Are you selling in the UK or European markets, through Amazon or via any other channel?
Selling online opens up the possibility of entering international markets with relative ease, but you also need to be aware of the legalities that are specific to the countries you are selling in. For the UK and Europe, that means VAT.
This “Value Added Tax” trips up many sellers, especially as at a glance, it can seem quite complicated. Here’s what you need to know about VAT if you sell in the UK and Europe:
What is VAT?
VAT is “Value Added Tax” and is a consumption tax that is paid by consumers in the UK and Europe. This is like sales tax that is charged by many states in the US, which you are expected to collect from buyers where you have a nexus in their state.
You may be required to collect VAT from UK and EU customers, and remit VAT returns to the relevant countries. The “complicated” bit is that each country has different rules for when VAT must be paid and what tax rate is to be charged.
It’s important to note that VAT is not the same as company taxes which you pay for your business earnings. Some US-based sellers have been confused about whether they need to pay company taxes in the UK or Europe as well, but this is only the case if your business is registered locally in one of those countries.
VAT is something that you need to be registered for, and you may need to be registered in more than one country.
Do I need to set up a local company?
First of all, if you’re selling in any foreign market, we would suggest that it’s important to get advice from a local expert to ensure that you are set up optimally for doing business. While many people suggest that Amazon UK sellers set up a UK-based Ltd company (like an LLC), in fact, you can sell as a non-EU seller.
Setting up a business locally creates new layers of complexity, whereby you need to have appropriate licensing and pay company taxes too. Another option is to remain as a non-EU seller, and have a nominated fiscal representative who takes care of VAT requirements for you. This way, your profits go back to your US-based company, and you pay the appropriate company taxes here instead.
For all imports into the EU, you will need an EORI (Economic Operator Registration and Identification), which is required for completing Entry or Exit Summary Declarations. You don’t have to be a registered company to get one – individuals or sole traders are issued EORI as well. So for example, you will need this for your products that are going into FBA warehouses in the UK or EU.
There are services that are specifically set up to help FBA sellers through all of this. For example, check out FBA-Hero who can assist with a number of aspects of doing business in the UK and EU, including acting as a fiscal representative and VAT expert.
Again, do some research and seek advice from someone who is qualified to give it. Sometimes it might make sense to set up a business locally, but often, you will find that your tax liability is higher in Europe.
How does VAT work?
Each country within the EU has their own rules around VAT, but generally speaking, you will need to be registered with a VAT number and may need to register with more than one country, depending on where you make sales and where your goods are stored.
Basically, whenever you make a sale to a consumer in the UK or Europe, you are required to charge them VAT at the applicable percentage of the price of goods sold. You then remit those taxes to the relevant revenue-collecting agency. If you have paid VAT to other “taxable persons” for your business purposes, then you can deduct this amount from what you pay.
Each country has “distance selling” thresholds, whereby if you have your goods based in one country, but make sales into another, you will have to pay the VAT of the country you are selling into if you exceed their threshold. For example, you might have goods stored in a warehouse in the UK, but make a lot of sales into Germany. According to current thresholds, if those sales exceeded €100,000, then you would have to pay VAT in Germany. If your sales were below the threshold, you would pay VAT at the UK rate to HMRC (Her Majesty’s Revenue and Customs).
What if I ignore VAT?
There’s a chance you might get away with ignoring VAT, but we’d suggest that’s not the best course of action to take. Basically, if you are operating on Amazon UK or in any of the European countries, then you are on their turf and more recently, crack-downs on companies that aren’t correctly paying their VAT obligations have been happening.
You will risk your operation being shut down, or even your products being seized from the local warehouse if you ignore VAT. There is also the possibility of very hefty fines for selling without VAT registration and collection.
Collecting appropriate taxes from online sellers is a hot issue in the UK and Europe – governments seek to not only collect revenue that is due to them, but to avoid local sellers being disadvantaged and undercut by tax-dodging foreign sellers.
HMRC, in particular, has recently been known to be pursuing non-compliant sellers on all platforms, including Amazon. They have been approaching sellers either directly, or via Amazon to ensure compliance.
The moment you have goods stored in the UK at an FBA warehouse, you have created a taxable supply and need to be registered for VAT. It is important to note that this is always the case – there is no threshold. You can find out more about UK obligations here.
In some cases, sellers are being informed by Amazon that they cannot continue selling until they have satisfied the requirements of HMRC. These might include things like providing Amazon login details, annual accounts and import records. They often want to see first-hand transaction history.
Considering the investment that you have probably put into entering the UK and European markets, we would say that it makes sense to protect that investment and comply with the rules!
How do Amazon sellers handle VAT?
In a nutshell, Amazon sellers will either manage VAT on their own (via their seller account) or with help from a fiscal representative. It’s possible to manage it yourself by registering online with the relevant countries, then collecting and remitting VAT, but it can be complicated. You will often find that using a service is worth the peace of mind!
Another consideration is that several countries have invoicing requirements, whereby you need to provide customers with compliant VAT invoicing. This is something that, up until recently, you would have to find a way to deal with yourself (such as through a third-party service), but is now an option to set up in your Amazon account settings. Amazon has also created a resource center for VAT-related information, which you can find here.
Other considerations are:
- EFN – If you are part of Amazon’s European Fulfillment Network (which allows you to be based in one marketplace, but list your products in others, with Amazon fulfilling orders from where your products are stored), you will need to keep track of sales and notice if you are meeting thresholds for any other country. This would mean you should be registering for and paying VAT in that country.
- Pan-European FBA – This is Amazon’s service which is designed to give sellers quicker access to various EU markets. It works by having Amazon distribute inventory automatically to warehouses in various EU countries, based upon demand. The thing to remember here is that by storing inventory in a country, you are immediately creating a VAT obligation there and will need to be registered. There has been a lot of talk suggesting that Amazon is starting to “force” sellers into Pan-European by charging more for each shipment if they don’t.
The bottom line is that correctly managing VAT obligations is the responsibility of the seller – Amazon doesn’t take that over for you. This means that you either need to manage VAT yourself or select a fiscal representative to do it for you.
You might choose to ignore VAT (and many online sellers have), but this does not seem like a wise choice when tax authorities are cracking down on companies that don’t meet VAT obligations. As an Amazon seller, the tax authority in question may simply go to Amazon to get to you, which can result in your account being shut down.
Overall, VAT can be complex to deal with, depending on how and where you are selling. If it all seems a bit much and you want to ensure you’re doing the right thing, we strongly suggest you seek qualified advice!