Ready to expand your Amazon business in Europe? Learn about Value Added Tax (VAT) regulations, a consumption tax in the EU, so you can scale your business.
VAT is one of the most important aspects of selling, primarily selling online on multinational platforms like Amazon. Every sale you make is subject to VAT, often at differing rates. Selling and shipping products to customers in a variety of countries in the EU puts an additional burden on entrepreneurs when it comes to VAT duties.
The European Union tried to mitigate this problem by implementing unified VAT regulations in 2021. However, the changes did not necessarily make life easier for online entrepreneurs, especially those storing products abroad and making use of fulfillment networks like Amazon FBA.
In the following article, we break down all applicable VAT regulations, how the changes impact Amazon businesses, and what to do if you are an Amazon FBA seller.
EU VAT can be consuming – especially for new entrepreneurs or non-EU businesses. So how is VAT generally handled in the European Union?
The Value-Added-Tax is applied to all transactions and each country sets its own VAT rates. A lot of countries also have reduced VAT rates that apply to necessary products. For example, in Germany, the regular VAT rate is 19% while the reduced rate of 7% is used on food items, books, and more.
If you are only selling to customers resident in your home country the VAT process is fairly straightforward. You first need to register for VAT when registering your business in your home country. After the registration, you will receive a VAT Identification number (VAT ID).
The VAT ID as well as the correct VAT rate or amount have to be shown on the invoices you sent to customers. The customers then pay the gross price and you pay the VAT amount to the tax authorities while listing the transaction in a VAT return, which regularly has to be submitted to the domestic tax authorities.
Things are more complicated when you are selling to foreign customers. You then need to know:
● Where to register for VAT
● Which VAT rate to use
● Which return to file
If your customers are businesses based in the European Union, you will be using the Reverse-Charge-Mechanism. This EU scheme enables businesses to take care of VAT matters for cross-border transactions in an easy way.
Without the Reverse-Charge-Mechanism, a business A in country A would need to pay VAT to business B in country B when buying supplies. Business B would then need to pay that VAT amount to the tax authorities in country A – an unnecessarily complicated process. Instead, a business simply pays the VAT directly to the tax authorities in its home country.
In order to use the Reverse-Charge-Mechanism, you will need to include your intent to do so on the invoice. Amazon will also adopt its checkout page if your customer has entered a valid VAT ID and is a business customer.
But what about private customers across the EU? There are several VAT regulations in Europe concerning B2C cross-border deliveries.
Until recently, each European country set its own VAT delivery threshold. The thresholds were usually set at 35,000€ or 100,00ß€. If a seller’s revenue generated by transactions with customers in a country exceeded the threshold, he or she became subject to VAT in that country.
That meant that the seller had to register for VAT, obtain a VAT ID, and start filing regular returns. All transactions prior to the crossing of the thresholds were treated as domestic sales and domestic VAT rates were used. After a threshold was crossed, however, a seller needed to use each country's individual VAT rates.
The country-specific thresholds, however, were abolished and replaced by an EU-wide VAT threshold of only 10,000€ in July 2021. This limit is not only much lower than previous individual ones but also reached through the revenue of all European cross-border sales combined.
For example, an Amazon seller active on the German, French, and Spanish marketplaces might previously have only had to register in his or her home country, as the revenue generated through transactions with customers in each individual country did not cross the individual thresholds.
However, combined the revenue most definitely crosses the much lower new EU-wide threshold. In that case VAT registrations and the submission of returns are due in all three markets in addition to the home country.
While this change aims at minimizing arbitrage opportunities it also increases the bureaucratic burden for Amazon sellers who are operating on several European marketplaces.
To successfully register for VAT and complete regular local VAT returns the employment of local tax accountants is advisable as tax authorities only communicate in their national language and at times require a native to file returns.
With the introduction of the country-specific threshold came the introduction of the One-Stop-Shop (OSS) – the EU’s new VAT scheme which allows sellers to turn in a combined OSS report in lieu of several separate VAT returns.
To use the One-Stop-Shop (OSS) a seller needs to register for the One Stop Shop in her or his home country. This one registration then replaces the foreign EU VAT registrations – with some exceptions.
An OSS registration also means that you are implicitly dispensing the use of the 10,000€ threshold. Instead, you apply the country-specific local VAT rates to your sales from the start.
Following that, you list all B2C cross-border transactions in an OSS report, which is filed in your home country, and pay the total VAT liability to your tax authorities at home. The domestic tax office then redistributes the correct amounts to the countries, to which the VAT is owed.
For the system to work the OSS reports need to be created following very specific guidelines. Notably, you need to sort all transactions by country of package departure, country of package arrival, and applied VAT rate. Subsequently, the sums of all these combinations need to be entered into the OSS report.
While the sorting procedure is very time-intensive, the OSS still represents a simplification of the VAT compliance duties for pure Amazon sellers, whose shipments only depart from their home country. They no longer need local tax accountants and no longer need to keep an eye on varying country-specific deadlines.
Sounds too good to be true? That’s because it is. First off, the One-Stop-Shop reporting is a hassle. Sorting through transactions and compiling and filing separate lists for all combinations of departure country, arrival country, and tax rate is a time-consuming task.
Furthermore, the OSS only applies to cross-border sales. That means that deliveries within a country do not fall under the scope of the One-Stop-Shop and cannot be reported via OSS. This greatly decreases its usability for Amazon FBA sellers who store products in Amazon warehouses in foreign EU countries.
As soon as your products are stored in a foreign EU country, you need to register for VAT there. This step is usually necessary to rent warehouse space, pay workers, and so on. But it is also a compulsory step for Amazon FBA sellers, who usually don’t actually know where their inventory is currently stored.
Amazon sellers who take advantage of an FBA program like PAN-EU need to immediately register in all countries which are included in that program. With the recent updates to the PAN-EU programs this now has become somewhat more manageable, as Amazon FBA sellers can pick and choose the countries in which they are willing to store their products and activate them in their seller accounts.
However, with the registrations, the regular filing of VAT returns also becomes mandatory. And you can still use the One-Stop-Shop on top of that. OSS and regular VAT reporting aren’t mutually exclusive – you just have to know which transactions can be declared in each return.
If you use OSS, you need to first distinguish between sales from a warehouse in a foreign EU country to customers there, to customers in a second foreign EU country, or to customers in your home country. The first type of sale needs to be declared in the local VAT return and cannot be declared in the OSS report as the delivery doesn’t cross borders.
The One-Stop-Shop is only usable for the second type of delivery. The third, however, while still technically being across-border transaction, needs to find its way into your local domestic VAT return, as the seller and customer are residents in the same country.
The usability of the One-Stop-Shop, therefore, depends on your Amazon FBA business model. The more countries you store in, the less advantageous the OSS will be for you. It might be easier to just go ahead and register for VAT in all countries to which you are shipping products. However, if you just store in a few select countries, the OSS might be worth it for you.
If you are an Amazon shop owner interested in the One-Stop-Shop or an Amazon FBA seller overwhelmed with VAT duties across Europe, hellotax offers a solution for you. hellotax is a VAT service and software provider specializing in Amazon businesses.
Hellotax's services include VAT registrations, VAT returns and filings, contact with local authorities, automated reporting, and a translation and editing service for local tax documents. They also offer a variety of OSS services that help you to create ready-to-file OSS reports and allow you to scale your business without spending hours sorting through transaction data. Check out hellotax today and learn how you can grow your Amazon business in Europe.