A brief guide to VAT obligations for Amazon merchants selling in Europe
There’s no denying that automation drives efficiency and reduces cost. In the long run, the most efficient players in any given market have the best chances of winning market share and building long-lasting businesses. For eCommerce, warehousing and fulfilment, Amazon has positioned itself to take full advantage of the coming automation era by implementing the latest technologies and creating a highly automated eco-system. Amazon’s offering makes it much easier for merchants to sell internationally than ever before. In many ways, Fulfilment by Amazon (FBA) has changed the eCommerce landscape, utilizing powerful logistical tools & demand projection algorithms. This enables the strategic distribution of inventory throughout their extensive network of fulfilment centres in order to meet expected demand. From the merchant’s perspective, it can be very tempting to embrace Amazon’s value offering and rapidly expand into a range of FBA markets without considering potential tax implications. This is a dangerous course of action, as tax law is very complicated and liabilities incurred today can be enforced well into the future. In this article, we will take a brief look into the main tax considerations with respect to VAT that Amazon merchants selling in Europe need to be aware of.
What is VAT?
“VAT (Value Added Tax) gets charged whenever “value” is added in the supply chain. When a supplier of raw materials sells goods to a manufacturer, for example, VAT is added to the sale. VAT is added again on the sale from the manufacturer to the wholesaler, and from the wholesaler to the retailer, and from the retailer to the consumer.” - Claire Taylor, CEO of SimplyVAT.com By charging VAT, government tax authorities are able to levy a tax on all value creation activities in their economy, thereby maximizing tax revenue and spreading the cost of taxation across all components of the supply chain.
How much VAT should I pay, and who do I need to pay?
First off, it’s important to note that we aren’t qualified tax advisors, and all of the information provided here is intended to be taken as general guidance, not professional advice. For advice specific to your situation, it’s best to consult a qualified tax advisor with experience in this field. Everyone selling goods on Amazon European marketplaces is obliged to pay VAT. The amount of VAT that you are liable to pay (and which country you need to pay VAT to) varies according to a range of factors. The three primary factors for sellers based in the EU are:
- The country(s) you are storing and shipping goods from,
- How much you are selling in each country,
- Applicable VAT rates in the countries which you are registered for VAT.
VAT rates range from 8% - 27% depending on which country you are in. To begin with, you are required to be registered for VAT in your home country, and any other countries in which you store inventory. Once your sales to any given EU country exceeds a certain threshold (generally either EUR35,000 or EUR100,000), you are required to register for VAT, and pay VAT on any applicable sales to consumers in that country. For cross-border EU business transactions, VAT is paid by the receiving party. If your aggregate sales to consumers in any given EU country is below the threshold, you must pay VAT on these sales to your home country at the local rate. The rules are different for sellers based outside of the EU - you will need to get an EORI (Economic Operations Registration and Identification) number which identifies you as the importer. Importers are required to pay VAT at the first port of entry, which can be later reclaimed via a VAT return.
Which warehousing and fulfilment service is right for my business?
Amazon offers merchants a variety of ways to get their goods to European customers:
- Merchant Fulfilled Network (MFN): otherwise known as fulfilment by merchant, this involves either fulfilling orders yourself or using a local third party logistics service. As long as your annual sales to any given country is below the applicable threshold, you only need to register for VAT in your home country.
- European Fulfilment Network (EFN): sellers using EFN store goods at one Amazon warehouse in the EU, and all orders placed through European Amazon sites are shipped from the same fulfilment center. With EFN, the same tax rules apply - you only need to be registered for VAT in the one country (plus any countries where you exceed the sales threshold).
- Multi Country Inventory (MCI): sellers using MCI, store inventory are in multiple Amazon warehouses around Europe, and get to choose which fulfilment centers are used. Sellers distributing goods this way are liable to register for, and pay VAT in any countries where goods are stored or their sales exceed the given threshold.
- Central European FBA: inventory is stored in Germany, and also holding warehouses in Poland and Czech Republic. Products are listed on the German Amazon marketplace. Sellers using Central European FBA are liable to register for VAT in Germany, Poland and Czech Republic, and to pay VAT on sales in Germany.
- Pan-European FBA: this is an EU-wide fulfilment service, which allows sellers to truly benefit from Amazon’s vast network of fulfilment centers. Inventory is moved around based on Amazon’s demand projection algorithms, orders are fulfilled faster, and happy customers results in more sales. Everyone wins. However, this does require sellers to be registered for VAT in every EU country where Amazon has warehouses, plus any other countries where sales exceed the threshold. Sellers have no control over where their goods are stored, so it must be assumed that they are stored everywhere.
Each country’s VAT Filing frequency and compliance requirements differ, making it a complex and time-consuming process to manage. For example, if you are using the Pan-European FBA service to fulfil orders, you will need to file at least 64 tax returns every year! Get in touch with Jonathan Matthews, one of the leading European Amazon tax experts for more information.
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