Amazon sellers may find the EU market lucrative but challenging. Learn about VAT in Europe and navigate compliance in the world’s biggest trading block.
A Guide on European VAT for Amazon Sellers
UK and US-based Amazon sellers will benefit from expanding their market reach beyond their home country.
One region that is ripe with opportunities in Europe. And if you are relatively new in the business, among the many things you should be aware of is value-added tax or VAT.
Here are ten crucial things entrepreneurs must remember and understand regarding VAT in the EU.
1. Learn the Basics About VAT
The simplest definition of VAT is “the European equivalent of sales tax in the US.” But in the UK, it’s called VAT as well.
For Amazon sellers, a basic understanding of VAT is critical to their market entry strategy since it will significantly impact their product pricing.
That’s because VAT is a consumption tax levied on goods and services bought and sold in the EU. It is applied at every stage of the supply chain, from production to the point of sale.
2. Where to Register for VAT
VAT is remitted to the government, so Amazon sellers must know in which country they should register for it. The rule of thumb is to be VAT registered in the place where you store and sell your products.
Suppose you keep a supply of your goods in Germany, either through your own establishment, a 3PL arrangement, or under FBA. In that case, you should apply for VAT registration in that EU member state, even if you plan to sell only in France as a UK-based e-commerce business owner.
So how do you know where your products are stored if you’re under FBA? Simple—it is the address of the Amazon warehouse in the country where you’ve sent your products for storage.
Moreover, when you meet the country’s minimum threshold for turnover, you must also be VAT-registered. However, the EU issued revised VAT rules for cross-border e-commerce, and among the many changes was that there will be one standard threshold of €10,000 across the region.
Being VAT-registered in that country is not enough; you also must calculate the correct VAT due and file the corresponding returns regularly and on time. Keep in mind that filing frequency and deadlines differ per country.
3. Most Common Issues Amazon Sellers in Europe Are Having with VAT
European accounts often get suspended due to various issues with the local tax authority. Common problems include wrong VAT amounts remitted, late payment, or delayed filing.
Most revenue-collecting bodies only give violators a few days to a couple of weeks to sort out the problem. You also have to follow procedures to maintain an active account.
The best way to avoid these drawbacks is to plan upfront and understand your VAT obligations as an Amazon seller. It’s crucial to work with a trusted accounting firm like Sterlinx Global that can help you. We offer various services to Amazon sellers worldwide.
4. Understand VAT Obligations Early On
Given the complexity of VAT calculation and compliance and its significant difference from US sales tax, it is critical to work with an accountant whose expertise lies in the UK and European VAT.
Sterlinx Global is one of the top VAT specialists for Amazon sellers. But should you work with other accounting firms to handle your VAT in the EU and UK, you must hire one that fully understands the e-commerce industry, particularly Amazon operations, and statements.
They must know how to compute advertising tax, sales tax, VAT on storage or under FBA, and import duties. There are many things to consider when working with an international VAT expert. Getting the right people on board is important to ensure successful, profitable operations.
5. Develop a Strategy and Prepare to Launch
Amazon sellers must bear in mind that they must research VAT as soon as they consider tapping the European market. You can find plenty of resources online, including Google, Quora, Youtube, and online forums on Facebook.
Also, it’s best to work with an expert at the onset—they can provide valuable insights, give key information, answer queries regarding operations, and assist you at every step.
VAT will significantly impact your strategy, including pricing and fulfilment. How you price your products will affect your margins, so ensure you understand the applicable VAT rates in your target market while accounting for overhead expenses.
6. Be Agile as You Grow
Things can quickly change in terms of regulations and operations. You must be able to adapt to sustain your growth in the EU market.
When you expand through the Pan-European FBA, Amazon moves your inventory among seven European countries based on customer demand.
As a seller, you must be VAT-registered in all these EU member states. If there are changes on Amazon’s end, you must comply to maintain your status.
7. Outsource Reporting to a European VAT Service
Amazon sellers should be aware that tax filing is required monthly or quarterly, depending on the country where their buyers are.
You can handle the reporting yourself; however, it is a complicated job. Many things can go wrong, and they can affect your operations. Save yourself the trouble by outsourcing the task instead.
8. Do Not Try to Figure Out VAT Yourself
As you expand your Amazon Europe business, leave all VAT-related work to a professional. It bears repeating that mistakes and oversights regarding compliance can set you back in terms of heavy penalties, possible Amazon suspension, and even court proceedings.
9. Hire a VAT Expert That Understands Amazon in Particular
Amazon sellers know that reporting in the largest online market platform is quite complex. Countries have different rules regarding VAT payment, so computed tax due isn’t straightforward.
Working with a VAT expert is critical to ensure your tax obligations are always correct. That’s because they have actual knowledge and up-to-date information on tax-related regulations and policies.
Not all tax specialists are the same. Hire someone that understands the specific requirements of Amazon Europe sellers.
10. Do Not Ignore or Delay Your VAT Registration
Doing so may lead to your Amazon account suspension. Since processing a suspension appeal can take a long time, it’s in your best interests to begin VAT registration as soon as you learn it’s required.
Registering for VAT in your target market takes several weeks. Without VAT registration, you can’t import or sell goods in that country. So if you want your expansion strategy to go smoothly, give yourself three months to prepare. VAT registration in countries like France and Germany takes a few months.
Even if you don’t proceed with entering the market, it’s still better to have your business registered for VAT.
Frequently Asked Questions about VAT in Europe
What is the standard VAT rate in the EU?
European countries follow the EU’s VAT directive to set their standard rates above 15%. Since they are free to charge at any rate, some countries have higher VAT rates than others. For example, Hungary has the highest at 27%, followed by Croatia, Denmark, and Sweden at 25%.
How is VAT different from sales tax in the US?
Unlike the US sales tax, VAT is charged several times. So every time there’s an added value or sale made, tax is levied, collected, and remitted to the proper tax authority. An advantage of VAT over sales tax is more efficient collection since the exact tax is allocated at each step.
What is the IOSS?
IOSS stands for Import One Stop Shop, an electronic platform introduced under the EU’s revised e-commerce rules on VAT. Non-EU online retailers can register easily for VAT, ensuring that the correct tax amount goes to the member state where it is due.
Amazon sellers planning to expand in the EU should understand how VAT and compliance can impact their operations. It’s best that they work with a tax specialist like Sterlinx Global to ensure they have all bases covered before launch.