration, which can get your account suspended.” says Lavina of the European Marketplace team. “Make sure you’re VAT registered before you send any inventory.”
“Sellers might inadvertently send their inventory to the UK without the required VAT registration, which can get your account suspended.” says Lavina of the European Marketplace team. “Make sure you’re VAT registered before you send any inventory.”
Frequently Asked Questions
VAT frequently asked questions from US selling partners
How do I know if I need to register for VAT in the EU?
Where should I register for VAT and how do I register for VAT in multiple countries?
If you store, move or sell goods in multiple EU countries you may be required to register for VAT where you store goods and based on the level of your distance selling. Distance selling is when you sell and ship your products to consumers in an EU country other than the one in which the products are stored. If this is the case, you could be required to submit VAT returns in more than one country. The requirements to register for VAT in multiple countries may differ and we recommend that you consult a tax advisor, particularly if you store goods in more than one EU country or make distance sales.
I sell products into an EU country from outside EU (I don’t have a business establishment in EU) and I do not store goods in EU. Do I need to register for VAT?
If you import goods into the EU for onward sale you will generally be required to pay import VAT (and possibly import duty) to the tax authority where the goods are imported. Please note you will be required to register for VAT if you store goods in an EU country.
What is the level of the VAT rates?
If you sell goods in the UK the VAT rate applicable can vary depending on the type of goods you sell. At present, the VAT rates applicable are either 20%, 5% or 0%. It is worth noting that the vast majority of goods sold in the UK are subject to the 20% rate - please consult your tax advisor if you are uncertain on which VAT rate(s) to apply on your products.
What’s next?
With some time and consideration, you can manage VAT while expanding your business to Europe. Follow the four steps listed above to reduce the chance of VAT issues, and then focus on what matters most: launching and growing your Amazon Europe business.
Note: This article is intended to give an overview of some of the key obligations when importing goods into the EU. They are not intended to be a comprehensive guide to importing, nor do they constitute tax advice. If you are unsure of your obligations, we recommend that you seek advice from either the applicable tax authority or an independent tax advisor.
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