6 minute read
UK & EU VAT for E-commerce Sellers Explained
When an American Amazon seller starts looking for opportunities to grow their business, Europe often makes the ideal next step in their expansion plans. There are more than 148 million people in Germany and the UK alone. In addition, the latest data shows European online shoppers have changed their purchase habits—shoppers are venturing to other EU countries and overseas to make online purchases. E-commerce sellers in the EU have seen global sales almost double in the last 5 years. With this opportunity for e-commerce sellers comes complex taxation (of course!). One of these complications being Europe’s value-added tax, or VAT. So, you may be wondering … what exactly is value-added tax?
With so many issues to consider surrounding VATs, it’s important to look for support, such as from PingPong ́s VAT Compliance service. It’s also important to have a good overall understanding of the way VAT taxes work in Europe before you evaluate a professional VAT service.
In this post, we’ll introduce you to what a VAT tax is and explain how it’s different from the US sales tax. Then, we’ll dive deeper into the implications it has for US sellers when entering the European marketplaces.
What is Value-Added Tax (VAT)?
VAT in the European Union is a consumption tax assessed on the value added to goods and services (2) What is VAT. The VAT due on any sale is a percentage of the sale price and VAT rates range from 17% to 27% depending on the country.
How is VAT Charged in Europe?
European VAT taxes differ from the American sales tax system. The US sales tax system is a consumption tax which is levied at the point of sale and only charged to the end user.
With EU & UK VATs, the “value-added” is taxed at each stage of production and distribution. Therefore, the amount paid during the preceding stage is deducted from the amount of tax due. In this way, double taxation is avoided. But it does make for a more complex system than a flat sales tax, such as the American sales tax system.
Furthermore, for US sellers who import their goods into the EU, Import VAT applies and may need to be paid immediately upon arrival.
Key VAT Points for Selling on Amazon in Europe
When starting to trade as a foreign seller in Europe, there are certain aspects of VAT that should be taken into consideration.
When Importing Products to the EU & UK
It’s generally required to be VAT registered in the country of importation. Once your ecommerce shipment arrives in the EU, Import VAT and Import duties can be paid immediately at the border. After the goods have been imported into the EU, they’re considered in “free circulation” and simplification measures apply for movement of goods between EU member states.
Some EU countries allow ecommerce sellers to postpone the payment Import VAT by appointing a Fiscal Representative and/or obtaining an Import VAT Deferment License. With that deferment license, there’s no need to pay the import VAT to Customs. Your only obligation is reporting it in the VAT return, which is an important cash flow advantage.
In countries where there’s no possibility to apply import VAT deferment, there may be a possibility to have an extended payment term for the Import VAT via a deferment account.
Delivery of Goods or Services
The sale of your goods in the EU qualifies as a taxable supply for value-added tax. When goods are sold to consumers in countries other than the country where the goods are stored at the time of the sale, the supply may qualify as a Distance Sale. It’s important to observe the Distance Selling Thresholds for each European country. When exceeded, a company must register for VAT in the country of arrival for the goods.
Being VAT Compliant
After registration, there will be periodical compliance obligations to follow that will impact a seller’s business. Let’s start by looking at how the VAT registration process works and what triggers the need for registering.
Registering for VAT
Whether you need to register for VAT or not will be triggered by certain circumstances your ecommerce business operates under. There are two circumstances that will trigger the need for an EU or UK VAT registration:
- 1) Storing goods and shipping from a given European country
- 2) Selling above Distance Selling Thresholds
For companies looking to store (or import) goods in European countries or about to start using Amazon EU FBA, the VAT registration requirement will arise from the first condition in the country where goods are going to be stored. If you sell to other EU countries that are above the distance selling thresholds, you’re also obliged to register for VAT in that country.
The registration process is not easy and involves dealing with tax authorities in each country which will require your company to present documentation, complete forms and speak their local language. Also, for non-EU companies, certain countries may require local VAT representation to acquire a VAT number. In that case, you may need to appoint a Fiscal Representative.
A Fiscal Representative is a company that manages VAT affairs, while dealing with the tax authorities. In general, the Fiscal Representative has a joint liability for VAT owed by the foreign company.
Once all documentation and forms are submitted, the tax authorities will process the VAT registration and issue the company a VAT number.
Once a VAT number has been granted, sellers must comply with each country’s VAT obligations.
Every country has its own particular set of rules, procedures and requirements. Here are a few VAT concerns to be aware of:
- – Local practice for preparing and filing VAT returns
- – Filing frequency, which may include filing annual returns
- – Various VAT rates applicable to products or services
- – Monitoring Distance Selling Thresholds
- – EU VAT related reporting, such as European Purchase/Sales Listing or Intrastat returns
When dealing with the above requirements, the VAT compliance process looks like this:
VAT Calculation: It’s important to have all sales and purchase figures to calculate output and input VAT for every VAT registered country.
Filing preparation: According to the calculations, filings must be completed for submission. Every country has its own specific set of forms, so it is important to comply with local requirements.
Making VAT payments: It’s imperative to pay due VAT to tax authorities on time while complying with payment requirements.
Submitting returns: Complying with filing schedules and deadlines is important to avoid penalties.
Easy Handling of VAT Rules and Compliance
If all of these rules and regulations sound like a lot to deal with, they are! Each of the topics touched on briefly here will require much more in-depth study and technical knowledge before you’ll be able to handle your own VATs. It’s important to look for support if you don’t have the resources to deal with the extensive VAT rules and regulations of each country where you’ll be doing business.
One option for Amazon sellers is PingPong ́s new VAT Compliance service, which takes care of the entire VAT registration and compliance process. That way, sellers don’t have to spend as much time on VAT issues, and they have more time to expand their business to new markets.
Even if you plan to go it alone, be sure to get expert advice if you’re ever uncomfortable with the information you’re reading or unsure about what to do next. If you have a VAT question, Ask a PingPong expert now!