GLOBAL SELLING

How to handle VAT

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We knew VAT was complex, but that didn’t slow us down.
Dan McCarthyBlink Home Security
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.

What is VAT?

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.

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 Solution Provider Network, who guided us through the entire process, from planning to ongoing filing.”

“We have had success with VATGlobal,” says one seller who expanded to Europe in 2015. “They understand how VAT works in relation to Amazon, which is very important.”

2

Strategize and prepare to launch

Successful sellers involve their VAT advisors as they develop their European marketplace strategies.

“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.”

Fulfillment Many non-European sellers use FBA in Europe. FBA helps simplify logistics and ensures products are Prime-badged across Europe, crucial for boosting initial sales conversion.

“I used FBA in the US and wanted to also use it in Europe,” says Dan of Blink Home Security. “I wish that I’d gotten my UK 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

“We see the majority of sellers starting off with Amazon’s FBA European Fulfillment Network (EFN),” says Neil Curran of Regional Express, a VAT solution provider from Amazon’s Service Provider Network. “This way they are only storing goods in one country—typically the UK—which keeps the cost of VAT registration, filing, and compliance to a minimum while they test the marketplace.”

For marketplaces other than the UK, registration isn’t required until you’ve exceeded a distance selling threshold. This way you can test the European market without worrying about registering for VAT in multiple countries at first. As your sales grow over time, fulfillment options such as Pan-European FBA might make more sense for your business.

“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.”

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.

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.

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

Amazon requires that European listings be in the marketplace’s local language—for example, listings on Amazon.de must be in German—and that sellers provide local language customer support. Bernie breaks down handling language requirements into three phases.

First, when starting off, he suggests using Amazon’s listing translations. “Use Amazon’s provided tools to get initial translations of a listing done,” he says. Amazon’s Translate Your Products tool provides free machine translation or pay-per-word human translation for your listings into English, French, German, Italian, and Spanish.

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.”

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.”

Ignoring or delaying your VAT registration

Doing so can lead to your account being suspended.

“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.”

Given the potentially long processing time, begin VAT registration as soon as you know that it’s required.

Neil of Regional Express says the average time to get a VAT number in the UK is currently 10 to 12 days. “The processing time can increase during peak times,” he says.

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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