by Eunice | Mar 29, 2023 | European VAT
A Guide to French VAT for E-Commerce Entrepreneurs
As one of the largest countries in the European Union (EU), it’s no surprise that France has a large market of over 65 million consumers. Tapping into this opportunity with the right product is financially rewarding for sellers on Amazon, Etsy, eBay, and other e-commerce platforms.
But before doing business, you must first know what French VAT is and how to comply with it. Failure to do so often leads to financial losses. Avoid the risks with our guide outlining the specifics of VAT in France.
1. VAT Registration Is Required for Distance Sellers
Most foreign businesses must register for French VAT, a policy following the EU’s broad directives. Among the activities mandating registration is selling to French consumers via the internet, catalogues, etc.
Besides distance selling, a foreign company must register for VAT with the tax authorities if they stock goods in consignment warehouses in France. For example, Amazon sellers under the FBA arrangement target buyers within the EU.
Keep in mind that EU-based e-commerce sellers have to be VAT-registered as well. There used to be a country-specific threshold to obtain a VAT number—in France, this rule applied to those with an annual turnover exceeding €35,000.
But with the EU’s revised rules on cross-border sales implemented on 1 July 2021, there is only one standard turnover threshold of €10,000 applicable across member-states within the trading bloc.
Whether you’re a foreign or EU-based online retailer, it’s best to register for French VAT before trading taxable goods to reduce the risk of non-compliance.
2. VAT Registration Under the IOSS
Another change in the EU’s VAT rules for e-commerce sales was the Import One Stop Shop (IOSS), a platform that simplifies VAT compliance for non-EU online retailers. Under the system, a seller can register on the website, get a unique identifier number, and remit collected VAT on sales made throughout the EU.
The platform also ensures that the correct VAT amount gets credited to the right EU member state, greatly improving tax collection and revenues. As for the sellers, they benefit from reduced compliance costs, easier reclaiming of VAT on refunds, and removal of import VAT payments.
E-commerce sellers can only use the IOSS for VAT obligations on goods with consignment values of €150 and below and are not subject to excise duty. If you exceed the €150 threshold, you must collect and remit VAT outside the platform.
3. Prepare the Documentary Requirements for Registration
Ideally, you should register for French VAT before doing business in the country as part of compliance. There is no penalty for late registration, but tax authorities can levy high interest on unpaid VAT due or delayed VAT payments.
Moreover, you cannot register retroactively; however, it is possible to backdate it in reasonable circumstances, such as when a business intends to correct its status.
To register, you must submit an application form to the Service des Impôts des Entreprises, along with the following requirements:
- A copy of the Articles of Association or Incorporation
- An excerpt from your business’ trade register
- VAT certificate if registered elsewhere in the EU
- Original authorisation document, such as power of attorney, if done through a fiscal representative or agent
If you need help registering for French VAT, work with a tax professional. They will take the burden from you so that you can focus on expanding your reach in France.
4. Fiscal Representation Depends on Your Location
As with most countries, foreign companies don’t have to establish a local presence to be VAT-registered. However, you may need to register through a tax representative. The rule depends on where your business is based.
Non-EU e-commerce sellers, except those based in the UK and other jurisdictions under a mutual assistance agreement with France, are obligated to have fiscal representation. But even if an agent isn’t mandatory, it’s best to hire one to speed up and simplify your VAT number application.
5. All Imported Goods Are VATable
Before the revised EU VAT rules were implemented in 2021, imported products with less than €22 intrinsic value were VAT-exempt. However, foreign e-commerce sellers abused this rule to get ahead of their EU competitors. They undervalue and mislabel the goods to avoid levying VAT, allowing them to sell at lower prices.
The EU removed this exemption for consigned goods to stop non-EU retailers from undercutting the competition, prevent fraud, and ensure revenue collection.
6. Know the Different French VAT Rates
EU member states like France base their tax legislation on EU VAT directives. Under the guidelines, the minimum standard rate is 15%. Currently, the French VAT rate stands at 20%, which is charged on most goods and services.
Aside from the standard rate, three reduced rates—10%, 5.5%, and 2.1%—are applied to particular product and service categories. When you’re VAT-registered, it’s your responsibility to know the correct VAT rate and tax due for your sold goods.
7. You Have VAT Obligations
Being registered for French VAT means you have obligations to the tax authorities. Part of your compliance is to remit the collected VAT from your online sales and file the corresponding returns.
You must complete and submit monthly returns for your VAT liabilities. Unless your annual amount of VAT due is less than €4,000, in which case you have to file quarterly returns.
VAT returns should be submitted between the 15th and 24th of the month following the covered period and filed electronically. Moreover, the exact filing date depends on your VAT number.
Keep in mind that your VAT liability must also be settled upon return filing. If you fail to meet the deadline, expect to pay the following penalties:
- Late return submission: 10% of the tax due
- Late payment: 5% of the VAT liability + 0.4% interest per month
- First formal notice of late submission: 40% of the tax due
Since electronic filing and payment are mandatory, failure to do either will result in fines amounting to 0.2% of the VAT due.
8. VAT Compliance Is Complicated
Meeting your obligations as an e-commerce seller registered for French VAT can be overwhelming, especially when trading in multiple EU markets simultaneously. Reduce the risks of non-compliance and lessen business disruptions with the assistance of tax experts.
by Eunice | Mar 25, 2023 | EU VAT Updates
What to Know about Czech Republic VAT
The Czech Republic is a diverse economy known for being export-oriented. Although it is a member of the European Union (EU), it uses its own currency—the Czech koruna or CZK—rather than the euro. If you do business in the country, your Czech Republic VAT liability may seem higher than usual because of the conversion difference.
Besides this first surprising detail, find five more interesting facts about the country’s VAT system to ensure compliance and reduce the risk of oversights that may weigh on your bottom line.
1. The Standard VAT Rate Is 21%
Like its fellow member states, the Czech Republic VAT regime follows the main directives outlined by the EU. One of these fundamental requirements is adopting a minimum standard rate of 15%. The country’s standard rate is 21%, levied on most goods and services.
The country charges reduced VAT rates of 10% and 15% on particular categories, such as foodstuffs, agricultural supplies, pharmaceutical products, newspapers, and books. When you do business in the Czech Republic, it’s crucial to apply the correct VAT rate and collect the corresponding tax due.
2. Know the Thresholds for VAT Registration
Registering for Czech Republic VAT is necessary when performing taxable transactions, such as distance selling via the Internet. The registration threshold, however, differs depending on where your business is headquartered.
EU-based e-commerce sellers must apply for a VAT number if their annual turnover exceeds €10,000 or roughly CZK 240,400. This EU-wide threshold implemented on 1 July 2021 was part of the revised cross-border trade rules on VAT that abolished country-specific limits.
While there is no registration threshold for foreign companies, they must keep in mind that they need to register as a taxpayer if they make a taxable supply of goods. This registration obligation won’t apply if the VAT is to be declared and paid by the recipient instead.
If you’re confused about whether you’re required to be registered for VAT as a non-established person, know that the Czech Republic accepts voluntary registration. Once you have your unique identifier, you must collect tax from taxable transactions and remit the amount to the authorities.
3. You Can Register for Czech Republic VAT Yourself
Once you decide to be VAT-registered in the Czech Republic, you have two registration options. Understanding each process will help you find which is the most strategic alternative for your business.
Standard VAT Registration
Under this method, you can apply for a Czech Republic VAT number through the Tax Office for the Moravian-Silesian Region. It is the tax office managing the obligations of businesses without a registered office or fixed establishment in the country.
Along with the application form, you must include the following annexes:
- Articles of Association
- VAT or similar tax registration certificate from another country
- Trade license or certificate or other authorisation to business activity
- Business register statement
The above documents should be officially verified copies of the original and translated into Czech. Although official translations are not required, it’s best to have them done by a certified translator in case the tax office asks for them. After compiling the application form and annexes, submit them electronically.
Unlike other EU member states, you don’t need a fiscal representative to register for VAT in the Czech Republic. But if you have no physical presence in the country, it’s faster and more efficient to work with an experienced local tax agent.
You must also furnish a power of attorney if you use an agent.
IOSS
IOSS stands for Import One Stop Shop, an electronic platform introduced under the EU’s revised VAT rules on cross-border e-commerce. If you’re an Amazon seller planning to tap into the Czech Republic market, you may register for VAT via the IOSS.
With a single registration, you get an IOSS number that you’ll use to report collected VAT from sales made within the EU. Through the IOSS platform, you can file the corresponding returns for your VAT liabilities. Some countries, however, require an intermediary to handle the submission and payment of VAT to local tax offices.
Keep in mind that the IOSS only covers import goods with consignment values of €150 and below. If the value of your products is above the threshold, you may need to obtain your Czech Republic VAT number to disclose taxable transactions.
4. You Must Submit Other VAT Reports Besides Returns
Once you register for Czech Republic VAT, you will have reporting obligations to meet to comply with the country’s tax legislation.
VAT Return
As a VAT payer, you must report taxable transactions through periodic returns submissions. The standard reporting frequency is monthly. However, it can be changed to quarterly if your annual turnover for the immediately preceding year is less than CZK 10.0 million, you are considered a reliable VAT payer, and you have been registered for 3 years.
VAT returns are due by the 25th of the month after the relevant tax period, which can be a month or a quarter. Also, they must be submitted electronically, according to the VAT Act. Keep in mind that any VAT due should also be remitted on the set deadline for returns.
VAT Control Statements
On top of periodic returns, non-established VAT payers must submit VAT control statements and file them electronically. They are supplementary fillings covering additional details taken from invoices of certain taxable transactions. This requirement aims to help authorities detect and stop VAT fraud and tax evasion.
5. Non-Compliance Means Penalties
As registered for Czech Republic VAT, failure to comply with the imposed deadlines result in penalties. Take note of the following fines you might face if you fail to perform your obligations on time:
- Late returns filing: minimum of CZK 500 plus interest, but maximum penalty is 5% of the VAT due or CZK 300,000
- Late payment of VAT obligations: an interest rate of 14% on the VAT due, only if the outstanding amount is higher than CZK 500
by Eunice | Mar 21, 2023 | European VAT
A Practical Guide to Cyprus VAT
Cyprus is known for its breathtaking sights, rich history, and cultural diversity. Nowadays, it offers untapped potential for business growth. If you plan to expand your market reach to this island nation, you must understand what Cyprus VAT is and how to comply with it.
Knowing essential facts about VAT in Cyprus ensures you’re doing business right to reduce the risks of costly oversights. Here is a guide to get you started.
1. Mind the Lower Threshold for VAT Registration
European Union (EU) countries each have their respective registration thresholds for engaging in activities subject to VAT, such as distance selling. In Cyprus, registration was mandatory for businesses with gross sales of €15,600 or more for 12 months.
However, the threshold now stands lower at €10,000, which is an EU-wide threshold for VAT registration. The reduced turnover threshold was one of the changes reflected in the revised VAT rules for cross-border e-commerce implemented last 1 July 2021.
But even if you think your total turnover won’t exceed this threshold, it’s more prudent to register VAT with the local tax authority for compliance.
2. You Must Be Registered for Cyprus VAT
Before doing business in Cyprus, it’s important to be VAT-registered with the country’s tax office to comply with their legislation. It bears repeating that registration is compulsory for businesses whose cross-border sales exceed the minimum threshold.
Violations such as submitting your forms late or selling taxable goods without applying for a VAT number may result in penalties, which can weigh on your margins. If you fail to comply, you would face a fine of €85 for every month of delay, omission, or refusal.
To be registered for Cyprus VAT, you must complete the forms TD2001 and ΤD1101, the latter in Greek. You must also attach the following documents to your application:
- A copy of the Articles of Association or Incorporation
- An excerpt from your business’ trade register
- Certificate of VAT liability if registered elsewhere in the EU
- Proof of taxable transactions in Cyprus, e.g. copy of contract or invoices
- Original authorisation document, such as power of attorney, if done through fiscal representation
Submit or email the accomplished forms and documents to the district or local tax offices.
3. There’s No Need to Establish a Local Company
If your business involves distance selling or trade of imported goods, it should be registered for VAT. Fortunately, applying for a VAT number in Cyprus doesn’t require a local presence, so non-resident businesses like yours can obtain their VAT despite being overseas.
While you don’t need to establish a local branch of your company to do business in Cyprus, you may need to work with a local firm for your VAT obligations.
4. Fiscal Representation May or May Not Be Required
Registering for Cyprus VAT depends on where your company is based as this determines whether you’ll need a fiscal representative. Non-EU companies are required to have one, except for UK businesses post-Brexit.
Although fiscal representation is not mandatory for UK-based companies, it’s better to work with one to ensure stress-free processing of your VAT application. Sterlinx Global has a team of local tax agents to ease your burden of becoming VAT-compliant in unfamiliar territory.
5. You Can Be VAT-Registered in One EU State Only
One primary purpose of the EU’s revised rules on VAT for cross-border e-commerce is to simplify the entire process for traders. To support this goal, the Import One Stop Shop (IOSS) was developed and introduced.
IOSS is the online platform for non-EU sellers that allows them to register for VAT in only one EU member state instead of being VAT-compliant in the countries where they have buyers.
Once e-commerce sellers get their unique IOSS number, they can start trading in any EU country without applying for VAT ID in each. Distance sellers can declare and pay VAT for all EU sales on the electronic portal.
The streamlined system ensures that the correct taxes and amounts go to the right EU country, making compliance more straightforward and effective for traders outside the EU.
6. All Goods Imported to Cyprus Are Subject to VAT
Before the issuance of the EU’s revised VAT rules on e-commerce, imported goods with less than €22 were considered exempt from VAT. However, this loophole was exploited by non-EU sellers to offer lower prices, undermining traders within the EU. They mislabel the goods to avoid charging and paying VAT.
The exemption no longer applies to imported goods—all items that enter the EU are charged with VAT, regardless of their value. If you’re a cross-border seller, ensure you apply the correct rate for goods sold in Cyprus.
7. Standard Cyprus VAT Is Above 15%
Like other member states, Cyprus based its legislation on the EU’s directives on VAT. According to broad guidelines, the standard VAT rate should be higher than 15%. The default rate is 19%, which is charged on most goods and services in the country.
Since the country’s VAT system is tiered, there are two reduced rates of 9% and 5% applied to certain goods, including supplies for hospitality and tourism industries, books, magazines, medicines, and fertilisers, to name a few.
8. You Must Fulfil Your VAT Obligations
Being registered for Cyprus VAT means fulfilling your obligations as part of compliance. Your two most crucial responsibilities are paying the correct tax liability and filing the corresponding return within the deadline.
Taxpayers must pay their VAT obligations and file the corresponding returns quarterly, which are due by the 10th day of the month following the end of the covered reporting period. If the due date happens to be a weekend or public holiday, it is moved to the next working day.
To file your returns, fill out Form VAT4 and submit it electronically via the TaxisNet system.
As well as the deadlines, keep in mind the following penalties for not complying on time:
- Late filing: €51 per VAT return submitted late
- Late payment: 10% of the VAT due + 3.5% annual interest rate on outstanding VAT amount
9. VAT Compliance Requires Expertise
Complying with Cyprus VAT regulations is complicated because of continuously evolving rules and increasing obligations. As a busy entrepreneur, juggling your responsibilities between operations and tax compliance may result in missed deadlines and costly errors.
by Eunice | Mar 16, 2023 | E-Commerce
1. Current Ratio
Sometimes known as the working capital ratio, this financial metric measures your business’ capacity to pay its short-term obligations, which are payables and debts due within one year, using current assets.
Current Ratio = Current Assets / Current Liabilities
A ratio of 1.0 or greater is ideal, indicating you can settle every pound or dollar owed for accounts payables, accrued expenses, and maturing debts with your existing short-term assets like cash, accounts receivables, and inventory.
2. Quick Ratio
Similar to the current ratio, it also gauges liquidity or the ability to pay off existing debts. However, they differ on the assets considered for repayment—the quick ratio only covers highly liquid assets, such as cash, marketable securities, and accounts receivable.
Dropshipping accountants calculate it as follows:
Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities
Also known as the acid test ratio, it excludes inventory and prepaid expenses—the former takes time to be converted to cash, while the latter can’t be used for repayment. For most companies, the ideal metric is above 1.0.
3. Accounts Receivable Turnover
This activity ratio examines how well your business is at managing its receivables. A higher figure means you are efficient in collecting receivables and that many of your customers quickly settle their debts. Also, a high A/R turnover indicates that your company doesn’t extend credit or runs mainly on a cash basis.
A/R Turnover = Net Credit Sales / Average Accounts Receivable
A low metric isn’t good as it suggests a poor collection process, bad credit policies, or financially unsound customers. It can also mean distribution troubles since products aren’t delivered promptly, and customers delay settling their receivables, which is common with dropshippers.
4. Days Sales Outstanding
Another activity or efficiency ratio, days sales outstanding (DSO), estimates how long it takes to get paid after making a sale. While similar to A/R turnover, this metric refers to the number of days before your business can convert its outstanding receivables to cash for a given year.
DSO = (A/R / Total Credit Sales) x 365
A high DSO number shows a long waiting period to collect outstanding accounts, which can strain your cash flow as funds remain tied up in receivables. Dropshipping accountants prefer a lower figure, which means fewer days to get the money.
5. Asset Turnover Ratio
Asset turnover is an important performance metric that measures how efficiently a business utilises its resources to generate sales revenue. Accountants calculate it:
Asset Turnover Ratio = Net Sales / Average Total Assets
The higher the ratio, the more efficient your business uses its assets to generate revenue. Since it is a multiple, a figure of 2.0 means that for every £1 of assets owned, your e-commerce business makes £2 in sales. Note that it’s more meaningful to compare your metric to competitors in the same industry.
6. Debt to Equity Ratio
This financial metric shows a business’ leverage position—being highly leveraged means you have a significant amount of debt compared to industry standards and vis-à-vis your capital. Dropshipping accountants estimate it as:
D/E = Total Liabilities / Total Capital
A ratio of below one indicates that your business relies less on debt and more on capital to fund its operations. The reverse can also apply, a higher number suggests the company is more indebted. While borrowing is usual for merchants, too much dependence on debt can lead to defaults in downturns.
7. Gross Profit Margin
A critical financial metric for merchants like dropshippers, this profitability ratio shows the markup earned on products. It is calculated as:
Gross Profit Margin = (Sales – Cost of Goods Sold) / Sales
A higher ratio is preferable since it means items can be sold at higher prices than their cost for more gross profit, leaving you with enough earnings to cover operating expenses. If you have various products sold, it’s ideal to compute for each item’s margin to determine whether you need to adjust pricing.
8. Operating Profit Margin
Another key measure of profitability is the operating profit margin. Dropshipping accountants compute it as:
Operating Profit Margin = Operating Income / Sales
Operating income takes sales revenue and deducts the cost of goods sold and operating expenditures (including utilities, marketing, and administrative expenses). The operating margin shows your business’ operational efficiency in making a sale. A high margin is preferred and achievable by reining in overhead costs.
9. Net Profit Margin
The net profit margin is among the fundamental metrics that business owners should always be aware of. This ratio measures how well a company manages its overall costs to turn a profit from its revenues. Remember this formula:
Net Profit Margin = Net Profit / Sales
You can interpret it to gauge your business’ performance and efficiency in converting sales to earnings while accounting for all incurred costs in running operations.
As an example, a 0.10 or 10% margin means you keep 0.10 pence as profit for every £1 sold. For online sellers, a high number is preferred. The higher your margin, the better you are at pricing products and controlling costs.
10. Return on Assets
An important profitability measure, the return on assets (ROA) gauges how effectively a business uses its resources to generate sales. While this ratio is critical for retailers to see the relationship between inventory and sales, dropshippers will also benefit from looking at it.
by Eunice | Mar 14, 2023 | Business
What Should You Look for When Hiring Etsy Accountants?
When you love creating stuff, the best platform to sell your unique products is Etsy. Using this e-commerce platform allows you to reach the right target market. And when handcrafted or customised orders start to pick up, keeping your books in order becomes harder to manage.
At this point, working with Etsy accountants could be an excellent alternative to handling accounting and bookkeeping on your own. Find the right professional who can handle the minutiae of your business according to the following criteria.
1. Credentials
Accountants are licensed professionals who pass a rigorous testing process after four years of formal education. Completing a bachelor’s degree in accounting means they have a solid foundation of the fundamentals, principles, and strategies. That’s why they can do more than bookkeeping, such as tax planning and cash flow management.
Look at the credentials of your potential Etsy accountants—do they have the base knowledge and training in handling critical operational tasks? You want someone who can solve problems and prevent them from happening in the first place.
2. Experience
While education is a must, experience is just as important, sometimes even more so. Your accountant should have experience working with e-commerce sellers because of the business’ operational differences with brick-and-mortar shops.
See if your accountant mentions dealing with or specialising in online retailers, specifically on Etsy. Compared to other e-commerce businesses, Etsy sellers deal with more complicated accounting.
Besides keeping track of the usual costs, such as shipping, marketing, storage, and taxes, they also need to monitor inventory and production—most Etsy entrepreneurs create products in limited quantities or per order basis.
Choose Etsy accountants with at least two years of relevant experience—the more experience, the better. It’s a bonus if they’re familiar with other platforms or marketplaces, as they can give you sound advice on branching out and setting up shop.
Sterlinx Global is accounting specialists for Etsy sellers. With our team of expert accountants, we will provide top-notch support so that you have more time and energy to scale up your store.
3. Services Offered
Before hiring Etsy accountants, figure out which services you’re seeking. Do you need someone to oversee your business’ entire accounting function, from bookkeeping to tax return filing? Are you looking for an expert on nexus and sales tax? How about tax preparation and planning?
Whatever your business needs or requires, your prospective accountant should be knowledgeable and skilled in these subject matters. Like other professionals, accountants also have areas of specialisation—their skill sets match the services offered.
It pays to know their expertise at the onset to vet your candidates early on. A good measure of your accountant’s competency is when they can explain jargon and principles in terms simple enough for people without an accounting background to understand.
4. Software
As you’re already selling on Etsy, find an accountant who is as tech-savvy as you. The availability of various accounting software applications has made it easier for entrepreneurs to track their store’s financial performance. It can ease your accountant’s workload and has the added benefit of more accurate reports and transactions.
Ask your prospective accountant if they will have you set up with a good software solution. When you work with Sterlinx, we will provide you with free Xero software and training so you can have the basics covered.
5. Tax Preparation and Planning
VAT, sales tax, and income tax can weigh on your earnings if left unmanaged. And when you’re too focused on creating your products, you’re likely to overlook taxes, which can chip away at your hard-earned profits.
Work with Etsy accountants who help you identify claimable expenses and make strategic decisions throughout the year to maximise year-end deductions. Most entrepreneurs miss opportunities like write-offs, depreciation, home office rent, and other business-related expenses that can significantly lower taxes.
As an Etsy seller, you need to diligently track VAT and sales tax to comply fully with your markets. You should also be aware of the critical deadlines for remitting taxes and filing corresponding returns in every relevant jurisdiction. If you have an accountant, the burden of tax compliance falls on them.
Hire a professional who can provide proper tax planning and preparation. Sterlinx will sort out taxes for you so you can spend more time creating than calculating.
6. Cost
Getting an accountant is equivalent to extra expense, but the cost you’ll spend will pay itself through the value they provide to your Etsy business. However, it’s also vital to set a budget for hiring one.
Look for a professional that fits your budget. Factors like experience, credentials, and services offered determine how much they’ll charge you. While a good accountant need not cost you a lot, it doesn’t mean you’ll hire the one with the lowest charges. There would always be a trade-off, cost-wise.
Consider the amount of help you’ll need, so refrain from getting too caught up on their rates when you shop around.
7. Knowledge of Your Industry
Hire an accountant who understands how your industry works—e-commerce is entirely different from freelancing, retailing, and food and beverage. Your prospective Etsy accountants should also know how the platform varies from Amazon, eBay, or Shopify.
The right accountant for your business can identify trends, patterns, and errors specific to your niche, which are critical to your store’s success. Remember, they can see beyond the numbers, and their invaluable insights will help improve your bottom line.
8. Client Feedbacks
Just because they have the credentials and experience doesn’t mean they’re the right fit for your business.
Before working with Etsy accountants, do your due diligence by reading reviews about them. A quick Internet search will pull up feedback from their previous and current clients. And if you know someone who worked with your prospective candidates, ask about their overall experience.
Frequently Asked Questions
Is it worth getting an accountant when I’m only an Etsy seller?
Yes. Being an Etsy seller comes with various accounting and tax responsibilities that can become complex as your business grows.
