Navigating Amazon Seller VAT For Selling In Europe

keith villanoAmazon Financials, Sales Tax3 Comments

Amazon seller vat

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:

  1. Summarizing all costs (production, shipping, Amazon fees)
  2. Add your margin to get your Net Sales Price
  3. 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:

  1. By founding a European Company
  2. 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.

VAT Registration

  • 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

VAT Returns

  • 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.

Import VAT

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

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.

Author: keith villano

3 Comments on “Navigating Amazon Seller VAT For Selling In Europe”

  1. This article has the clear explanation and provides a clear guide on how VAT works for Amazon business owners. There are a lot of new sellers in Europe who are still not knowledgeable on how VAT works for online businesses.

  2. Hello Guys,

    Good job! I’m living and selling on Amazon Europe and as you describe, VAT is reclaimable but the only thing I see missing over here (and I think is worth to say, to plan a better cashflow) is that:

    -Amazon Fee and
    -Amazon FBA cost

    ARE NOT VAT included when you make your first profit calculations.

    So, when you are calculating that, you need to ADD the Country VAT %

    Example (UK 20%)

    Amazon Fee + 20%
    Amazon FBA + 20%

    You will see this VAT addition, only when you get the invoice from amazon, about your sales an their commission.

    *Consider that in Europe VAT is included in the final price of product sold in B2C ONLY!
    When you talk about B2B the VAT is escluded in most cases. (That’s the case between Sellers and Amazon Services)

    Let me make an example:
    Let’s say we are selling JungleStix in Uk for £25,00.

    Price: £ 25,00 (VAT is included 20%)

    VAT Value is: (£ 25,00 / 120) x 20 = £ 4.16

    So the Price VAT escluded is:

    Price: £ 25,00 – £ 4.16 = £ 20.84

    NOW, let’s assume some costs:

    Amazon Fee is 15%
    Amazon FBA £ 5,00

    (VAT is escluded because is a service B2B) We need to add VAT!

    So, let’s make our calculation:

    Amazon Fee: (£ 25,00 x 0.15) = £ 3.75

    £ 3.75 x 0.20 = £ 0.75 VAT

    Let’s see Amazon FBA VAT:

    Amazon FBA (£ 5.00 x 0.20) = £ 1.00 VAT

    NOW, if we assume that we buy and ship our JungleStix from China to Amazon warehouse in UK for £ 5.00 each, we have to pay upfront 20% VAT on landing:

    COST: £ 5.00 x 0.20 = £ 1.00 VAT paid upfront

    We have the CLEAR VISION of our Cashflow:

    VAT included VAT escluded VAT
    Price: £ 25.00 £ 20.84 £ 4.16 Collected
    Amz. fee: £ 4.50 £ 3.75 £ 0.75 Paid on Sales
    Amz. Fba: £ 6.00 £ 5.00 £ 1.00 Paid on Sales

    COSTS: £ 6.00 £ 5.00 £ 1.00 Paid upfront

    ______________
    NET PROFIT:

    We collected £ 4.16 VAT on sales but we paid £ 2.75 (upfront+amazon). So we still have £ 1.41 in our pocket (debit) that has to be paid to the Government through VAT Returns. (use an accountant)

    So our real NET PROFIT will be:

    £ 20.84 (Sales Price -VAT)
    – £ 3.75 (Amz fee -VAT)
    – £ 5.00 (Amz fba -VAT)
    – £ 5.00 (Costs – VAT)
    _____________
    – £ 7.09 NET PROFIT

    Conclusion:
    Don’t be scared about VAT, just understand when you are paying and when you are collecting, so you can manage your cashflow like a Pro!

    I hope this information can give some more understanding about the numbers.

    I’m not an accountant, I’m an entrepreneur and a wholesale seller worldwide since 2006.

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