Amazon Europe VAT is one of the major reasons why sellers hesitate to expand into the EU market. Amazon Europe VAT can be very complicated and confusing, and even scary. It’s unfamiliar territory with multiple rules and serious penalties. Even so, Amazon Europe VAT should never dissuade any seller from venturing into this rich market.
You can grow your Amazon business internationally to serve an additional 500 million consumers. And now, at the beginning, is the best time to jump into this quickly growing marketplace. All you need to do is sit down and get your head in the game.
Disclaimer: AMZ Advisers is not a tax authority nor does it provide tax, legal or accounting advice. This article is written for informational purposes only, and is not intended as tax, legal or accounting advice. Readers are advised to consult professional tax, legal and accounting advisors rather than the information provided here before engaging in any transaction or planning any legal business set up.
Selling on Amazon in Europe
If you sell or plan to sell product in any European Union (EU) country, Amazon Europe VAT is a very important consideration. You must register in at least one EU country, if not more, particularly if you use any of Amazon’s EU fulfilment centers. Compliance with Amazon Europe VAT is a serious matter, and improper processing and/or reporting can spell disaster for your business.
What Is Value Added Tax (VAT)?
Any business that operates within the EU is obligated to add VAT to products and services. VAT is a consumption tax that is collected by seller and paid by the consumer. In the EU, the prices that consumers pay for purchased products are inclusive of VAT. VAT can also be viewed as a transactional tax that is applied every time value is added to a product. This includes the transitions to and from raw material, manufacturing, wholesale, retail, and end consumer.
Amazon Europe VAT is no exception. And the local EU tax authorities are keen on making sure it gets collected. EU governments get revenue from every step of the supply chain, and tax authorities get to keep VAT revenue. Since December of 2016, for instance, tax authorities in the UK have used new VAT legislation to crack down on sellers who are non-compliant with regard to Amazon Europe VAT. The trend has since spread across the EU.
There is no escaping Amazon Europe VAT. You must account for and report it correctly, regardless of how well you understand its governing regulations. If not, you stand to pay hefty penalties and interest charges that can add up to as much as 400% of the original Amazon Europe VAT owed.
So here’s what you need to know about Amazon Europe VAT, including how much you need to pay and what the filing requirements are.
Amazon Europe VAT Registration
To prepare for VAT registration in any EU country, you need to have your complete business documents on hand, plus your valid passport and other administrative paperwork. In most cases, you can register online.
Your VAT number will be a unique number assigned to your business. The system differs for each EU country. As above, you may need more than one depending on where you store your goods and how much you are selling.
Note that your Amazon Europe VAT registration can take up to two months to process. You can, however, use a validity date to begin selling without waiting for your VAT number.
How to Get Your Amazon Europe VAT Numbers
You can get your needed VAT numbers by either founding a European company or working through a fiscal representative. If you already have a US company, the latter is the ideal choice. A fiscal agent will get you a VAT number and a representative for your existing business in Europe. Founding a company Europe just to sell on Amazon FBA is not worth the trouble considering the few benefits it offers.
Note that your fiscal representative will be jointly and severely liable for any VAT you will owe, so prepare for additional fees, which may include a bank guarantee.
You must have at least one VAT number to sell in the EU. If you will sell in more than one country or you exceed the distance selling threshold for that country (more on this below), you need additional VAT numbers from different countries as applicable. You can stock in one country and sell in another with only one VAT number for the country where you warehouse. Once you hit the Euro value limit, however, you need to get a VAT number for the country that you are selling to. You can also simply register for a VAT number in all the countries where you are stocking and selling, which makes sense if you foresee that you will exceed these limits.
EU VAT Rates
Each EU country has its own tax rate. For instance, the UK has a standard rate of 20%, while Germany’s is 19%. Standard VAT rates across the EU range from 17% to 27%.
Photo courtesy of: https://en.wikipedia.org/wiki/European_Union_value_added_tax
Each EU country also has a reduced rate of VAT and in some cases, a zero-rate of VAT. These rates can be different for different items. For instance, foodstuffs has 0% VAT in the UK and Ireland.
You need to know how much you need to add to each of your products – i.e., collect from your customers. Taking the UK as an example, the standard rate is 20% if your product is:
- not a special product (reduced or zero rate)
- in the UK
- sold to someone in the UK, or you are below the distance selling threshold
Choosing What VAT to Pay
The simplest choice for any seller would be to pay the Standard Rate of VAT in the destination country for all sales. The catch is that you would be paying more in some countries and less in others. If you are willing to do the work, you can keep your Vat to a minimum. Whichever way you choose, however, you must keep a clean and accurate record of all your VAT.
Amazon Europe VAT Distance Selling Thresholds
EU distance selling thresholds are annual monetary figures that govern VAT compliance. You can be VAT registered in one EU country and sell to private customers in other EU countries. This is the concept of distance selling. Local VAT – what you pay under your existing VAT number – is charged on any sales to any consumers within Europe.
There is a limit, however, to how much you can sell annually to consumers in other countries. If you go past the thresholds for any one country, you are required to obtain a VAT number for the country and pay its VAT instead, and follow its invoicing requirements for your customers in that country. The obligation takes immediate effect, and if you register too late, you will likely pay penalties and interest charges.
The Amazon Europe VAT thresholds are €35,000 in all EU countries, except:
- Germany, Netherlands, Luxembourg: €100,000
- UK: €82,489 (£70,000)
- Czech Republic: €44,873 (CZK 1,140,000)
- Poland: €37,859 (PLN 160,000)
- Denmark: €37,595 (DKK 280,000)
- Croatia: €36,291 (HRK 270,000)
- Bulgaria: €35,791 (BGN 70,000)
Intrastat is an EU system that collates intra-EU trade statistics. If you are selling beyond the distance selling threshold for any EU country, you might have to file an Intrastat declaration. Note that there are different thresholds for dispatches and arrivals. This can make things very complicated, especially since you will likely be dealing with at least three different currencies in your computations – your currency, the currency of the destination country, and the currency of the country where you are warehousing.
Monitor your sales very closely in all three currencies for each country – and in Euros as well so you have a clear EU point of comparison. This will ensure that you remain compliant and avoid any penalties.
EC Sales List Reporting
When you sell or transfer stock between EU countries, the details must be reported on an EC Sales List as well as the UK VAT return.
Using Fulfilment By Amazon (FBA)
When you use Amazon warehouses in the EU, this creates a taxable supply. You therefore need to already have a VAT number the day your product lands in any EU country. With Amazon’s Pan European FBA service, for example, compliance means registering for VAT in the seven countries where Amazon warehouses are located: the Czech Republic, France, Germany, Italy, Poland, Spain and the UK.
According to Fetcher, there are a few models that you can use organize storage for FBA:
1. European Fulfillment Network (EFN)
You store product in one country, which requires only one VAT registration provided that you do not cross the specified distance selling thresholds. This is the easiest method, but the catch is that you will pay higher shipping costs and have to deal with delivery times of two to three days.
2. Central and Eastern Europe (CEE)
This method works well for German markets. You store product in Germany, Poland and the Czech Republic, requiring VAT registrations for each of these countries. Shipping costs are less than with EFN and delivery times average at two days.
3. Pan-European (PAN-EU)
This is the method to use if you want to perform at the highest level. You store product in all seven of Amazon’s EU warehouses, and register for VAT in all seven countries. Shipping fees are low and delivery times are within one or two days. Because of low fees, you can price more competitively. This plus faster delivery times will push up your Best Seller Rank.
Note that with any of these methods, you can sell on all five Amazon EU marketplaces.
Choosing a Storage Method
A seller just getting started in the EU market should probably begin with an EFN setup. The best country to start with is probably the UK, since it’s highly developed and caters to a large population segment. If you want to sell in the UK and Germany, you will need both EFN and CEE, so start with the UK then move into Germany when things settle down. Then you can move up to PAN-EU as it makes sense for your business.
A larger volume seller, whether the EU is a new market or not, should set up PAN-EU from the get-go. Exceeding distance selling thresholds can mean high charges, and registering in all seven warehouse countries will take care of that.
Import VAT will be charged on the cost value of the goods you are importing based on where they land. If the first port of entry into the EU is the UK, for instance, the standard is 20%. You must pay these costs immediately, then be sure to get them back from your customers by adding the correct VAT charges to each item you sell.
In addition, VAT also applies when goods stored in a fulfillment center in one country are sold to a customer in a different country, and therefore shipped there. The EU always assumes that you are shipping goods for your own use – until you sell them. Then you can get a refund for the import VAT you paid.
If you are not VAT registered, your customer will be forced to pay the import charges before their order will be handed over to them. Since VAT is usually included in the price of goods sold in the EU, this will likely be a very unexpected expense, and likely to upset your customers. It’s best to make Amazon Europe VAT registration your first priority when expanding into the EU market. Then, as the importer of record, you will account for all VAT and can get all VAT refunded as you make sales. It’s clean and clear for both your and your customers, and makes for a much smoother experience all around.
Import Tax, Duties and Profit Calculations
You can get a refund for the import VAT that you pay upfront as long as you have your VAT number. You will also not pay VAT twice for the same product. So as not to throw off your numbers, you should therefore not include this VAT in your profit calculations. Import Duties, however, are different from import VAT. They are not reclaimable and should therefore be included in profit calculations.
If you are doing business in the UK, make sure that you have your EORI number before you start importing goods into Europe. This is used to link your business and Vat number to the goods you import. Without it, your goods will be held by customs and you won’t be able to get a refund for the Import VAT. It’s easy to apply for an EORI number. If your goods are already in Europe – i.e. you won’t be importing – then you don’t need an EORI number.
The due dates for filing Amazon Europe VAT returns will be different in different countries. For example, you will pay VAT quarterly in the UK and Spain, but monthly in Germany and France. Some countries will also require you to file an additional Annual VAT Summary. Make sure you keep a calendar of all the required dates and prepare your VAT reports by country so you never miss your window.
Once you submit your return, you will get a confirmation and must pay via bank transfer within two weeks to avoid penalties.
will have to pay VAT and supply VAT returns (these returns say how much you owe) on the frequency required by the country you are paying. This could be monthly, bi-monthly, quarterly or annually depending on the country’s requirements. A country may even specify which day of the month to file so be sure to check on how these rules apply in your situation.
Adjusting Pricing for Amazon Europe VAT
You need to make sure that you update your pricing so you can stay competitive in your new EU market. This can be confusing for US sellers at first because there is not VAT, and sales tax is computed after the sale is made.
To makes things easier when selling in the EU, VAT should be computed beforehand and included in your final sales price. Consider also, however, that VAT can be different depending on where you are warehousing and delivering. This means different profit margins depending on the VAT you’re paying.
Whichever the situation, keep an accurate record of your VAT so that you can easily request for refunds when tax time comes around.
VAT does not have to be the doom of your Amazon EU plans. It’s simply a cost of operating in the market that you must account for it when sourcing and calculating profitability. Do careful research in the local markets so you can rest assured that you will be able to compete.
Computing for VAT
This is a simple calculation that will show you more or less how much you need to add on to your original pricing to keep your margins on Amazon in Europe:
Net sales price (Production Cost + Shipping + Amazon fees + Profit margin)
VAT (% as dictated per EU country)
Final EU selling price to be entered on Amazon Seller Central
You can also use this nifty 20% VAT calculator to compute for standard UK VAT, or compute reverse VAT from a final selling price.
Some EU countries require that you provide your customers with a VAT invoice. As always, the governing rules are different for each. Keep a clear record of which country requires what information, and prepare your invoices accordingly. For instance, you can invoice in any currency, but the VAT amount must be listed in the currency of the country where the VAT is being reported. If you warehouse in the UK and sell to customers in Germany or France, you will note the VAT amount in GBP, but will have to change that to Euros once you cross the threshold.
Regardless of the legal requirements, it’s important to note that some customers expect a VAT invoice. Customers in Germany and Italy, for instance, will want to have a VAT invoice when they buy something expensive. Also, whether required or not, you must provide a VAT invoice if a customer asks for one. For instance, the UK does not require VAT invoices unless the customer requests one. France, Germany, Italy, and Spain, however, require VAT invoices whether or not customers want them.
DIY Amazon Europe VAT Versus Getting Help
You have three basic avenues when processing Amazon Europe VAT.
Let’s face it, most business owners outsource this step. It’s something that is time consuming, confusing and not very enjoyable (unless accounting is your jam). You’ve got three options when it comes to filing VAT, here’s a quick overview of each:
DIY VAT Filing
Most business owners don’t get into VAT and other taxes, unless they have a passion for accounting. It’s time consuming and complicated. Moreover, it distracts from other business pursuits. It can be cheaper than hiring a professional, but that all depends on the real value of your time and what you will lose out on by using your time for VAT filing.
Amazon can generate monthly sales reports for you that contain all your sales data, including VAT. You can use these or give them to your accountant for VAT filing. They are available on Amazon Seller Central under Fulfilment By Amazon in the Reports menu. They are stored historically for all sales made within the period with details on promos, discounts and pricing changes.
Amazon VAT Services
Amazon offers VAT services that are quite cost effective on the surface. They may not be the best value overall, however. Amazon’s accounts can file VAT on your behalf, but this means turning over all your sourcing information to Amazon, which is probably not a good idea.
Third Party Professionals
Hiring a professional to take care of VAT filing is definitely the more costly option. It does, however, ensure that VAT is filed correctly, which is well worth it. Either an accountant well versed in EU VAT or a service provider that specializes in Amazon Europe VAT will work. Just hand over your documents and wait for your refund.
EU VAT has a steep learning curve and mistakes can be very costly, apart from the time you will spend getting used to the system and recording data and tracking due dates and the actual filing. At the end of the day, hiring a professional is the wisest option.
Don’t be Afraid to Expand
Amazon Europe VAT can be daunting, but armed with this information and a professional VAT filing service, you can confidently launch into this growing marketplace. Amazon EU holds a lot of opportunity for ambitious sellers. Use this guide to prepare everything you need and plan for compliance in an organized and timely manner. Then you will be ready to succeed on Amazon EU without worrying about such a small part of international selling as Amazon Europe VAT.
Don’t know where to start?
Think about selling in just one country to begin with. It will be a lot easier to get going, and you will find it much easier to expand into other countries and warehouse in other countries once you have some experience.
Just remember that Amazon Europe VAT is a strict requirement. Take it seriously and be proactive so you won’t get in trouble.