Selling into Europe with an online audience of over 500 million people is an opportunity to increase your sales and profit. The biggest markets are UK, France and Germany which account for 60% of the online retail market with a population of over 210 million people between them. Online sales in the UK, Germany, France, The Netherlands, Sweden, Italy, Poland and Spain grew over 18% in 2015 and are expected to rise another 16% both this year and next year to reach £215.38 bn in 2017.
Using the infrastructure of the marketplaces gives the seller many of the tools needed for international success – from localized exposure, in-country warehousing, packing and labeling, product listings and promotions and delivery to the customer’s door.
Value Added Tax (VAT)
Selling online does not excuse you from the societal rules of taxation and the tax man is entitled to a piece of the pie.
Value Added Tax (VAT) is the preferred transactional tax model in the EU and It differs from sales tax as it is applied every time value is added– from the raw material supplier to the manufacturer to the wholesaler and retailer and finally to the end consumer. Governments get revenue every step of the supply chain. It is not supposed to be a burden on businesses, who, once VAT registered, can offset any VAT collected on sales against any VAT incurred on expenditure – including import VAT.
Ignorance of the VAT rules is no defense. Not accounting for VAT properly or not reporting it at all can cost you your business.
The tax authorities are becoming more and more proactive in hunting down non-compliant online sellers as the tax authorities get to keep the VAT revenue collected from online sales. The UK government, for example, has introduced new legislation that allows the UK tax authority to work with intermediary sites, such as Amazon and eBay, to identify those who have not complied. If traders continue to evade VAT, online marketplaces can be made liable for VAT, according to new measures. This can mean that if you don’t prove to Amazon that you are compliant, they will shut down your Amazon account, AND, the tax authorities issue penalties and interest charges for non or late VAT compliance – sometimes up to 400% of the VAT owed.
Amazon Pan-European Infrastructure
Selling on Amazon gives the seller all the tools needed for international success. From localized exposure, in-country warehousing, packing and labeling ad delivery to the costumer’s door – except they do not sort out the VAT compliance for you in the local markets. In this blog, we hope to demystify the EU VAT rules by setting out what you need to know before embarking on your European expansion plans.
The EU VAT Obligations
How you choose to distribute your goods to your customers will have VAT implications for you as the seller. Here we explain which issues affect you:
Using Fulfilment by Amazon
When you put your stock in any Amazon warehouse in the EU, you are obligated to VAT register wherever your stock is held. If your stock is in multiple EU countries, you will require VAT registration in all the countries your stock is held. If you are using Amazon’s Pan European Multi-country option, you will need VAT registrations in any or, all of the following countries – UK, France, Germany, Spain, Italy, Poland and the Czech Republic.
The EU VAT Distance Selling Rules
Once you are VAT registered in one EU country, sales delivered from that country to local private customers or customers in other EU countries are governed by the EU VAT distance selling rules. These rules state that local VAT is charged on any sales to any consumers within Europe until the set distance selling thresholds are exceeded in any one country.
The thresholds are:
- Euros 35,000 (or equivalent) in All EU countries, except:
- Euros 100,000 (or equivalent) in Germany, Netherlands, Luxembourg
- £70,000 (or equivalent) in the UK
If you exceed the threshold, a VAT registration will be needed in every EU country.
EU VAT Rates
Each EU country has a standard rate of VAT and a reduced rate of VAT. Standard VAT rates across the EU range from 17% to 27%. The VAT rate applied will depend on the type of goods, for example, groceries are ‘zero-rated’ in the UK and Ireland. Other EU countries apply reduced rates to groceries.
Monitoring Your Sales
When calculating whether you have exceeded the threshold, make sure you add sales from EACH channel you sell on – all sales go towards the distance selling thresholds.
You should also include the shipping amount in the calculation.
Fiscal Representation
A Fiscal Representative is jointly and severely liable for the VAT owed. As a non-EU company, some EU countries require a non-EU business to have Fiscal Representation. There are additional fees associated which can include a bank guarantee.
Import VAT
Local import VAT will be charged on the cost value of the goods you are importing, for example, in the UK the import VAT is at 20%. Import VAT is applied at the first port of entry into the EU.
The import VAT and duties must be paid straightaway.
If you are not VAT registered, your customer is usually left to pay the import charges. This is not the best customer experience.
Is Your Pricing Right to Stay Competitive in Europe?
Be aware that one price might not fit all. Unlike the USA where sales tax is added after the sale, in Europe, VAT should always be included in the price shown to consumers. Should you charge different prices in different EU countries on different channels or does one price fit all? How badly will your margins be affected by the different VAT rates if you don’t differentiate price in each EU location? Will you stay competitive once you have to VAT register in another EU country?
It’s always a good idea to do some local market research in your chosen markets and find out how you compare to local suppliers and how much flexibility this gives you. Keeping ahead of the game can avoid a lot of future headaches and can even mean the difference between the success and failure of your business.
Invoice Compliance
In some countries the provision of an invoice is compulsory. Each country has different criteria for what information should be presented on an invoice. Are you applying the right VAT rate and is the correct information on the invoice?
Other Reporting Obligations
When the stock is sold or transferred between EU countries, there is additional reporting obligation to file an ‘EC Sales List’. For example, if the stock is moved from the UK warehouse to a German warehouse, this will need to be reported on an EC Sales List as well as the UK VAT return.
Another potential obligation is filling with the Intrastat Declarations. These are statistical reports that are obligatory once set thresholds are exceeded in each EU country. There are thresholds for both ‘dispatches’ and ‘arrivals’. You will need to monitor sales, for example, from the UK to any EU countries, once these ‘dispatches’ reach £250,000, intrastat declarations will need to be filed.
VAT Return Filings
Once registered, you will have to submit VAT returns to the tax authority, in the language, at the frequency and on the deadline specific to that country.
Don’t let VAT be a barrier to your European expansion plans
Head down in the sand is not a business strategy, as tax authorities are becoming more strict on tracking VAT payments. Planning and preparation is the key.
Don’t be put off by the VAT rules, we are here to help you. Our advice is ‘plan ahead’. Add the cost of compliance to your cashflow along with other staples such as web-hosting or accountancy fees. Those who have already taken the leap into selling into Europe find the rewards far outweigh the cost of compliance.
If you want to know more, please get in touch at www.simplyvat.com or email [email protected] to discuss how we can help you!