Navigating Amazon Seller VAT For Selling In Europe
If not handled appropriately, tax is a touchy problem as it can be troublesome and complex. Selling in foreign countries, coping with unfamiliar tax systems is intimidating. However, Amazon seller VAT should not be an excuse for sellers to shy away from growth chances.
You need to equip yourself with information about tax system and legal setups to expand into European markets. Especially since the best course of action will vary from seller to seller.
Today we’re simplifying Amazon seller VAT to help you establish your knowledge of this area.
Understanding Amazon Seller VAT
Jungle Scout’s article – Million Dollar Case Study discusses on launching products in Europe and dealing with VAT. The webinar below also covers many of the key points of this article.
We’re going to cut through the imitating complexities in this article. We mainly focus on the detailed structure so you can go in the right direction. Take note before we dive into it:
- First sell in just one country at the beginning, which makes your business a whole lot easier to control.
- In Europe paying VAT is a must.
- Don’t be intimidated by extra admin work.
- Be bold to get professional help from Amazon services.
What is Amazon Seller VAT (Value Added Tax)?
In Europe, all business must place cosumption tax on their products. The price consumer are paying is included VAT in their purchase.
Different VAT Rates
The rates of VAT will be various. You can see full list of European countries and their VAT rate here as a preference.
US Sales Tax vs. European VAT
The final price of products sold cover VAT in Europe While US sales tax are added afterward.
When starting to sell in Europe, you must set your final price to allow for this. Then you’ll need save any VAT income for when your tax bill is due.
How Is Amazon Seller VAT Calculated?
The best way is to keep things simple
- Summarizing all costs
- Adding your margin to get your Net Sales Price
- Calculating VAT based on the Net Sales Price, then adding it to find your final price.
Remember, the selling price entered through Amazon Seller Central should always be VAT inclusive – don’t forget to include this in your profit calculations.
Will VAT Eat Away My Profits?
Everyone who sells in Europe pays VAT as a simple cost of operating in the market, which is the the reason why it’s so fundamental to perform product research and profit calculations including tax before launching in Europe.
As mentioned above, VAT will not eat your profits because you should set your margin to allow for it, which comes down to good product research, and ensuring that you find a product that has high demand, low competition and proves to be profitable in your calculations!
VAT is Calculated From Net Price Not Final Selling Price
When you have a final sales price already and want to know how much tax must be collected, you should work backward. Here’s a great little tool for calculating VAT from your final selling price.
Registering For VAT
When Should You Register for VAT?
You should register and have a VAT number in two different circumstances:
A. 1st Day of Storage – As soon as your inventory lands in Europe, you’ll need a VAT number.
B. Exceeded Distance Selling Threshold – If you are selling on Amazon Germany, you can easily send products from UK warehouses to fulfill orders. In this case, you could continue using your existing UK VAT number until you hit the limit of 100,000 euros. Then you would need to register for a German VAT number.
Different countries have different distance selling thresholds, see here for a full list.
How Can Amazon Sellers Get VAT Numbers?
Amazon sellers can get VAT numbers in two different ways:
1. By founding a European Company
2. Through a Fiscal Agent/Representative
Going through a fiscal agent is recommended If you are an international seller and already have a US company. That way you’ll get a VAT number and representative in Europe for your existing business. Founding a company Europe just to sell on Amazon FBA can be quite tricky offers little upside.
Amazon Storage Options For Europe
A few different ways are there to structure your FBA business to operate Europe. Here are three models to consider:
EFN – (Simplest To Get Started)
- Store all stock in one country
- Only 1 VAT number required – so long as you stay within distance selling thresholds
- Comes with higher shipping costs and longer delivery times
CEE – (For German Markets)
- Store stock in Germany, Poland and Czech Republic warehouses
- Requires VAT numbers in all 3 countries
- Comes with medium shipping costs and delivery times
PAN EU – (For Highest Performance)
- Amazon stocks inventory across 7 countries, whichever they deem most strategic
- Comes with the lowest shipping fees and fastest delivery times
- Offers greater BSR because your products have the lowest fees and fastest delivery
Choosing Storage Options
As for new sellers dipping their toe into European selling, starting with the UK marketplace and an EFN setup makes the most sense.
As for larger sellers exceeding distance-selling thresholds quickly, you could benefit more from going straight to PAN EU.
If you want to sell in the UK and Germany, you may need to do both EFN and CEE, registering VAT and shipping to all countries. Since this can be a little complex, starting in the UK with EFN and selling through to Germany when you’re ready is recommended. When sales pick up, consider moving straight to PAN EU.
VAT Registration & Filing For Amazon Sellers
Don’t worry, registering for VAT isn’t as daunting as it sounds. You’ll need to register once for each country, and then file regular VAT returns.
- Requires all business documents, passport and admin paperwork
- Takes up to 2 months to receive VAT number form the government
- You can actually start selling products immediately by using a validity date
- For different countries due at different times. For example, the UK is Quarterly while Germany is Monthly.
- You’ll receive confirmation then pay via Bank Transfer after sumitting a VAT return.
- Unable to pay within 2 weeks will lead to penalties.
VAT Registration and VAT Returns are not so difficult as rocket science but it makes a lot of sense to leave it to the professionals. You can save a lot of time, admin work and prevet costly mistakes.
Outsourcing Your VAT Filing
We have to face the situation where most business owners outsource this step. It’s time consuming, confusing and not rejoicing. Three options to file VAT, here’s a quick overview of each:
A. Filing VAT Yourself
- Saves money but very time consuming
- Steep learning curve
- Costly if you get it wrong (penalties could even apply)
B. Using Amazon VAT Services
- Cost effective but may not be the best value overall
- Leverage Amazon’s accounts to file VAT on your behalf
- Must provide all sourcing information to Amazon. Some sellers are wary of this
C. Using External Partners to File VAT
- More costly but will ensure VAT is filed correctly
- Hire accountants or use service providers who specialize in Amazon Seller VAT
- Saves a bunch of time and hassle
- Don’t hire cheap VA’s or freelancers for this
- Sleep easier at night!
Receiving Amazon Sales Reports For Filing VAT
Amazon generates sales reports containing all sales data including VAT. These can be handed straight over to accountants for VAT filing.
You can locate these in your Amazon Seller Central “Reports > Fulfilment By Amazon“.
They are available monthly and stored historically showing you all sales made within the period while taking into account promos, discounts and pricing changes.
Should Import Tax Be Included in Profit Calculations?
No. Because Import VAT is reclaimable (if you are registered for VAT).
VAT doesn’t need paying twice for the same product. you can write off import VAT when you file your tax return. Think of it as a deposit that’s reclaimed after you’ve sold your products.
Import Duties are not the same as Import VAT and they are not reclaimable. Therefore, you’ll need to them into consideration during profit calculations.
EORI numbers are used to link your imported goods to your business and VAT number.
Before starting to import goods into Europe, you’ll need an EORI number. Otherwise, they will be held up in customs and you won’t be able to reclaim Import VAT!
Thankfully, it’s easy to get EORI numbers and don’t come with any restrictions to worry about. You can apply for an EORI number on the gov.uk website.
If your goods are already in Europe and you won’t be importing, you don’t need an EORI number.
Amazon Seller VAT Conclusion
Don’t let VAT make you feel like it’s a big obstacle and keep you from expanding your business into European markets. With this basic knowledge of VAT and a trusted accountant service to file your VAT returns, there’s nothing blocking you from unlocking an international revenue stream.
Be more organized and do it in the smart way. You don’t want to get shipments caught up or penalized for VAT returns. So set yourself up for long-term sucess by tackling this professionally.