The Ultimate Guide to VAT for Amazon Sellers in UK & Europe

When “value” is added to the supply chain, VAT (Value Added Tax) is charged. VAT is added to the sale of goods by a supplier of raw materials to a producer, for example. VAT is charged on sales from the manufacturer to the wholesaler, the wholesaler to the retailer, and the retailer to the customer.

VAT is a consumer tax: which means that, like sales tax, the cost of VAT is incurred by the end-user.

VAT is collected at every stage of the supply chain: VAT is added to the cost of each sale from the factory to the end customer, including sale prices between businesses and sales to individuals.

Import VAT is collected at customs: If you bring products into an EU country, the customs authorities will charge you VAT. They will not release the goods until you have paid the applicable VAT. Fortunately, if you are a business, you can claim back this VAT when processing your VAT return, so that it remains a neutral tax.

Ecommerce rules: Unlike sales tax in the United States, VAT in the European Union is harmonised for ecommerce sellers (although the rates do differ between countries). As a result, if you sell your products online, you must follow certain guidelines. In a nutshell, if all your shipments are being sent from outside of the EU directly to you, you only require registration in the EU. 

If a company must collect VAT, the procedure is as follows:

• Companies purchasing goods or services will be charged VAT in addition to the purchase price. The supplier must remit the VAT to the appropriate tax authority.
• When a customer purchases goods or services from a business, they must pay VAT on the purchase price. The VAT will be remitted to the appropriate tax authority by the company.
• The tax authorities will specify how frequently entities must file the VAT they have collected. This is usually done on a monthly or quarterly basis and depending on which areas the company runs its operations, it may be necessary to do so with more than one tax authority.
• Depending on the circumstances, VAT amounts may be owed or refunded.

For example, if a company in the United Kingdom charges £2000 in VAT on products sold but only pays £1000 in VAT on purchases, the company will still owe Her Majesty’s Revenue and Customs (HMRC) a total of £1000 in VAT.

VAT is collected by the collector. This is an overly simplified example. Things can get very complicated in the case of ecommerce, with different requirements across Europe.

The most recent changes, on the other hand, aim to simplify things. Every EU member state used to have its own process for filing and VAT eligibility thresholds.

The general rule is that if you make “taxable supplies” in an EU country, you must have an EU VAT number. A VAT number acts as a unique identifier for all VAT purposes.

Simply put, if you’re an online seller and must charge VAT in the country for your sales, you must have an EU VAT number. If you keep stock in an EU country, you will also require a VAT number.

OSS scheme: This is for intra-EU sales – sales from one EU country to another. It means you can get a single VAT number and sell your products online in all EU countries. You must still charge VAT at the destination country’s VAT rate, but you only need one VAT number.

This means you must be aware of the VAT rates in each country, and if you are selling products with a reduced VAT rate, you must also be aware of these. However, reporting is straightforward because you only need to file one OSS VAT return for all EU sales.

IOSS scheme: Unlike the OSS scheme, which applies to sales within the EU, the IOSS scheme applies if you ship your products to the EU from the United States or other non-EU countries. It also provides you with one VAT number for the entire EU. IOSS has some conditions and exceptions, which we will discuss in greater detail in the following question.

Multiple VAT numbers: Amazon’s FBA schemes complicate matters in terms of VAT. You will need an additional VAT number for each country where Amazon stores your inventory.

Fiscal representatives and intermediaries: Regardless of whether you use IOSS or have separate VAT numbers in each country, EU countries may require you to appoint a representative to act on your behalf. When you use the IOSS scheme, this person is referred to as an “intermediary,” and when you are registered with local VAT numbers in each country, this person is referred to as a “fiscal representative.”

These individuals are jointly and severally liable for your VAT obligations. This means that if you fail to pay the VAT that is due or fail to meet your reporting obligations, they will have to do it for you or face penalties. As a result, the majority of fiscal representatives require a bank guarantee or deposit.

VAT for international selling

If you are based in the EU or the United Kingdom and sell internationally, you will handle VAT differently. VAT for international selling will also be determined by your specific circumstances.

• If you supply end consumers in other EU countries, don’t have a physical presence (i.e. no inventory or offices), and haven’t met the distance selling threshold for the destination country, you can collect VAT at your local tax rate on condition that you are registered,  and pay it to your local collections agency.
• When you exceed a region’s distance selling threshold or start storing inventory in a country, you must register for VAT in that regulatory authority, charge VAT at the destination country’s rate, and pay the collected taxes to the destination country’s tax department.
• If you are VAT registered in the UK or the EU but export goods outside the EU, taxes are levied at the customer’s end. In other words, you don’t charge VAT in your country, but when it arrives at the destination country, the sales taxes and import tariffs may be passed on to the customer.
• If you are located outside the EU or UK (or registered for VAT) and sell products to UK or EU consumers, you do not charge VAT because it is paid by the buyer. For example, if you sold goods from your Amazon US account to a customer in France, VAT would be charged at the time of delivery.

This is a simple explanation of how VAT works depending on the structure used by many Amazon sellers.

VAT for distance selling 

When goods or services are sold without any face-to-face contact between the supplier and the buyer, this is referred to as distance selling.

Ecommerce has transformed the way we buy and sell. As a result, it is now easier than ever for people to conduct business with companies located in other countries.

While this provides end-users with more options, it makes it much more difficult for tax agencies to collect VAT on money spent in their economy:

• On the one hand, collecting VAT from every company that sells goods to people in their country would be nearly impossible to administer.
• On the other hand, if they did not collect VAT from foreign suppliers, local businesses would suffer (because they pay VAT when their competitors do not), and less tax would be collected for government spending.

When your company sells more than the threshold in any given country, you must register for VAT and begin filing returns.

For example, as a result of recent European Union changes, all member countries now have the same distance-selling threshold of €10,000.

If your company exceeds this revenue threshold in any EU country, say Germany, for example, you must begin collecting and remitting VAT there.

Here’s how tax collection works based on distance-selling thresholds:

You must pay VAT to your local tax authority until you sell €10,000 to German customers in a tax year.

When your sales to German customers exceed €10,000, or you expect your sales to exceed €10,000 within the next 30 days, you must register for German VAT and file returns on a regular basis.

You charge VAT at your local rate (e.g., 20% in the UK) before reaching the distance selling threshold and pay it to your local tax agency.

Once you have registered for VAT in the destination country, you must collect and pay VAT at the destination country’s rate. 

There is a comprehensive list of VAT regulations that govern EU member states. They must set a minimum VAT rate as well as up to two reduced rates within certain parameters. They will have greater control of their own rates beginning in 2022.

All EU member states have the same threshold for distance selling, making things easier for both sellers and tax authorities. The United Kingdom, which is no longer a member of the European Union, has its own threshold.

This table contains the standard VAT rates for each country, as well as the thresholds for sellers.

If your company is based in the country in which you are registering for VAT, you may be able to sell products without requiring a VAT registration until reaching a certain level of turnover.

Advantages and disadvantages of VAT

When considering registering for VAT, there are a few important things to note about registering for VAT. Below are a few useful advantages and disadvantages to know when registering for VAT.

Advantages:

• Being VAT registered can give smaller businesses the appearance of being larger and more established, which can help them be taken seriously by larger companies.
• You don’t have to worry about exceeding the registration threshold once you’ve registered for VAT in a jurisdiction. Instead of focusing on tax avoidance, you can concentrate on growing your business.
• VAT paid on tax-deductible expenses can be claimed back.
• VAT, when structured correctly, can help your cash flow. 

Disadvantages:

• When you register for VAT, you must regularly file your returns.
• You could use various types of apps or a professional to assist you in managing your VAT filings. This becomes a recurring expense for your company.
• There are penalty fees and interest that will apply if you attempt to register your VAT by yourself and get it wrong or worse, pay your bill late. 
• Being VAT compliant complicates your business and adds an additional responsibility to oversee.

Where to register

Making the decision about where (and when) to register for VAT should form part of your overall marketing strategy. Once you have stock in a country, you must be VAT compliant, so plan your registrations accordingly.

In general, we recommend that you start by registering in one of the following countries:

• Start with your home country: This will allow you to start trading at home without having to learn about the tax systems of a new country.
• United Kingdom: If you are coming into Europe from another part of the world, the UK is usually the best option for English-speaking sellers. This is due to the fact that VAT registrations and returns are conducted in the local language, and you can file VAT returns in the UK every three months.

How to register 

When registering for VAT in the EU for the first time, you can follow these easy steps:

1. Confirm if you require additional country VAT numbers or only an IOSS VAT number.
2. Select one country of registration for IOSS and follow the registration process.
3. Gather all the documents and information needed to prove that your business is properly registered in your designated home country.
4. Proceed to complete the IOSS registration form.
5. Conduct regular follow-ups regarding your IOSS VAT number. Once you have received it, you will no longer be required to follow up. 
6. If you would like to obtain additional country VAT numbers, you should follow the above process for each country. Various countries have their own set of questions, so allow for some extra time for them to get back to you about your application.

You will require a tax consultant to submit these registration forms and documents on your behalf to ensure a smooth process.

What you need to register for VAT

Before you can register for VAT in the United Kingdom, you will be required to gather the following information and documents:

• Your national insurance number, also known as your ‘tax identifier’, is your one-of-a-kind taxpayer reference.
• Details about your incorporation can be found on your certificate of incorporation.
• Details on all related businesses that have occurred in the last two years.
• Account information for a business bank.
• If you have purchased this business, you will need information about the business that has been transferred.

To register in the UK, you’ll also need a login for HMRC’s online services. Different countries’ rules may differ slightly from those of the United Kingdom.

For more information on what information is required to register, visit your country’s tax department website (which is listed in the table above) or consult your accountant.

Is Amazon responsible for your VAT collection?

New marketplace facilitator obligations were imposed as part of the 2021 Ecommerce VAT package.

Now, the platforms may be in charge of collecting and submitting VAT on your behalf. You don’t need to do anything in these cases. VAT will be added at the checkout for buyers, and Amazon will collect and manage it for you.

Filing your own VAT returns

No VAT rules stipulate that you must work with an accountant to file VAT returns. If you have the time, it is relatively simple to handle your VAT returns in-house if you only sell in one marketplace.

This can be accomplished by visiting your country’s tax department’s online portal, using the new OSS or IOSS systems, submitting a manual form, or sending the information directly from your cloud accounting system.

OSS and IOSS 

The 2021 Ecommerce VAT package added new ways to file your VAT.

The Import One-Stop Shop (IOSS) and One-Stop Shop (OSS) systems are intended for sellers with a presence in more than one EU country to file and remit their VAT in a single location.

OSS refers to sales within the EU, while IOSS refers to sales into the EU. Sellers only need to file one return, and the systems will handle the rest.

There are some restrictions on IOSS consignment values and which countries can use it, so research the countries you have a connection with and their specific circumstances.

Pros of self-filing VAT returns:

• It’s free – you save the money you would have spent on hiring an accountant or bookkeeping firm to do it for you.
• Simple to automate – using software such as Quaderno and HelloTax, you can reduce the time it takes to file VAT returns and make them much easier to manage.
• Gives you more data to work with – by doing your own VAT returns, you will gain a better understanding of your company’s finances and cashflows.

Cons of self-filing VAT returns:

• It can be time-consuming – dealing with tax returns on your own diverts your attention away from other areas of the business that could generate more revenue.
• Errors are possible because tax laws are constantly changing, and the rules vary by country. Working with a professional service provider allows you to rest assured that you will be on the right side of the law.
• You may pay more tax – companies that handle VAT returns on a regular basis usually have a thorough understanding of how to pay less tax and can assist you in staying on top of payments and obligations.

Working with VAT experts

Tax agencies can easily handle the VAT compliance side of your business on your behalf. There has been many Amazon sellers who opt for working with the experts because it simplifies their job and gives them the space to focus on growth rather than management.

Pros of working with VAT experts:

• It saves you time – after all, who enjoys filling out VAT returns? By delegating your tax responsibilities to a professional, you will be able to devote more time to other aspects of your business.
• Ensures accuracy – As previously stated, tax laws are constantly changing, and each country has its own set of regulations. Working with the experts ensures that your returns are completed in accordance with the most recent rules.
• There are no language barriers – VAT returns must generally be completed in the country’s native language. As you expand into new EU territories, you will need to file tax returns in a different language. 

Cons of working with VAT experts:

• It costs money – just like any professional service, getting your work done has a cost, and accountants are considered one of the more expensive groups of VAT experts.

Amazon’s VAT Calculation Service (VCS)

The Amazon VAT Calculation Service (VCS) calculates VAT on products sold on Amazon’s European/EU marketplaces for the 28 European Union (EU) the Member States. The VAT calculations are based on the Seller’s tax settings and any other related Seller information that was set up during configuration. Amazon’s VAT Calculation Services do not calculate VAT in countries other than the EU.

Amazon’s VCS can provide you with additional information that will aid in your accounting and tax reporting.

This includes the following:

• Transactions involving business-to-business and export sales.
• Tax jurisdiction is determined by the transaction.
• Distinguishing zero-rated products from standard-rated products.
• Amazon’s offering allows you to register for VAT in each country for free and then file regular returns with a few clicks. Filing returns for Amazon transactions costs €400 per year, plus an additional €100 if you have sales from other sources to include in the returns.

How does Amazon determine tax jurisdiction?

When you have more than one EU VAT registration, you must determine the tax jurisdiction on all sales. This is to ensure that you know which country this VAT is due to be paid in and that your account for it correctly in your books.

Amazon calculates the tax jurisdiction by combining the information from each transaction with the information you’ve already provided in Seller Central (such as VAT numbers).

Pros of using VCS:

• Keep everything in one place – by using Amazon’s VAT services, you can handle your taxes without having to consult with accounting firms.
• It’s scalable – as your business grows, you’ll want to expand into new markets, which means more VAT compliance. With Amazon’s solution, it doesn’t take much more effort to file a larger volume of sales in the same return.

Cons of using VCS:

• It is expensive – to use Amazon’s services, you must spend at least €400 per year for each marketplace in which you sell.
• Sharing confidential information – some sellers are hesitant to give Amazon their sales data from other channels. After all, it’s not uncommon for Amazon to use its massive amounts of data to determine which products to sell and with whom to compete.
• The VCS is dependent on you, the seller, correctly entering information when you set up your VAT settings and also when you create a new listing.

How often should you file your VAT returns?

The frequency with which you must file VAT returns varies by country. However, in general, it is:

• Depending on your turnover, either monthly, quarterly, bi-annually, or annually.
• The standard filing frequency in the United Kingdom, for example, is quarterly. If your VAT liability surpasses £2.3 million, you must submit monthly returns. In contrast, if your taxable turnover is much less than £1.35 million, you can request to file returns on an annual basis.

Most recently, many sellers are having their European accounts suspended due to issues with the local VAT authority,” Diana of Amazon Global Selling says. “The vast majority of these issues could have been avoided if they had spent some time planning ahead of time and understanding their VAT obligations.

How VAT differs from US sales tax

There is a notable difference between US sales tax and VAT, two of which are considered important to know for non-EU-based sellers thinking of selling in the EU.  

VAT is payable when importing – When you send products to US fulfillment centres, you are knot required to pay sales tax. however, when shipping inventory to fulfillment centres in the EU, you will be required to pay the country’s import VAT. 

VAT is added to the sale price. Unlike in the United States, where sales tax is added to the list price, VAT in the European Union is included in the list price. Assume you sell a product on Amazon.com for $100. You would list it on Amazon.co.uk for $120 to sell it for the equivalent price in the UK (assuming 20 percent VAT). This is critical to keep in mind when analysing competitive pricing on Amazon’s European marketplaces.

Amazon’s VAT services

Amazon VAT Services can help you manage your VAT registration, filing, and submission requirements. Amazon collaborates with global tax service providers to ensure VAT compliance in the United Kingdom, Germany, France, Italy, Spain, Poland, and the Czech Republic.

Reasonably priced

• When you sign up for VAT Services on Amazon, Amazon will pay for the first six months of filing and fiscal representation in all countries where you have a subscription! After the first six months, you will be charged a monthly fee for VAT services on Amazon, which can be as little as €33.30 per month (1 country, without fiscal representation).

Simple 

• Learn about VAT registration and automated VAT filings.
• You will only need to provide us with the data and documentation we will require based on the countries you select, and VAT Services on Amazon will handle the complex, expensive, and time-consuming processes for you.
• Valid for all Amazon and non-Amazon purchases.
• A third-party tax service provider with extensive experience and trust submitting your VAT filings
• What global trends have you noticed that you can capitalise on?
• Amazon VAT Services provide free EORI in the United Kingdom and/or the European Union.
• What kinds of activities do you enjoy? What products would aid in the improvement of those activities?
• Service and support tailored to your specific requirements. 

Customer support

• VAT Services on Amazon provides self-service help content as well as dedicated customer support provided directly by our Seller Support team in Chinese, English, French, German, Italian, Spanish, Korean, and Japanese.

Four steps in managing your VAT

1. Expert Guidance 

Because of the complexities of VAT and the differences between it and US sales tax, most sellers hire a European tax expert. Many of these VAT specialists offer a free initial consultation.

2. Strategies in preparation for launching 

Pricing VAT rates vary by country and product category, among other things. Confirm with your VAT advisor the rate that must be applied to your display price.

3. Launching and adapting as you progress

Other fulfillment options may make more sense for your company as your sales increase over time. Amazon moves your inventory across seven European countries based on customer demand through Pan-European FBA. This implies that the seller must be VAT registered in each of the seven countries.

4. Outsourcing tax filing 

Tax filing will be required monthly or quarterly as you launch and grow your Amazon Europe business, depending on the country. Instead of handling the reporting on your own, outsource it to a European VAT service.

Common mistakes to avoid

1. Attempting to figure out VAT by yourself – Do not attempt to handle this on your own unless you are a tax expert.
2. Asking a US accountant about VAT in the EU – Most accountants in the United States are not VAT experts. It is also not a good idea to ask them for general VAT advice.
3. Hiring VAT expert who doesn’t understand Amazon – Not all VAT experts are aware of the unique requirements of Amazon Europe sellers.
4. Ignoring or delaying VAT registration – This can lead to your Amazon Seller account being suspended. VAT registration has a long processing time, so it’s best to get started with this as soon as possible.

What is an EORI number?

An Economic Operators Registration and Identification number (EORI number) is a registration and identification number issued by the European Union to businesses that import or export goods into or out of the EU.

If you intend to import goods into the United Kingdom or the European Union, you must obtain an EORI number. Customs uses this number to track and identify who is importing cargo and to register customs information with the importer.

If you import a shipment of products without an EORI number, your merchandise will be held at the border and you may be charged additional storage fees until you provide this number.

How to obtain an EORI number? 

1. Go to the customs website of the country where you are requesting an EORI number (this list provides links to all of the EU customs websites).
2. Navigate to the section of the website where you can apply for an EORI number (or, alternatively, find the right page by searching Google for ‘apply for EORI number + [the country where you want to apply]).
3. Collect the information you’ll need to apply. These requirements will be available on the website of your customs authority. In the United Kingdom, for example, you’ll need the following documents: your VAT number and effective date of registration, your national insurance number (if you’re an individual or sole trader), your unique taxpayer reference (UTR), your business start date and standard industrial classification (SIC) code, and your government gateway user ID and password.
4. Begin the application process by providing the necessary information.
5. Wait for your EORI number to arrive. This usually takes 48 hours, but it can take up to a week if the government needs to gather more information.