Tax is often a touchy subject; it can be complex and troublesome if not handled correctly. Then when it comes to selling in foreign territories, dealing with unfamiliar tax systems can feel daunting. Yet, Amazon seller VAT need not be a reason to shy away from growth opportunities.
In order to successfully expand into European markets, you’ll need to be clued up on the tax system and legal setups. Especially since the best course of action will vary from seller to seller.
Today we’re bringing you a simplified run-down of Amazon seller VAT, to help you establish yourself in new markets.
Understanding Amazon Seller VAT
Jungle Scout’s Million Dollar Case Study has a great section on launching products in Europe and dealing with VAT. Many of the key points of this article have are also covered in the webinar below:
In this article, we’re going to cutting through the daunting complexities. Instead, we’ll focus on the meat and bones so you can get going in the right direction. But before we get going, take note of the following advice:
- Start by selling in just one country first, this will make your life a whole lot easier.
- Paying VAT in Europe is a legal requirement, not an option that can be ignored.
- Extra admin work will be involved, but don’t let this put you off.
- Get professional help from Amazon services or accountants will save you time, headaches and mistakes.
Disclaimer: Any information shared in this article is not legal advice. We are providing an honest and transparent insight into our own progress and findings. As such, you should always consult professionals when figuring out your own tax and legal business set up.
With that said, let’s get going!
What is Amazon Seller VAT (Value Added Tax)?
All businesses operating in Europe must place consumption tax on their goods and products. Whenever customers purchase their products, the price they are paying is inclusive of VAT.
Different VAT Rates
While VAT is paid across all European countries, the rates will vary. For example, the UK pays 20% and Germany pays 19%. You can see a full list of European countries and their VAT rate here.
US Sales Tax vs. European VAT
European VAT is always included in the final price of products sold. Whereas US sales tax are usually added afterward.
When you start selling in Europe, you must set your final selling price to allow for this. Then you’ll need to save any VAT income for when your tax bill is due.
How Is Amazon Seller VAT Calculated?
It’s important to keep things simple:
- Summarizing all costs (production, shipping, Amazon fees)
- Add your margin to get your Net Sales Price
- Calculate VAT based on the Net Sales Price, then add it to find your Final Selling 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 selling in Europe pays VAT, it’s simply a cost of operating in the market. That’s why it’s so important to perform product research and profit calculations that include tax before launching in Europe.
With that said, VAT will not eat your profits because you should be setting your margins to allow for it. This all 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
If you have a final sales price already and want to know how much tax must be collected, you’ll need to 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’ll need to be registered 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:
- By founding a European Company
- Through a Fiscal Agent/Representative
If you are an international seller and already have a US company, going through a fiscal agent is recommended. 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
There are a few different ways you can 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
If you’re a new seller dipping your toe into European selling, starting with the UK marketplace and an EFN setup makes the most sense.
If you are a larger seller who may quickly exceed distance-selling thresholds, 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, we recommend starting in the UK with EFN and selling through to Germany when you’re ready. 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
- Due at different times for different countries (the UK is Quarterly, Germany is Monthly)
- After submitting a VAT return, you’ll receive confirmation then pay via Bank Transfer
- You must pay within 2 weeks or face penalties
VAT Registration and VAT Returns are not rocket science, but it makes a lot of sense to leave it to the professionals. You’ll save a heap of time, admin work and prevent costly mistakes.
Outsourcing Your VAT Filing
Let’s face it, most business owners outsource this step. It’s something that is time consuming, confusing and not very enjoyable (unless accounting is your jam). You’ve got three options when it comes to filing 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 easy!
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).
You’ll never pay VAT 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 you start importing 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, EORI numbers are easy to get 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.
Get Your Amazon Financials At Your Finger Tips
Requesting reports through Seller Central then scrolling through “lifeless” excel files is tiresome. It makes it very difficult to “get a feel” of your financials. But if you’re hooked up to Fetcher, you see all your financial data in a far more insightful format.
Furthermore, it takes costs into account including FBA fees, storage fees, fulfillment, PPC, profit/loss and much more. Not to mention you can connect as many international seller accounts as you like, and VAT is built into your dashboard!
If you’re expanding into Europe, keeping a careful eye on your financials will give you a great advantage. Get yourself on a free 30-day Fetcher trial today!
Amazon Seller VAT Conclusion
If you’re not familiar with VAT, it can feel like a big obstacle and prevent you from expanding into European markets. But don’t let it! With this basic understanding of VAT and a trusted accountant service to file your VAT returns, there’s nothing stopping you from unlocking an international revenue stream.
Get organized and go about it the smart way. Getting shipments caught up or penalized for VAT returns is the last thing you want. So set yourself up for long-term success by tackling this professionally.