Value-added Tax is a tax on consumption
When you sell in Europe certain business activities may require VAT registration(s) that can trigger periodic compliance obligations. The article below uses the example:
- Export from China to Germany for sale in Europe through Amazon FBA. FBA meaning fulfillment by Amazon whereby Amazon does a collection, warehousing, returns, distribution to Amazon warehouses and last-mile distribution.
Due to the export from China not being a sale but a movement of stock to Germany for sale to German customers you are not only exporting from China, but you are also importing into Germany and subsequently owning stock in Germany. The stock still needs to clear customs, be collected and distributed into Amazons warehouse through Germany before German (and EU) customers can purchase your product on amazon.de. The action of owning stock as a non-resident business (business established outside of Germany) immediately triggers a VAT registration in Germany. This means that prior to exporting from China you should already be VAT registered in Germany if you are to trade compliantly. Prior to engaging in these activities, you can reach out to an expert at VATGlobal
In order to register for VAT in Germany or any other EU country you need to apply to the respective Tax Office by submitting very specific Company and personal documents, often in the local language, translations may be required. Fiscal Representation may be required to successfully VAT register in certain EU countries (Meaning a business established in the country where you want to register is required to apply for a VAT registration on your behalf). This whole process can take up to 3 months.
Once VAT registered in Germany, you are required to charge 19% VAT on top of your Sales Price for all sales from stock held in Germany. Each month you are then required to submit a VAT return to the German Tax Office – this a summary of all sales and totals the VAT collected through sales. Sellers are required to pay over this accrued VAT each period to the Tax Office. What you are doing is collecting VAT on behalf of the Tax Office through your VAT return.
Using Amazon FBA in Germany means the majority of your sales will be in Germany, however within the EU it’s very easy to sell cross border, there are 5 main Amazon market places. The concept of selling from Germany to the UK or Spain is called a distance sale. Selling cross-border can potentially lead to additional VAT numbers based on sales volume within a 12-month period when selling cross-border. Always consult your Tax Advisor before selling in Europe.
In the example we have used above is called the distribution is called Amazon FBA EFN (European Fulfilment Network). This model uses FBA in 1 country (Germany in this example but could be any one of the 7-fulfillment country’s Amazon uses). Any seller that uses EFN is immediately a prime Amazon seller in the country in which they use FBA. Fulfillment fees for last-mile delivery are also charged at the local rate (as if you are a German-based business). Sellers are required to get goods to Amazon’s warehouse under this fulfillment model.
Amazon FBA models
Fulfillment Countries – United Kingdom, Germany, France, Spain, Italy, Poland, Czech Republic
MCI – Multi-Country Inventory is whereby a seller uses FBA in more than 1 country but less than 7. In each country where you use FBA you are required to register, charge, collect and pay VAT to the relevant Tax Office. Each country you use FBA you become a Prime Seller (Next day delivery). Sellers are required to distribute their own goods to a fulfillment centre in each country using this method.
CCI–Central Fulfillment Inventory is where a seller uses FBA in Germany, Poland & Czech Republic. A seller using this method is Prime in all of Germany.
PAN-EU FBA–This is Amazon flagship model of FBA. When a seller uses PAN-EU FBA, VAT registration’s & compliance are required in 7 countries. A general decrease of around 25% in distribution costs exists when using PAN-EU FBA. Sellers are given local fulfillment fees in each country where they trade. Sellers are prime on all 5 market places in the EU. Sellers are only required to get their goods to 1 fulfillment centre, Amazon then distributes the goods to the additional countries for free, and places your goods near your customers based on sales algorithms.
VATGlobal understands that VAT in the EU is both difficult to register and complex to trade compliantly within the EU, our service is based around ensuring clients are onboard by an experienced salesman, VAT registration process through online portal guided by registration specialist. Account Manager supplemented with, Amazon API, VAT calculation software. As sellers expand their business from EFN to PAN E.U and beyond, VATGlobal has the international capacity to expand with you while maintaining a single point of contact for all your VAT needs. This differs from a fully automated service that would require the seller to service their own VAT compliance needs across the continent
When initiating the process to sell in Europe, VAT should be at the forefront of your thinking. VAT in the EU is part of the supply chain. The complexities around VAT can be navigated with relative ease when taken into consideration by seeking professional advice, whether you understand VAT or not, VAT compliance obligations remain. The consequences of trading non-compliantly can be severe, costly and time-consuming. Specifically, on Amazon Tax Offices are known to shut down sellers who are trading non-compliantly (without a VAT number). It can even create scenarios where trading in the EU is no longer viable. Seeking out advice on VAT in the EU before trading in the EU is of the utmost importance.
Jonathan Matthews studied e-economics and have been working in VAT Compliance with VATGlobal for 2 years assisting in running the Amazon-VATGlobal partnership. Working with and assisting sellers to become VAT compliant in the ever-changing and complex world of VAT through a high focus on customer service is his passion. VATGlobal helps business all over the world with their international trade by taking over the complexities of managing VAT and other indirect tax obligations in over 25 jurisdictions. Please feel free to contact if you need any compliance advice by firstname.lastname@example.org.