So you want to sell on Amazon Europe: Paying VAT - An easy guide on when, why and how
VAT is probably the least fun or sexy aspect about selling on Amazon Europe, but alas, it’s an important one – especially if you are a US seller and want to get started on amazon.co.uk.
So I sat down with two EU Amazon tax and Vat wizards, Christoph and Miguel from www.fba-hero.com, to dig deep and put together all you need to know about VAT for Amazon EU.
All this comes from our interview, which you can listen to here and download the transcript here – and, if you like this sort of stuff, please do subscribe for more talk, articles and tactics on amazon Europe!
First things first – don’t confuse tax and VAT
VAT and tax are obviously different things, just like sales tax and income tax in the US. So if you are selling into the UK from the US, that doesn’t mean you pay UK tax - just like I don’t pay German tax on my sales there. Your sweet sweet Amazon pounds or Euros will be taxed according to your US (or home country’s) business structure. Duel tax treaties are in place for this exact reason.
Getting started with VAT: you need a VAT number, but you don’t need a UK company
(Note: If you are from the UK and selling on amazon.co.uk, depending on your business structure, you don’t have to pay VAT until you hit the 80k+ threshold, for all others, read on)
So for anyone selling into the EU, you first need a VAT number for the country you will hold stock in! While you can start selling without one and Amazon doesn’t enforce it (yet), it is against the law and at some point, it will get your business in trouble.
What’s the best legal structure for a US seller?
A lot of people recommend setting up a UK ltd (our equivalent of an LLC) but Christoph and Miguel say that’s the worst way of doing it. Instead, you can nominate a fiscal representative and they do all that work for you.
Miguel: I think it's better to keep the status of non-EU seller. You don't need to be registered as a Limited Company. It’s adding more complexity where it is not needed. You can do this easily with a couple of registrations for EORI for the imports (EORI is a number you need to apply for when importing or exporting to the EU). We talked to several sellers who were misled and registered a Limited Company in London and you have to declare your corporate taxes, which you don't want to do in Europe. It adds complexity. You want to be able to declare your profits in your home country.
Christoph: If you don't set up a UK company (which is the worst way to do it but it was very common) you have a so-called fiscal rep or fiscal agent handle your VAT.
That's a person like an accountant or like our service FBA-Hero.com asking for a VAT number in your name. This option is the best option because you only pay the VAT. This means you're doing your sales in the UK, you're doing your sales in Germany, or so on and the accountant or fiscal rep is doing all the VAT stuff for you. The only thing you have to pay is the VAT on your sales in this specific country or in Europe.
All the profits you make go back to your home country, back to your main company in the US or anywhere in the world, and you have to pay your corporate taxes and taxes on profits only in your home country.
This is a big advantage because maybe in the UK taxes are not that high but for example in Germany, taxes can be something around 40% in total, and you don't want to pay 40% on your profits in Germany. It's better to pay only your taxes in your home country because in many cases it's less than in Europe.
VAT rules for FBA sellers
Christoph: There are two basic rules you have to consider regarding VAT. They are quite easy: Rule number one is if you store your goods in one country you need a VAT number right away. If you plan to store your goods in Germany, you need a German VAT number right away.
Rule number two is that there are threshold limits which mean if you're selling your goods from the German warehouse or from the UK warehouse to a customer in another country, you can sell to him without needing any VAT number unless you pass the threshold limit of this country.
So, when you physically have your stock in, for example, the UK, you need a UK VAT number. But, if you hold your stock in FBA UK and sell to a customer from amazon.de via the European fulfilment network EFN, you only pay the UK VAT, not German VAT (unless you pass the threshold of 100k Euros).
Wait, what’s the EFN?
This is the European fulfilment network - with a EU Amazon account, your stock is also available for sale in Spain, Italy, France and Germany – when a customer orders from, for example Amazon France, the stock comes from your UK FBA stock.
Because you don’t hold stock in those countries, you don’t need to worry about, say, French VAT, unless you hit the threshold that Christoph mentioned above (for more on pan FBA, skip to the final part of the article).
The process for VAT registration
While you’ll probably start with the UK, it’s worth looking how VAT set up and filing works in the other EU countries as it can be a bit of a monster:
Christoph: The registration process itself is quite similar. But there is for example, Spain, where they need special kinds of documents, one notarized, which is quite a headache sometimes for a foreign seller providing all these documents in the correct way.
Basically that's the job of your accountant. As you know, there is this language hurdle you have in all of these countries because I guess none of the sellers are speaking Spanish, Italian, French and German at the same time, so the language is the main problem in all of these countries.
Miguel: You search for an accountant in each of those countries and contact them by yourself - you have to give them all of the reports, all of the invoices by yourself. Or there is the option we are creating now with FBA-Hero.com.
You can join and rely on a network of accountants and we are just distributing your invoices automatically to the right accountant in the right country. This means you have one service, one person you stay in contact with and everything else is done for you.
Filing for VAT also comes with its own rules in each EU country
Christoph: In Germany you have to do it thirteen times. In Italy you have to do it fourteen times. Spain and France and Poland and Czech are depending on your sales, and in the UK you do it four times so UK is the easiest way to go and also the cheapest way.
So imagine you hold stock in Germany, Italy and the UK – that means you would have to file a whopping total of 31 times per year with three different accountants in each country – or you can just use FBA Hero and focus on actually selling instead of having multiple brain aneurysms over epic piles of excel spreadsheets…
So VAT aside, what is the best Amazon EU marketplace to start with?
Miguel: For an American seller the best way would be to use the UK as a starting point to make sure they get VAT registered, go through the process, which on average takes four weeks or more. That would be the most logical starting point based on the language.
Depending on the profile of the seller, say you're a seller with ten, fifteen or twenty different SKUs and quite successful and you feel likely to replicate the same success across Europe, why not go for the UK or Germany or even the Pan-Euro? (see end of article for more on pan EU).
If you’re just getting started, selling one or two items and want to test the water, then the UK clearly is a barometer that gives good insights for how sales will perform on the rest. You can extrapolate the sales you're doing, the potential total sales across the five or all the European countries.
Is a non-EU seller is at a disadvantage because of having to pay VAT?
You're don’t actually lose an advantage because if you're a UK Limited company you have a threshold up to £83,000 but you have to pay 20% corporate taxes – the same 20% that the foreign seller would pay in VAT.
A lot of people think they get charged VAT twice, but that’s not the case
Christoph: Normally if you're not selling any goods in the UK you will get back the VAT paid on import. This means that if you import goods to Europe and you have a VAT number, you pay the VAT on the import but you declare it back within a few weeks.
Miguel: As a seller, you have to think that it's the final customer that is paying you the VAT on your product. You are just collecting the VAT and when you do your filings you then deduct the money you paid at customs when your product arrived.
How pan FBA works and the VAT implications
Pan FBA is a fairly new option for EU sellers and is basically a program where Amazon automatically sends your inventory to local EU FBA warehouses where it knows there’s demand – so for example, Amazon might send your olive press from FBA UK to an Italian FBA warehouse because it’s olive season and the Italians are going wild for, um, olives.
But, unlike the EFN, it means you’ll be liable for VAT anywhere Amazon sends your stuff
Christoph: It would be very nice letting Amazon do it for you, but they don't care about the VAT at all which means you have to care about this and basically if you want to join this Pan-EU Amazon program, you need seven VAT numbers right away because of all those seven countries where Amazon is storing the goods.
And it looks like Amazon might start forcing more sellers into Pan FBA
Christoph: They are forcing them in two ways. Firstly, they are asking many times - calling you, saying, "Hey, don't you want to join this program? It's really nice." A lot of active sales are reps calling you. On the other hand, they're just making a higher price on internal fulfilment.
For example, they forced Germans to join. It's not the Pan-EU program, but they agreed to store their goods in Poland and the Czech Republic, and they said to them, "If you don't want to store your goods in those countries, you have to pay 25 cents more on each shipment." That's kind of forcing from this side, from the pricing side.
When does it make sense to dive into pan FBA?
Miguel: I think the question is volume of sales. As long as you're not selling a lot of units daily, maybe it makes sense to just use one warehouse, one country, and you just add the extra shipping cost that Amazon is charging you to send to the UK, Spain or Germany, but if you reach a certain level of sales, these extra shipping costs add up very rapidly.
Number two, I'd say the UK and Germany are the main marketplaces in Europe. Spain and Italy are still a little bit tiny, but they are growing fast. The volume you can expect from Spain is only 1/10 of what you can do in Germany probably.
Advantage: holding local inventory could boost your product ranking
Miguel: I'm totally convinced as a seller myself in the US that the closer your products are to your buyers the more the Amazon algorithm loves you. I'm very convinced, but cannot prove it. Also the time of delivery (Prime two-day delivery) is like being FBA vs. merchant fulfilled and I'm convinced Amazon takes that into account. I think it is key and it helps you grow your sales.
How FBA Hero makes life easier for people looking to sell in Europe
Christoph: FBA-Hero.com is basically an all-in-one solution for anyone who wants to sell inside Europe.
We offer different packages, which means we are offering fiscal packages that customers and clients can take and other packages (help with translation, listings and reviews etc).
For example, we have a fiscal UK package, fiscal Germany package etc - they just take this package and don’t have to think about VAT in that country anymore. That's the main idea.
As Miguel told us before, he's saying you should focus your time and your energy on selling on Amazon. You should not focus on being a tax expert because that's a different subject. You should focus on making money on Amazon. This is what you love, learn and that's why you came into this business. Our services are always focused on doing the stuff yourself and keeping people at their job, at things they love to do.
And you don’t have to know a thing about VAT
Christoph: It would be possible for someone who has never heard of VAT (or just heard they need a VAT number) to come to us and we do everything for them. They never think about VAT again and don’t even need to know what VAT means!
That's the main service but in total we are offering four different services - one it's a fiscal service, second it's a logistical service (we are partnering with different logistical and practical companies to be able to ensure everything is done correctly), the third part is the translation services.
As Miguel told you before, many listings are not translated very well because you don't just have to translate your listing, you also have to localize it. It means you have to know what people are searching for and not just putting it into Google Translate and hoping for the best.
The final part is a review service – this is new at the moment as we are just helping customers and our clients get reviews for their product listings.
EU final wrap up
If you have more questions on all things amazon VAT, feel free to drop the guys at FBA Hero an email any time, or reach out on social media - Christoph is particularly active on the various amazon facebook groups and is always quick to answer tax and VAT questions.
And finally, if you’re thinking about selling in the EU, there are a few other articles that you might like to have a look at.
And remember, if you like the content, please do subscribe for updates, articles, interviews and more!