European Ecommerce and VAT: The Essential Guide

This post is by Claire Taylor, CEO of SIMPLYVAT.com.

If you sell online, you need to understand which international tax laws will be relevant to your business. Just because you sell online, this doesn’t mean your business is not governed by the normal rules of taxation.

And if you sell to buyers within European Union (EU) countries (also known as member states), even if your business is based in another part of the world, you will need to know how Value Added Tax (VAT) impacts your business.

What do ecommerce businesses need to think about? What exactly are the different rules and regulations? What do you need to do to ensure you are compliant? What happens if you don’t comply? And finally, what upcoming changes in VAT regulations should you be aware of?

As we will see below, the VAT rules you need to consider when trading within the EU are not impossible to comply with if you ask yourself the right questions.

Additionally, the EU VAT landscape is ever changing and today this is true more than ever with new parameters such as Brexit and a focused fight against VAT fraud in ecommerce by EU tax authorities happening. In this guide, we will cover the rules you should currently follow and explain to you the new legislation coming into place in the next year that may impact the way you trade in the EU.

The EU VAT rules

There are some fundamental questions which need to be asked:

  • Where are you based? Inside or outside the EU?
  • Where are your customers? Inside or outside the EU?
  • What are you selling? Goods or services?
  • Who are you selling to? Businesses or consumers?

This article is going to focus on B2C sales – the online retailer selling either goods or services directly to private consumers.

Who pays the import VAT when importing goods into the EU?

When importing goods from outside the EU and selling into EU member states, the responsibility for taxes and duties depends on who is the “importer of record”.

It is usually the consumer who will be asked to pay the import charges and VAT, via the parcel carrier, before the goods will be delivered. This is often not a pleasant customer experience, especially if it is unexpected. The additional import costs may even negate the benefits of buying abroad and can result in a high number of goods returned from disgruntled customers.

To avoid this, you may want to consider registering for VAT in the first port of entry into the EU for your goods. By keeping ownership of the goods, you will be the importer of record, and VAT will be charged on the cost price of the goods on entry.

The import VAT you pay is reclaimable on your VAT return, and the customer pays the full price at checkout – including VAT – so no nasty surprises for them. You will also benefit from a reduction in the number of returned goods.

The EU VAT Distance Selling Rules

If you are based in the European Union, or hold stock within the EU and sell to consumers within the EU, the Distance Selling Rules apply to you.

The rules apply even if:

  • You are not VAT-registered.
  • You are a sole trader.
  • You sell through marketplaces such as eBay and Amazon

The rules only apply when you are selling to EU consumers.

For sales within the EU, if you have not exceeded the threshold in the buyer’s country, you should apply your domestic rate of VAT to those sales – if you are VAT registered. Otherwise no VAT should be applied.

Once you have exceeded the threshold in another EU country, you will have to register for VAT there, charge the country’s own rate of VAT, and file VAT returns according to the frequency and deadlines set by that country.

You will stay registered as long as your distance sales exceed the threshold for the year. If your sales drop and you want to de-register, check the rules in that country – how soon you can de-register varies.

The distance selling thresholds differ by country. In most EU member states the threshold is set at Euros 35,000 (or equivalent). For Germany, Luxembourg and The Netherlands, however, it is Euros 100,000 (or equivalent), and in the UK it is £70,000 (or equivalent).

It doesn’t take much to breach the lower thresholds. To put it in perspective, if you sell medium or high-value goods, fifty luxury branded handbags can easily carry you over.

Changes to the EU VAT Distance Selling thresholds – 1st January 2021

Please note – these distance selling rules will disappear from 1 January 2021 due to the introduction of the 2021 EU VAT Ecommerce Package – see below.

In the meantime, it is very important to follow the current rules until the changes are introduced on the 1st January 2021.

Fulfillment centers – where is your stock held?

You may decide you want to house your stock in a fulfillment center or warehouse in an EU country, in order to fulfill your EU orders more cheaply and efficiently.

Be aware – as the stock is now held within the EU, and is still owned by you, this has created a “taxable supply” and raises the immediate need for a VAT registration. There is no threshold to exceed.

Please note, the French and German tax authority have already introduced measures that now make the marketplaces liable for the VAT owed by the third-party sellers, instead of the sellers themselves. This has, in turn, made the marketplaces insist that a seller must have a VAT registration in place prior to being able to use a marketplace in either of those countries.

Once you have registered in an EU country, sales from the stock within the EU become governed by the VAT “distance selling” rules – the same rules apply to both EU businesses and non-EU businesses selling from stock held within the EU.

If you decide to use a distributor or agent, the same VAT liability may not apply – it will depend on your contract with them and who has ownership of the goods. To find out check your contract and speak to an expert like ourselves.

The 2021 VAT ecommerce package

As part of its Digital Single Market Strategy, the European Commission wants to boost ecommerce sales within the EU as well as clamp down the estimated billions of VAT lost from online consumer transactions each year.

This is why the VAT ecommerce package has been designed. It is a series of measures applicable from 1st January 2021 which will aim to simplify the VAT rules for online sellers.

The Introduction of VAT-OSS (One Stop Shop) – 1st January 2021

In 2015 VAT-MOSS (Mini-One-Stop-Shop) was introduced to facilitate the sales of digital services to private consumers within the EU.

As VAT MOSS proved a real success in respect of the collection of VAT on digital services, this scheme is now being extended into a One Stop Shop (VAT-OSS) from 1st January 2021 to cover the supply of goods.

The VAT-OSS rules stipulate that if you sell goods to private customers located in the EU, local VAT must be accounted for based on where the customer is located, once you have exceeded a threshold of €10,000.

Where is your customer located?

In order to understand which EU country’s VAT rate to apply, you will need to collect evidence of where your customer is based.

One piece of evidence is required if your VAT-OSS sales are below €100,000 and two pieces of evidence are required if the value of your sales are over that threshold. This evidence can include the billing address, the IP address of the device used to make the purchase, and the customer’s bank details.

To avoid multiple VAT registrations in different EU countries, the OSS (One Stop Shop), allows the seller to register for VAT in one single country and submit quarterly VAT returns. The host country collects and pays the VAT due from the seller’s EU sales in one VAT return instead of the seller having to register for VAT in every EU member state where they have customers.

The VAT-OSS is an optional scheme. You can still become (or remain) VAT registered in any EU country where you have customers through a voluntary VAT registration in that country.

It is worth specifying that VAT-OSS covers private consumer supplies only, not sales to other businesses, which means you would need to be able to identify who your customers are – businesses or private consumers – and apply the relevant VAT rules accordingly.

Import One Stop Shop scheme (Import OSS)

For physical goods imported in the EU, a new import scheme will be created and accessible for both EU and non-EU businesses.

From 1 January 2021, EU and non-EU businesses selling physical goods with a value up to EUR 150 to EU consumers, will be able to declare and pay the VAT due on these imported goods in a single monthly VAT return by joining the Import One Stop Shop (OSS) Scheme.

Currently, goods with a value of up to EUR 22 are VAT exempt when imported into the EU. This exemption, however, will no longer exist from 1 January 2021 as the EU recognizes it creates unfair competition for EU businesses.

When the new Import OSS is used, VAT will have to be charged and collected when the payment for the goods has been accepted. This means that when the goods arrive at the EU border, they will benefit from a fast release at customs with the VAT already accounted for.

The online seller will then be able to declare and pay the VAT collected to a single EU country where they decide to register for the Import OSS. The VAT returns and payments will be due on a monthly basis, and the EU country of identification will distribute the corresponding VAT amounts and information to the other EU countries.

When this special scheme is not used, for any reason, a simplified import mechanism will be introduced as well and VAT will have to be collected from the end customers by the customs broker, who will be responsible for paying the VAT amount collected to the local customs authorities on a monthly basis.

Abolition of the EU VAT Distance Selling Rules

The introduction of VAT-OSS within the 2021 Ecommerce VAT package will mean the abolition of the EU VAT distance selling thresholds currently existing for when selling to private consumers from stock held within the EU. As an ecommerce business, you will be able to account for your online sales either by registering locally or using a VAT-OSS registration instead.

Please note that this change in the distance selling rules does not mean that until then, you should avoid registering for VAT – if you have breached a distance selling threshold in any EU country recently, it is very important to stay compliant and VAT register where appropriate before the changes are introduced.

Increased responsibility of marketplaces

The last new rule coming into force from 1st January 2021 stipulate that digital marketplaces such as Amazon and eBay will be, under certain circumstances, deemed for VAT purposes to be the supplier of the goods imported from non-EU territories and sold to EU customers.

Under the new 2021 rules the responsibility of charging, collecting, and remitting the VAT due to the national tax offices will shift in certain cases from the seller to the marketplace itself. This is a major change as for the first time, digital marketplaces are given a significant role in the fight against VAT fraud!

Which VAT rate applies to your goods or services?

It is important to know which VAT rates are relevant for the goods you are selling. Please note, these may differ between countries. The European Commission (EC) have published information relating to VAT rates and specific country rules.

Are your invoices compliant?

Find out if you will need to raise an invoice and what information needs to be on that invoice – again different rules apply to different countries. Also consider whether your billing system can cope with the potential variations.

Selling to non-EU customers

If you are an EU-based business and are selling to consumers outside the EU, the supply of goods is usually zero-rated provided strict rules are followed, including providing evidence of the export within three months of the sale.

It is, however, important to check the local rules and regulations of the country you are importing into.

Compliance tips

Here are some tips to help keep you in compliance with the practicalities of VAT in the EU:

  • First, make sure you have the systems in place to capture accurate sales information including which countries your customers are in, and where stock is located for onward sale to your customers.
  • Make sure you include shipping/delivery costs as these are included in the final sums when calculating if a threshold has been exceeded.
  • When charging your customers, make sure you add VAT to the shipping cost as well as the product price on your invoices.
  • Keep up-to-date with the current VAT registration thresholds and where relevant, monitor currency fluctuations. Know when you are about to exceed a threshold including when the local currency is not in Euros. This is important even though the rules will change in the future as tax authorities are combating VAT fraud more than ever.
  • Know which VAT rates apply to your goods or services. If you are based within the EU, you may be familiar with the VAT rates in your own country, but they can vary elsewhere within the EU. Children’s clothing is a good example – it is zero-rated in the UK and Ireland, but attracts VAT everywhere else in the EU.
  • Once registered in another country, do not charge VAT for your own country as well as the buyer’s country. VAT should only be charged once.
  • It can take approximately 6 – 8 weeks to obtain a VAT registration, depending on the country that you are registering in.
  • Once registered you need to make sure your invoices comply with local regulations
  • Prepare for Brexit! So far there are no changes in the way UK companies can trade in the EU. However, you need to prepare for every possible scenario after the end of the transition period which is 31st December 2020.
  • Finally, anticipate the upcoming VAT regulation changes we have covered in this article, whilst staying compliant in respect of your current obligations.

Pricing tips

Pricing is a big issue. Unlike the USA, where it is customary to quote prices without sales tax, VAT should always be included in the price shown to consumers. It is important to understand the impact of VAT on your profit:

  • Should you charge different prices in different EU countries or does one price fit all?
  • How badly will your margins be affected by the different VAT rates if you don’t differentiate price in each EU location?
  • VAT rates vary across Europe from 17% – 27%. Can the margins you have set for your products absorb the variations?
  • Will you stay competitive once you have VAT registered in another EU country?
  • Is your ecommerce system set up for multi-currencies and multi-VAT rate application? If not, how easy is it to update?
  • Carry out market research in your chosen markets and find out how you compare to local suppliers and how much flexibility this gives you.

The cost of compliance: penalties and fines

In 2018, the European Commission reported that EU countries were losing €150 billion each year from undeclared VAT. To stop the hemorrhaging, special measures have been put in place across the EU in the last few years.

First, in 2012, member states set up a “mutual co-operation” initiative, with special units focused on ecommerce. The authorities in each country now communicate regularly and share data.

More recently, the formal adoption of new regulations and data-sharing tools to strengthen cooperation on VAT fraud between national tax authorities means that EU countries are becoming much more pro-active and effective in identifying and dealing with online retailers avoiding their VAT obligations.

Online retailers selling abroad need, more than ever, to be aware of their tax obligations in the countries where their customers are. Unfortunately, ignorance is no defense. The “head in the sand” approach can work for a while, but it’s not a long term solution.

Tax authorities have the power to levy penalties and interest charges, which can be as high as 120% on top of the unpaid taxes in some countries.

Failing to plan is planning to fail

Preparation and planning are a vital part of the cross-border trade journey. Planning ahead avoids a lot of future headaches and can even be the difference between the success or failure of your business.

Claire Taylor
Claire Taylor, CEO, SIMPLYVAT.com

Make sure you factor in the expense of complying with local taxes like VAT, including the cost of translation, software, and expert advice. It should sit alongside other regular expenses such as web hosting and accountants’ fees.

Circumstances unique to your business will dictate which VAT rules are relevant to you. Do your homework and your sums. Many businesses who have already made the leap to international expansion find the cost of compliance is far out-weighed by the increased sales and profits.

I wish you all the very best with your international expansion plans!

This post was by Claire Taylor, CEO of SIMPLYVAT.com.– a company which helps ecommerce businesses trade across borders in compliance with complex European VAT legislation.

Contact SIMPLYVAT.com for assistance with all your VAT needs, including selling to businesses in the EU and planning for Brexit.

Comments

Anton
Anton

Hello,

What useful advice you have for the scenario where an US-based webstore is using an European dropshipping company to deliver goods to end customers?

Would it be right to assume that the drop-shipper is the one to take care of VAT charges and everything else, or the US webstore is in some way responsible for VAT? If so, how? Thanks!

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Who has the VAT liability depends on who is invoicing the end customer.

If the end customer is a private individual and the USA webstore sells direct to the private consumer, the drop-shipper does not have any of the liability.

However who is liable between the USA website and private customer depends on who is the importer. If the customer is the importer, they are liable for all the import duties and VAT unless the goods sold are below the country's low value consignment relief threshold. If this is the case, no VAT and duty is due.

If the USA webstore becomes the importer through a VAT registration in an EU country, the USA webstore will account for the VAT in that country.

The drop-shipper will only have VAT liability if he buys the goods from the USA webstore.

Monique
Monique

A very informative article, thank you.

If a micro business in the Cayman Islands (a British Overseas Territory) intends to
ship their product( gourmet sea salt which is 0% duty) to a UK fulfilment centre ie: FBA, does the business still need to register for VAT? MOSS?

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Monique

The import of goods into the UK which are then sold to UK business or to private individuals represent a taxable activity and therefore the import will have to register for VAT in UK.

However, if gourmet sea salt qualifies for zero rated VAT in the UK that applies to general food then you may not need to be registered for VAT, this is called “Exemption from Registration”. You will need to apply to HMRC for exemption from registration and, if granted, you will not be able to reclaim the input UK VAT you pay when you buy goods or services for your business.

If your application for exemption from registration is not accepted by HMRC then you will be required to register for VAT in the UK.

Import VAT is charged on goods imported from outside the EU at the same rate as if you bought the goods in the UK, therefore, if the goods qualify for zero rated VAT then the import VAT would also be zero rated i.e. no import vat is paid on zero rated goods.

VAT MOSS (Mini One-Stop Shop) relates only to the sale of services and is not relevant to the sale of physical goods.

I hope this helps.

Rogerio Leitao
Rogerio Leitao

Hello Good morning.

As a customer if I were to buy electronic goods from a Chinese retailer who has a European Warehouse, and I purchased goods from said European Warehouse will I be covered by European Union laws regarding warranty?

Also, if said Chinese retailer states that the only way they will refund me is if I return the damaged goods to China and not to the European Warehouse is that legal? Surely if I purchased the goods from an European Warehouse within the EU I should only be obliged to return the products to said location and not to China.

Would kindly appreciate any of your advice on the matter.

Many thanks

Rogerio Leitao

Andy Geldman
Andy Geldman
In reply to Andy Geldman

Hi Rogerio, thanks for posting.

I don't think there's any VAT aspect to your question so it's not really one for Claire. Also I'm not sure if you were buying as a consumer or a business, which makes a big difference.

The EU has very clear laws for selling to consumers e.g. see here for the UK implementation but selling to businesses is something else.

If you were buying as a business I recommend you get specific legal advice. Perhaps you will have some general legal recourse if their marketing was misleading, but otherwise I suspect it will come down to your contract with the seller i.e. the terms and conditions of sale which you should have in writing somewhere.

Hope that helps a little!

Philip
Philip

Great article!
I am an Irish eCommerce website that sells to customers all over Europe B2C.
My suppliers are in France and the Netherlands and ship to my customers on my behalf.
For "distance selling" I am under all the thresholds and therefore do not need to register for VAT in my customers country.

My question is, the VAT that I do charge, is it based on the Irish VAT rates and paid to the Irish government or is it based on the rates of my suppliers countries and paid to their respective governments on MOSS?
Kind Regards

Philip
Philip
In reply to Philip

Ignore my MOSS comment, I see this cannot be used as stated above

"VAT MOSS (Mini One-Stop Shop) relates only to the sale of services and is not relevant to the sale of physical goods"

Roni Lennon
Roni Lennon
In reply to Roni Lennon

Interested to hear an answer to Philip's question as I have the same scenario

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Philip. Can you please tell me if your suppliers are charging you French and Dutch VAT?

Saf
Saf

I am launching an e-commerce website for Europe, no services just all kind of shoes and leather bags.
The goods will get export from non eu countries and then sell through e-commerce ,my concern is do i have to keep stock in the same country i will register vat and Llc after paying custom duty and vat , or i can keep stock anywhere i want in eu and do shipping from there.
Thanks

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Saf
You will have to VAT register in the EU country where you keep stock for onward sale to private consumers. You can keep your stock in 1 country eg. the UK and then use the EU distance selling rules, whereby you can deliver orders from the UK until you hit set thresholds in the other EU countries ie. Euros 35,000 in all EU countries except Germany, Netherlands and Luxembourg where it is Euros 100,000. Also if you 'distance sell' into the UK, the UK threshold is £70,000. This means you can test the European market without a heavy cost of compliance. Please do ask if you have other questions.

Claire Taylor
Claire Taylor

Dear SAF
Thanks for getting in touch.
If you import directly from Asia to Spain and Germany and then sell the goods from Spain and German to private individuals you will have to register for VAT in Spain and Germany and charge Spanish VAT or German VAT on the sales. The import VAT you paid to Spanish and German customs can be deducted on the VAT returns you will have to file in Spain and Germany.

You cannot use your Estonian company VAT number for the above transactions.

If you have goods stored in a warehouse in any EU country and then sell the stored goods to private individual you will have to register for VAT in any country where you use a warehouse.

Please let me know if you have further questions.

Roni
Roni
In reply to Roni

Drop shipping is different.

If you don't have s warehouse but purchase the goods from a company who invoices you but supplies them to your customer is the vat charged in the country where you are registered?

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Roni

If, for example, you are a UK company buying from a Spanish supplier who delivers to a German customer, you may have to register either in Spain or in Germany. It depends where you take title of the goods, and whether the supplier charges VAT.

Roni
Roni
In reply to Roni

How do you set it up to "take title" so that you don't have to register in the other countries?

Rachel
Rachel

Hi

For chain transactions - An Irish company A buys goods from Irish company B and requests that B delivers the goods directly to its customer C who is resident in the UK.

Which of the two transactions is zero rated

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Rachel
One of the conditions for zero rating an intra-community supply of goods is that the customer gives a VAT number of an EU country other than the country from where the delivery is made. As the company A is in Ireland and the company B is also in Ireland, the sale from A to B cannot be zero rate because both have an Irish VAT number. Therefore, the sale from B to C has to be zero rate if C gives a valid UK VAT number.

Roni
Roni
In reply to Roni

I'm afraid you may have missed the point

Company A is in Ireland company B in Ireland

Company A buys the product from Company B and sells to the end user without vat because the product is zero rated in Ireland

Company B ships the product to Company A's customer. This transaction is billed to the customer by Company A

No vat is charged to the customer because the product is zero rated in Ireland despite the product having been drop shipped by Company B from the UK anywhere in the World

Andy Geldman
Andy Geldman
In reply to Andy Geldman

I'm going to try and intermediate here, I hope it doesn't cause further confusion!

Rachel's examples sounds like a dropshipping arrangement although she doesn't call it that. To quote, "An Irish company A buys goods from Irish company B and requests that B delivers the goods directly to its customer C who is resident in the UK."

In this example A (in Ireland) buys from B (in Ireland) then C (in the UK) buys from A.

The first sale is from B to A and the final sale is from A to C. But I don't see why that would change Claire's answer because the businesses involved are in the same countries as if it had been a sale from A to B then B to C.

BTW Roni, I don't follow your final sentence "No vat is charged to the customer because the product is zero rated in Ireland despite the product having been drop shipped by Company B from the UK anywhere in the World".

I'll step out now and leave any further technicalities to Claire.

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Roni /Rachel

Unfortunately what you have stated is not possible in relation to VAT compliance - the sale of goods is considered to be from the UK and because of this, the ROI company has an obligation to VAT register in the UK and the UK VAT rate applicable to the products will be applied to any sales until the distance selling thresholds are exceeded in other EU countries.

Rachel Murphy
Rachel Murphy
In reply to Rachel Murphy

Hi Claire

Thank you for your reply

Andy is correct it is a drop shipping arrangement - all businesses in this instance are VAT registered.

Therefore i assume the sale from A (Ireland) to the end Customer C (UK) is zero rated as the UK customers VAT number has been provided and goods are being shipped from Ireland to England by company B (Ireland)

If the end customer was not VAT registered/a private customer in that instance am i correct in stating that company A would charge Irish VAT to customer C up until such as time as the STG£70,000 distance selling threshold in the UK was breached and then a UK VAT registration would be required

Rachel Murphy
Rachel Murphy

On the opposite side - again a dropshipping arrangement - if company A in Ireland ordered goods from company B in the UK to deliver goods to company C also in the UK (all VAT registered entities) in this instance i assume the Irish company would need to register for and charge UK VAT on the end sale to customer C as place of supply and customer both in the UK and company A does not have an establishment in the UK?

If customer C in the above scenario was a private individual located in the UK - i assume that the distance selling rules would apply and Irish VAT would be charged up until such a time as the UK distance selling threshold has been breached. In this instance to recover the UK VAT charged by company B my client would to avail of the “cross border refunds of Vat in the EU”

Roni
Roni
In reply to Roni

The last paragraph is the scenario

So from what you say, company A in Ireland can supply private customers anywhere in the EU by drop shipping by Company B in the UK to these private individuals anywhere within the EU and charge the Irish Vat on the transaction to these individuals.

If in the case of these particular products they are zero rated in Ireland then no vat should be levied to individual customers within the EU

If Company A in Ireland and Company B in the Uk are registered in their own jurisdiction for vat, then the transactions between these two companies should not have vat added surely.

Ion
Ion

Hello,

A Company registered in Europe that do drop shipping products from China straight to the end customer should register for VAT?

The products go from China straight to the customer through postal curriers.

Who will be liable for VAT, the company that do drop ship (actually acting like an intermediary between seller and customer) or the customer that get direct from china the product.

Thank you

Claire Taylor
Claire Taylor

I think we’re getting mixed up with the drop shipping term. A company that drop ship goods (delivery only) are only providing a service (delivery service) as the goods they drop ship (deliver) are not owned by the drop shipper.

To determine the VAT liability you need always to see who is the seller and where the sale is being made.

In regards to your query Ion, if the European company buys goods from China which are delivered by a third party company (drop shipper or delivery company) - if the seller is the importer then the VAT liability will be with the seller. If the buyer is the importer then the buyer will be liable for the VAT. The sale is considered to be made from China by the European Company.

Brian Abbott
Brian Abbott
In reply to Brian Abbott

Hi Claire,

I'd be grateful if you would clarify who is who. Here is my situation.

I intend to display goods on my website supplied by companies in China. A customer visits my site, orders a product, they pay me and I immediately pay the provider in China before they despatch of the goods to the customer.

The customers will initially be EU customers.

The goods will not go through the UK (my country).

Who is the importer in this scenario?

Who is the drop-shipper?

Who is charged the taxes due?

I assume that I, as the website owner, collects any taxes due and pays to the relevant authority.

Regards,

Brian

Ana
Ana
In reply to Ana

A bit surprised by your question, surely you have bought things from China etc for yourself. Your customer will have to do the "import" for themselves. You are liable for your income taxes in the UK, and most probably legally liable to the buyer, whether they need to get a warranty replacement or get poisoned by their ginseng. You could try to minimize your legal exposure with 50 pages of TnC in tiny letters though

Marius Filip
Marius Filip
In reply to Marius Filip

Hello,

aslo if my company is EU based company VAT registered and i sell goods from my website.com USD currency and a buyer B2C from europe place an order on my website, after this i buy his product from china supplier and china supplier send goods directly to my customer. I also give invoice to my customer from europe with added VAT or not. Who is here the importer?

Thank you

Jean Marie Thil
Jean Marie Thil

Hi,

Great Topic!

Here is my question:

We are a Canadian company based in the Yukon Territory.
We would like to sell goods (sporting goods) in the EU (Germany/Austria/France Mainly) to shops and also to customers with having a warehouse in Germany...(B2B mainly and B2C eventually)

1- I was wondering if I have to register for VAT number if I sell to retailers and also to consumers... If it is under 100 k per year, I have seen, we don't have to...
2- When I sell to the Consumer should I sell with no tax because the company is located outside of EU even if the goods are located in a warehouse in Germany or I should change the VAT everytime according to where the good is shipped ?

Same questions to retailers!

And in that case where and to whom do I declare all those different VAT from all those different countries.......

Your help is greatly appreciated!

Regards

Claire Taylor
Claire Taylor

Hi Nadia
Can you tell me how you invoice the website company for the sold good, do you invoice with UK VAT or without?

Kind regards

Claire

Nadia
Nadia

Hi Claire,
I haven't started trading with them yet as wanted to work out how I go about it first. What would you advise?
Who invoices who and what should be included?

The end customer pays the web company direct and is given a receipt for their order. The web company is never in possession of the goods.

Thanks, Nadia

Claire Taylor
Claire Taylor

This is a classic undisclosed agent arrangement.
The website company will invoice the final customer and the goods will be delivered from Guernsey. The import VAT is paid by you who is registered for VAT in UK as non-resident.
The prepaid import VAT to Guernsey post office is an interesting case and difficult to understand because the prepaid import VAT cannot be reclaimed as it is supposed that it is charged to the UK consumer. Instead of the consumer paying the import VAT, it’s the seller who charges it at the sale point and pays it to HMRC. The goods you ship from Guernsey are already sold by the internet company with VAT so the VAT is paid twice once by the consumer (as he receives and is invoiced from the UK internet company) and once by you (import VAT). Unfortunately as things stands the prepaid import VAT represents an additional cost to you which cannot be recovered.
We think the solution to this is that instead of the internet company being an undisclosed agent they should act as a disclosed agent which means that you should invoice in your own name to the final UK consumer for the goods sold from Guernsey and the internet company will only invoice for its commission. If you would like further information, please email me directly [email protected] and we can provide a quote for a piece of consultancy work for you in order ensure you are set up properly.

shashank sisodia
shashank sisodia

hello, i have recently launched the ecommerce for selling consumer electronic goods. before that have been selling on amazon . where i i have seen a lot of competive prices. if my purchase from distrinutor is 500€ i should add my marging (20€ suppose) plus vat 21%(in italy) plus 7% amazon refferal fee which makes the total 665€ . but small business selling this product for 575€ . how come possible? because i know in the market they will not get better price than 500€.but they still managing the good margin. how come they avoiding vat?

Stewart
Stewart

Hi Claire,

Thanks a lot for your input.

I am struggling to find concise information on a EU business selling to a non EU consumer.

1) It says that a EU business can zero-rate a sale under strict conditions. I have gone through as much info on HMRC as I could and it led me to nowhere. Would not you please mind to nudge me in the right direction?

2) I would also appreciate if you could share some info on whether an e-commerce can use VAT return forms when it sells to a non EU resident.

Kind regards

Claire Taylor
Claire Taylor

Dear Stewart,
Thanks for getting in touch. Can you please give a little more information:

What do you sell?
Which country are you based in?
Where is your stock based?
Are your customers businesses or private consumers?

Can you also please explain further the point 2? Which VAT return forms are you referring to?
I look forward to hearing from you.

Stewart
Stewart

Dear Claire,

Thanks for your reply.

I run an online clothing store that sales directly to private customers. The firm is based in the UK. The stock is based in the UK as well.

I know I can zero-rate a sale provided I dispatch the good to outside of the EU directly from my location.

My question is essentially whether it is possible for me, as for an online retailer, to be running the Retail Export Scheme (Tax-Free Shopping for Tourists) in the fashion high street retailers do?

So, for example, a Retail Export Scheme qualified traveler orders a good from my store while on a trip to the EU (i.e. the good is delivered to the customer's location within the EU) and the invoice contains VAT in it. He/She then takes the purchased product to his/her country of permanent residence and get the invoice stamped by the customs officials. Presented with all the required evidence of the fact that the sold product has been taken outside of the EU by a non-EU resident, will I be able to refund the VAT back to the customer?

Would appreciate if you could shed some light on the situation described above.

Thanks in advance.

Stewart

Kasia
Kasia

Hi,

I am selling clothes from Poland online in the Uk. I am not registered with VAT as my business is small. If i want to sell to EU countries and outside do I have to charge VAt or only if i exceed threshold for the eu country a year?

Rob K
Rob K
In reply to Rob K

Hi Kasia.. ae far as I know you have to register any commercial activity (small ones as well). You have to register your company in Poland or in UK (since you're based in Poland it would have to be Limited structure in UK). Once business is registered it doesn't have to be registered for VAT until your company reach certain turnover treshhold.. i think current turnover treshhold in UK is about 85000GBP

Lolly
Lolly

Hi Claire,
If I am an Irish registered company, I have a website selling goods to Irish people, they pay for the goods on my website. Then I buy the goods cheaper from china and china post directly to my customer. What happens with VAT? I never see the goods myself.

Claire Taylor
Claire Taylor
In reply to Claire Taylor

If the goods are delivered directly from China by China post to the buyer that means the buyer is responsible for the import VAT if the value exceeds the low consignment relief threshold. The seller is considered to be making the sale from China and therefore you should not charge VAT on the sale.
However, you can choose to account for the VAT if you, the Irish company, imports the goods and pay the import VAT and delivers to the customer then the sale is considered as being made from Ireland and therefore Irish VAT is due.

Bala
Bala

Hi,

I have a scenario, for which i could not find a correct answer in most of the sites. It would be helpful if you could clarify it for me.

This is a triangular sale, where,

The US Company (Address in US), Sources material from its German plant (Germany plant belongs to the German company code), and sells it to end customers or its other company code customers.

2 Invoices are generated.

Customer Invoice: US company charges End customer.

Intercompany Invoice: Germany company code charges US company code.

My question is, is the Intercompany invoice taxable? i.e should VAT of 19% be charged on the intercompany invoice?

The thing to note here is the Goods are directly shipped out of Germany to the end customer, like a drop Ship.
As this is technically Ship-from Germany to Outside Germany, is it taxable?
Please let me know!
Thanks!

Regards,
Bala

Claire Taylor
Claire Taylor

The US company is regarded as purchasing and selling goods from Germany so they will need to register for VAT in Germany and file German VAT returns.

The German company code (inter-company invoice) should charge the USA company code 19% German VAT which can be recovered on the VAT return. Sales by the US company to the end customer, if the end customer is an individual, will attract 19% VAT under the distance sale rule.

Bala
Bala
In reply to Bala

Thanks a lot Claire. Your explanation was really helpful!

David Norman
David Norman

Hi Claire,

I have a question on the fulfilment section. If a EU business, already registered in the EU country it is based in, has its fulfilment center in the UK, but whose sales in the UK are below the threshold, does it still have to register for VAT in that country?

And if it has to register, does it have to pay UK VAT, although sales are below the threshold? (the business pays VAT in the country it is established in)

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi David, thanks for getting in touch. As soon as stock is in the fulfilment centre for onward sale this triggers an immediate need to VAT register in the UK. There is no threshold to exceed. This is true when stock is held in any EU country. UK VAT will have to be collected on any sales made from that fulfilment centre to UK customers and to private consumers in other EU countries until the distance sales thresholds in the other EU countries are exceeded. At this point, a local VAT registration is required in that country and local VAT will be charged.

Steve
Steve

I have a 3PL bonded warehouse in Amsterdam requesting invoices on free goods (samples, warranty products, etc.) shipped from their facility. Is VAT really based on the cost of goods even if we don't sell them to the recipient?

Our 3PL says that it is, but this makes no sense to me. Every article I see about VAT discusses sales, nothing mentions free goods.

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Steve, we are not customs experts, but our opinion is as follows:

In the UK the importation of sample goods qualifies for import duty and VAT relief. For warranty goods when they returned they have been replaced free of charge under warranty, no duty is payable however, VAT is payable on the full value of the goods because all replacement items are treated as new goods for VAT purposes.

Chris
Chris

Hi Claire,

Very informative article indeed that leads me to ask you the following question:

Our business is registered as a Limited company in the UK selling online to consummers in the UK, EU and outside the EU, but so far not VAT registered as we are under the turnover threshold.

We purchased on all goods from Italy with VAT paid to suppliers in Italy and goods where delivered to the UK.

One of our registered compay director moved to France and we decided to transfer all our stock to France at his home address and ship to all our customers out of France.

Does it mean that we are operating as a fulfillment centre in France ? Do we need to register for VAT in France and in the UK ?

Thanks for clarifying.

Claire Taylor
Claire Taylor

Hi Chris
As the stock is now moved to France then the transfer of stock is considered as a taxable intracommunity acquisition of goods in France so the French business has to register for VAT in France if the annual value of the acquisitions exceed the threshold of €10,000. If, however the value of the acquisition does not exceed the annual threshold of €10,000 then no VAT registration is required.

If you register for VAT in France because you exceeded the threshold for the acquisitions or you voluntary choose to register then the Italian supplier will not charge you Italian VAT, you will only need to give the supplier your French VAT number in order to invoice you without VAT. Please let me know if you need further help or would like us to register you in France.

Favresse
Favresse
In reply to Favresse

Thanks Claire, there is no business registered in France, only stock held at the Director (of the UK business) address in France. What we'd like to understand is how to claim VAT back on existing inventory and how to handle VAT going forward on future online sales.

Do we need to apply for VAT in both countries and how can UK business register for French VAT when the business is not registered in France ?

Many Thanks

Ebony
Ebony

I would be so very grateful if you could help me!

I am a US seller based in the US. I have a customer in the UK who wants to buy a digital product from me as well as physical goods (fabric & sewing supplies.)

For the digital product, I know that I can use a 3rd party (like Taxamo to manage the VAT transaction and requirements there, but I'm not sure what to do about the physical product.

One idea I had, was to just create a "package" that has all the costs rolled up of the physical and digital product and sell that on the 3rd party site. That would collect the VAT for everything, and then I could ship the product to the customer.

But it sounds like once the product gets to the UK, it will be held and the customer will have to pay VAT again?

I currently only have one customer who potentially would even do this, and even if I opened up my entire business to the UK I wouldn't come anywhere near a 35,000 pound threshold... but I'm not entirely sure that what I want to do is possible/legal.

I want to comply with the laws and also not cause my customer to pay for something twice. Thank you so much!!!

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Ebony
For the physical product that you deliver from USA it will be an export for you so you should not charge any VAT or tax and the customer will have to pay the VAT to UK customs if the value exceeds the value of £15.

The UK customer will have to pay the VAT to customs on any purchase they make from outside the EU.

For information, there is no £35,000 threshold in the UK. There is a £83,000 threshold for VAT registration for local UK established businesses and there is a £70,000 distance selling threshold for sales from another EU country into the UK.

Neda
Neda

Hi Claire ,

I am planning to sell on Amazon and doing lots of research at this stage. I was going to register a limited company in Austria where I live and then import the goods to Germany where amazon has a fulfillment center . as I understand from your article I should register for VAT in Germany. correct me if I am wrong please . But I have heard that it is better if I registered my company online in the UK as It offer advantages in terms of VAT if wish to sell in all 5 Amazon European marketplaces. I would appreciate if you could shed some light on this .
thanks in advance.

Claire Taylor
Claire Taylor

Hi Neda

If you VAT register in Germany, and place stock in the Amazon DE fulfilment centre, any sales delivered from the German warehouse will come under the EU VAT distance selling rules. German VAT will be applied to those sales until set thresholds are exceeded in the other EU countries. Check with Amazon to see if you can access the Amazon EU marketplaces from Amazon DE. I cannot see why having a UK company would be an advantage, if you can achieve the same from a German VAT registration.

Claire Taylor
Claire Taylor

Hi Jeroen

Thanks for getting in touch. This is a interesting case and will require a piece of consultancy work. Firstly we would need to investigate further on how you treat the dropshiping for your UK and EU webshops. Can you please email me your email address we discuss this in detail.

Kind regards, Claire

Tabea
Tabea

Thank you so much! This article helped me a lot in order to understand all this VAT regulations. I am about to set up a online store for the social business we just started in Uganda, which will sell clothing made here to US, European Union Countries, Canada and Australia.
You think it is possible to set up a fix price and then calculate the VAT into the shipping? e.g. the dress is going to cost 50€ and shipping to Germany includes the 9,50 VAT and the 3€ shipping so at check out it is going to say 50€ + 12,50€ Shipping and VAT. While for shipping to the UK it will say 50£ + 13£ Shipping and VAT

UGK
UGK

Hi,
I'm planning on opening a dropshipping business\e-shop. My company is based within EU (already paying taxes but not selling anything yet) but the actual website operates outside the EU.
I will use dropshipping (so no holding of the actual goods) and the products will go to non-EU country. Products will both come from EU and non-EU. I predict no sales within EU. How will this all work?

Claire Taylor
Claire Taylor

Dear UGK, thanks for getting in touch. It depends of a lot of things mainly who will do the export ie who will be the exporter the supplier or you.

The delivery from a non-EU to a non-EU customer is outside of the EU VAT scope. For the deliveries from the EU to non EU customers, this will depend on who will be the exporter. In the country where both you and the supplier are in the same country, the supplier will have to charge local VAT and you will do the export. This will mean you will need a VAT registration in this country.

Inna
Inna

Hi Claire,
Thank you very much for youf helpful article!

Could you help us please: We’ve registered the UK company (Ltd) not long ago. The subject of business is IT-servises (maintenance of internet-sites). We are intermediares and work under the agency agreement. The company doesn’t have customers in UK and in EU: our customer is based in USA and our vendors/contractors (from whom we receive servises for our US customer) are mostly from non-EU countries (Ukraine, Russia etc). In this case do we need to charge or reclaim VAT or it’s outside the VAT system? Do we have to pay the input VAT to HRMS?
And the last question: if we have to pay, whether we have the opportunity to use reverse charge mechanism? (we are not VAT-registered at the moment)

Thank you very much for your help!

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Inna,
Thanks for getting in touch.

You will invoice your USA customer without VAT as the service is outside the scope of UK VAT, you are therefore not required to register for VAT in UK.
I hope that helps!

Arthur
Arthur

How is this supposed to work for Pan-European FBA? Basically you cannot know where your stock is, it is 'all over the place' (the 'place' being Europe).
I am currently registered as a Dutch company with only a Dutch VAT number. You say I should register in every European country where Amazon has a fulfillment center and check for every order from which center the units were shipped???

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Arthur, this is correct. There other other options with Amazon, eg. their Multi-country inventory service which allows you to choose where your stock is.

Aleksandra
Aleksandra

Hi,
I have a question. If am EU company (in this case Irish company) buy goods in another EU state (in this instance in Poland) but the goods do not leave Poland - is the VAT applicable? I would appreciate your help!

Thank you!

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Aleksandra, thank you for getting in touch. Can you advise what happens to the goods once they are in Poland?

Aleksandra
Aleksandra
In reply to Aleksandra

Hi Claire,
We are talking here about wooden pallets and they are being used in Poland for delivering cargo to our customer in Poland (customer doesn't pay for the pallets so we are the end buyer). Thank you.

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Aleksandra. Can you give more transparency please as I am still unclear.. Can you explain what the cargo is and who and how and from where and to this cargo is being delivered?

Amy
Amy

Hi
We are a Australian company who goods have been purchased off by an Italian company. However the goods are made to order in China and shipped direct to our italian customer. Does this mean our customer in Italy is responsible for VAT and duty costs?

Claire Taylor
Claire Taylor

Hi Amy, If the sold goods come from China then it means that you sold them from China and the usual situation is that the Italian customer will be responsible of the import VAT and duty if this is what agreed.

Egita
Egita

Hi Claire, I've been looking for answers for days now, I only wish I had found this blog sooner.

I'm curious about the VAT charges as I represent a US company and we want to be compliant with all the EU tax regulations. I hope you can help us.

Background:
We have a dropshipping company in the USA, and we want to open a fullfilment centre in Poland. We fullfill customised clothes orders from other e-commerce sites through shopify.

Currently we dropship everything from the USA, however, we want to fullfill our EU orders from Poland in the future. Our Poland enterprise will hold stock (blank clothes fur customization).

Here is the transaction -
1. Customer from France buys a custom hat from e-commerce site that uses our dropshipping service in the USA.
2. The e-commerce site pays our USA company to dropship the hat.
3. Our USA company orders our Poland company to customize, package and deliver the hat to the customer in France.

In this Scenario - who is responsible for charging VAT ?

Also, what if the end-customer is from Ukraine, who charges (if neccessary) VAT in that scenario ?
Same order - Ukraine customer, pays a USA e-commerce site that uses our USA e-commerce platform. our USA company orders Poland company to fullfill the order. Poland company delivers the hat to Ukraine customer.

Thank you for your time and answers!!

Claire Taylor
Claire Taylor

Hi Egita, As a dropshipper we assume that the final customer will be invoiced by the original seller i.e. the e-commerce site. On this assumption all the e-commerce sites (sellers) will have to register for VAT in Poland as the sale is considered to be made from Poland.

When the hat is transported from USA to Poland to be customised at this point the sale to the French customer has not yet taken place. Once customised the hat is then delivered by the Poland company to the customer in France. Therefore, the e-commerce site (the seller) is making a taxable distance sale from Poland and they will have to register for VAT in Poland and charge Polish VAT to the French customer until the distance sale threshold is exceeded and then the e-commerce site will be required to register for VAT in France and charge French VAT to its French customers.

The sale from Poland to a customer in Ukraine should be without any VAT as it’s a sale to a customer established outside the EU (export), the Ukrainian customer will probably pay the VAT due on import in his home country Ukraine.

I hope this helps.

Antonio
Antonio

Hi Claire, I need your help please.

I am starting a business with a cosmetic product and I have to decide if the company should be in Spain or in UK. I am currently living and working permanent in UK and my salary is 47000 pounds.

-I will import the jars for the packaging from china
-A Spanish manufacturer will make the cosmetic cream and with the jars I have bought from China will do the packaging and labeling, giving me the final product.
-I am planning to sell this product in Spain at the beginning because we have more contacts (approximately in 25 pharmacies and 25 sellers by catalog like Avon) so as the bigger percentage of sales will be in Spain at the beginning we will contract a company there for full logistics (warehouse and shipping).
-We are also planning something similar in UK, but as we don't have any contact yet we will keep products at home and do the shipping by ourselves.
-Finally there will be an online shop.

Our original idea is to have the company in uk to benefit of not having to register for Vat, but after reading your blog I think I may be wrong.

Could you advice me if is better to have the company in U.K. Or in Spain and how vat should be calculated when selling to final customers, to business and to selftrader sellers in Spain, in UK and in te future to other EU countries?

Thanks!

Claire Taylor
Claire Taylor

Companies can trade in any country without having a company established in that country. So, for VAT purposes you can start up a company in UK and then start trading in Spain. We cannot advise on where is best to establish your company as you should take into account the wider implication regarding direct taxes like corporate and income tax and indirect tax like VAT, we can only advise on VAT.

If we presume that you setup a company in UK - and I presume the bottles will be imported from China to Spain where they will be given to the Spanish manufacturer and then all the sales will be done from Spain - if this is the case, you, as a UK company, must register for VAT in Spain as the sale to private customers from Spain attract Spanish VAT until the distance sale threshold is exceeded. As a registered VAT payer in Spain, you will also be able to recover the VAT paid to Spanish customs on imports.

Regarding the online shop, the applicable VAT is determined on the country you will be selling from, so if you have a company in UK but you’re selling from Spain then your sales should be taxed in Spain and not UK therefore, the UK registration threshold is not relevant as you will have to register for VAT in Spain from the 1st sale as explained above.

I hope this helps.

Antonio
Antonio
In reply to Antonio

Thank you! Great!

It is very helpful. Just some more question, please.

I understand that if I had the company in UK, and the main warehouse in Spain, I would have to register for Vat in Spain from the 1st sale and for every sale within Spain.

But if as an UK company we moved some stock of products from Spain to our UK home address and used it as a warehouse for all the sales within UK and for any sale to other eu countries apart of Spain, in this case if I were not Vat registered in UK which Vat should I apply.

I understand that as an UK company having a warehouse in Spain we would have the obligation to vat register in Spain immediately, but if we also had this UK warehouse to sell rest of Europe and UK, and sales were below UK threshold, should we have the obligation to vat register in UK.

Last doubt is: As a uk company with a warehouse in UK and in Spain, could we have to be vat register in Spain (no matter threshold) but not in UK if below UK threshold? And if we could, how could I pay the vat in the Spanish port when I received the imported jars from china there?

Would you offer services for full accountability or just for VAT, would you accept visits on Saturday?

Thanks again

Claire Taylor
Claire Taylor

If you are established in UK with no UK VAT number then all the sales will be done without VAT until you exceed the UK registration threshold then you will need to register for VAT and charge UK VAT or until you exceed the distance sale threshold where you will be required to register for VAT in the EU country of delivery where you exceeded that threshold.

One other issue is the transfer of stock from Spain to UK because the transfer of own stock represents a taxable supply. An intra-community transfer of goods can only be exempt of VAT if the receiver of the goods (which is you in that case) give a valid UK VAT number to the dispatcher from Spain (which is also you), so the Spanish tax authorities should oblige you to charge to yourself Spanish VAT which will be an extra cost to you as a UK company as you will not be able to recover it because you (as UK company) don’t have neither a Spanish VAT number nor a UK VAT number.

We don't provide accounting services but can refer you to an accountant. Contact me directly by email and we can work out the best time to have a meeting - [email protected]

Andy Lee
Andy Lee

Just to throw a spanner in the works, the irish government knows that I wish to set up a subsidiary in the EU. Obviously they want me to open this business in Ireland - yes there are big advantages to this. The major disadvantage is shipping the goods from China to Ireland and then shipping them back out again to the rest of the EU.

They say they will allow me to ship them into Rotterdam and then I can distribute them across the EU under Irish rules.

That said, I do actually prefer the UK despite Brexit, because I have customers already on hand there.

How do I register for VAT using either my Hong Kong business or China business in the UK?

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Andy,

You can VAT register in the UK from either your Hong Kong business or your China business in the UK. This is a service we offer to help businesses VAT register and remain compliant.

If you wish to discuss the Irish tax authorities in more depth, please email [email protected] and we can discuss!

Thank you!

Emily
Emily

Hi Claire,

Thank you for this helpful article.

I need some information on the VAT in Netherlands.

I want to have an online flower delivery website. If I establish the company in Netherlands, what will be the VAT rate of sending flowers to one of EU countries, i.e Spain? What will be the VAT rate, when someone wants to send flowers to non- EU countries?

In this business model, customers will be individuals and flowers are sent by local florists. There will be no flow of goods between countries.

I appreciate all the help.

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Emily
If the flowers are sent from the country of delivery i.e. the flowers are sent from a Spanish florist to a Spanish private consumer and the consumer is invoiced by your company then you should register for VAT in Spain in order to charge Spanish VAT. If you do a similar activity in any EU country then you will have to register in every EU country where you make deliveries.

If the flowers are sent to a non-EU country then it should be exempt of VAT as it’s considered as an export. The non-EU consumer may have to pay the VAT to its local customs.

The VAT rate for flowers is the standard VAT rate applicable in each EU country.

Emily
Emily
In reply to Emily

Hello Claire,

Thank you so much for your response.

I have been all over the web and I have been trying to find the answers to these questions. Since it is a relatively new and specific area, I couldn't find it. If it is not too much to ask, can you give me some recommendations to read for further investigations on this subject?

Kind regards.

Emily
Emily
In reply to Emily

Hello Claire,

if the flowers are sent from a Mexico florist to a Mexican private consumer and the consumer is invoiced by our company in Netherlands, what will be the VAT rate? I mean, flowers are not sent from EU to non EU country. Will this still count as an export and VAT is zero?

Thank you.

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Emily - here might be a good source of information for you. http://ec.europa.eu/taxation_customs/business/vat/eu-vat-rules-topic/where-tax_en

In respect of the Mexican scenario - buying goods (flowers) in a country and selling them in the same country where the flowers are directly delivered by the florist to the consumer is considered as selling flowers locally in the country therefore the sale should be subject to the local tax. I suggest you have to check what would be the tax implications for a foreign company buying and selling goods in Mexico. This is a country we do not cover.

Michael
Michael

Hi Claire,

I'm bidding on a project where I'd create a sales/educational video for a German company. I would not be shipping them the video, but instead put it online for them to download. It's not for resale - only to be used by their reps. This single project would not exceed €100,000. Does this fall under the German VAT registration threshold ceiling, or does that only apply for direct-to-consumer transactions? Do I still need to apply for a VAT number, as well as report the transaction to the EU (outside of my USA tax reporting?)

Thanks for any thoughts you have on this.

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Michael

As you, the supplier of the video, is based outside the EU (USA) and the customer is a business based in Germany, the supply is not subject to German VAT. The German client when receiving your invoice without VAT will have to account for the VAT under the reverse charge in their German VAT return.

mark
mark

VAT in Europe,
"When charging your customers, make sure you add VAT to the shipping cost as well as the product price on your invoices."
Question: When selling to an EU client we have to charge VAT on both shipping costs AND product price?
seems excessive to double charge unless I didnt understand.

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Mark,

The VAT charged on shipping follows the VAT rate applicable to the goods being shipped. The VAT is not being charged twice, it is being charged on the total amount of the supply of the good and the shipping. For example - Goods sale price: £10 + £2 Shipping = £12 * 20% VAT = £2.40 - Total Cost to customer - £14.20. Kind regards, Claire

mark
mark
In reply to mark

Understood thanks

Mark
Mark

Hello,
I have been searching all over the internet for the answer of my question.
I want to start a dropshipping site that sells goods Worldwide. I am located in Latvia and i would register this busines as LLC or sole proprietorship in Latvia.The goods would be directly shipped from china to the customers newer entering Latvia(as well as if i dropship goods to US they would not enter EU).I would sell to EU Countries And US.
In which countries i have to pay taxes and what kind of taxes?I know i have to pay income taxes to Latvia but do i have to pay sales tax or some other kind of tax to some other countries?
Waiting for your reply.

Claire Taylor
Claire Taylor

Dear Mark
Thanks for getting in touch - can you please provide a little more information 1. What type of goods will you sell?
2. Will the customers be businesses or private consumers or both?
3. Who do you want to pay the import VAT?
4. Which EU countries are you going to import the goods into?
5. Will the sales be made online?
I look forward to hearing from you. Kind regards, Claire

Mark
Mark
In reply to Mark

Thank you for your response.

1.Clothing, jewelry
2.Customers will be private consumers
3.As i understand if price of the product doesnt exceed 22 euros then no one has to pay import VAT. But as it will be too complicated to pay import VAT for every customer, then i think customers will pay it if needed.
4.I wil be dropshipping from China to customers Worldwide.I wont import bulk order to Europe and then sell from Europe. The goods will go straight from China to every customer.And i will sell to every Country where my customer will be.
5.Sales wil be made online.

Gordana
Gordana
In reply to Gordana

Hello Mark, I would appreciate if you can tell me how you managed to solve this VAT issue for your droppshiping business. I am in the same situation and looking for answers.
Is it true ? - (If the sold goods come from China then it means that you sold them from China and the usual situation is that the customer will be responsible of the import VAT and duty)
Thank you

Claire Taylor
Claire Taylor

Hi Daniel
Thanks for getting in touch.

If the Chinese supplier “The principal” is invoicing the final customer then for VAT purposes you’re considered as an “disclosed agent” as the customer is aware that he’s dealing with an agent. In that case the principal must account for the VAT on the sales and therefore must register for VAT in UK. The imported goods will be in the principal’s name and should act as the importer and pay the import VAT to customs.

However, if the invoicing is done by your company to the final customer then you are acting as an “undisclosed agent” in that case you’re considered as the purchaser and the seller of the goods, the purchase price being the sale price less your commission. You must account for the VAT on the sales. The importation can in that case be in your name as the importer and can therefore recover the import VAT in the usual way.

Claire Taylor
Claire Taylor

Thanks for your question. The transactions are out of EU VAT scope. If the place of supply of goods is not in the EU, then the supply of goods is outside the scope of VAT. You don't have to charge EU VAT or include the sale on the VAT Return.

If the buyer is in America (or other country), there will may be sales tax or a similar tax on it. You can get in touch with our partners https://www.taxjar.com/ and they can let you know about the local USA rules. I hope that helps.

Scott
Scott

Great thread, thank you so much, yet I don't see my particular issue/question addressed.
I am a US-based small business, and I work with two companies in the EU who produce and ship my products. Customers within the EU purchase directly from me through my web store, I place the orders with my EU-based suppliers, and they produce and ship the finish product. My sales are small thus far (under €5000 total), and I would like to understand my general obligations regarding VAT. At present one of my suppliers is collecting VAT on my sales, the other is not...
Thank you so much in advance!

Claire Taylor
Claire Taylor

Hi Scott
Thanks for getting in touch. Can you give me a little more information please?
1. Do you already hold a VAT number? If yes, which EU countries do you have VAT numbers in?

2. Are your customers private consumers or businesses or both?

3. Can you also expand on your last sentence that 'one of my suppliers is collecting VAT on my sales'. Do you invoice the customer directly with VAT?

I look forward to hearing from you. Kind regards, Claire

marta castellanos
marta castellanos

Thank you so much, Claire for taking the time to answer to my questions. My questions were related for B2C operations. However, thank you for the additional insights in B2B.
Best regards, Marta

Claire Taylor
Claire Taylor
In reply to Claire Taylor

A pleasure Marta!

Darren Tan
Darren Tan

Hi Claire
Hope that you will be able to help me, as I am still not clear on VAT in Europe. I operate an online store selling sport goods. Let's say individual customers like sports club buy my product. Do I collect VAT from them or they pay themselves upon receiving the goods. Thanks and appreciate your help.

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Darren
Can you give me a bit more information please? Where are you based and where is your stock held and delivered from? I look forward to hearing from you.

Selda
Selda

Hi Claire

I am a UK resident. I intend to display handmade goods on my eCommerce store supplied by suppliers in Turkey. A customer visits my site, orders a product, they pay me and the provider in Turkey despatches of the goods to the customers worldwide.
I would like to understand my general obligations regarding VAT.

Kind regards

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Selda
Can you clarify please if the Turkish supplier sends the goods to customers direct from Turkey or do they come to the UK first?

Scott
Scott

Claire - you're very welcome, thank you.

1. I don't already hold a VAT number.
2. My customers are private consumers.
3. I am not presently charging my EU customers VAT. As mentioned I work with a couple of suppliers and just one is presently collecting VAT on my orders.

Again thank you, I will watch more closely for your response,

Scott.

Claire Taylor
Claire Taylor
In reply to Claire Taylor

Hi Scott
Thank you for getting back to me.

The moment you place an order with your EU based suppliers, you are the owner of the goods and will have to charge VAT on your invoice to the buyer as well as pay the VAT to the Tax Authority of the dispatch EU country. In order for this to happen, you need to be VAT registered in the dispatch EU country where the goods are stored.

For goods shipped outside the EU your supply will be exempted from VAT and your invoice should refer to reason of VAT exemption (export). You also need to be able to proof that the goods left the EU (e.g. custom and transport documents).

As your buyers are private individuals, there is an EU VAT distance sale threshold to apply. This means that for the sales from dispatch EU country to the buyer, local dispatch VAT is chargeable until the distance sale threshold has been exceeded in the other EU arrival country.
The moment you have exceeded the threshold in the other EU arrival country, you will need to VAT register there (+filing returns) and charge arrival country VAT on every sale delivered in that country. If you would like us to look into this further for you, please pm on [email protected]

Adrián
Adrián

Hi Claire,

Thank you very much for this post. It is not easy to manage the legal aspect when starting an ecommerce.

I would like to ask you a question concerning the Dropshipping ecommerce business.

I started an commerce doing dropshipping 2 months ago and last month I did in sales around 10k€.

I’m located in Spain.
I sell only to Spain, so all my customers are in Spain.
My provider is in China (Aliexpress).

From the 10k€:

- 45% was for paying Facebook Advertisement -> 4500€

- 35% was for sourcing the product in Aliexpress -> 3500€

- 10% was for the website maintenance and transactions -> 1000€

- 20% of profit (without taking into account any taxes) -> 2000€

Normally I should pay the 21% of VAT from my sales to Spain. However if I do that I would be in negative and my business would not be profitable.

Is there any other way to make this business profitable?

If so, what Legal Structure would be the most optimal for my business in order to keep the maximum of profits?

Thank you very much in advance for your time.

Best Regards,
Adrián

Betul
Betul

Thank you very much Claire. That is very useful information. Appreciate it.

One detail:
You mention that for B2B I don't have to pay the tax which I understand what it means. However, the Irish warehouse says we have to pay all tax in advance because onward deliveries won't be immediate. How would this work? Is there a workaround? Does the same rule apply even if the delivery isn't immediate?

Regards
Have a nice day

Claire Taylor
Claire Taylor
In reply to Claire Taylor

The warehouse is talking about the import VAT and my understanding from what you say is that you cannot use OSR because the dispatch to other EU country is not immediate. If this is the case, you will have to pay import VAT and not be able to use OSR.

The onward B2B sale to the EU client from the IE warehouse would be zero rated intracommunity sale providing you mention the VAT number of the client on the invoice and have a proof of delivery.

Claire Taylor
Claire Taylor

The warehouse is talking about the import VAT and my understanding from what you say is that you cannot use OSR because the dispatch to other EU country is not immediate. If this is the case, you will have to pay import VAT and not be able to use OSR.

The onward B2B sale to the EU client from the IE warehouse would be zero rated intracommunity sale providing you mention the VAT number of the client on the invoice and have a proof of delivery.

lorenz fuchs
lorenz fuchs

hy claire i wanted to ask you that my if my buisness is located in germany and i am just just shipping domestic but my products are going for example from spain to my costumers do i need to pay tax in spain waiting for your answer

Joe
Joe

Hi Claire, Thanks much for all of this info. As a one man operation, it's a great help. I'm just wondering if you can provide a little more detail on this statement from the article:
"If you are selling to consumers outside the EU, the supply of goods is usually zero-rated provided strict rules are followed, including providing evidence of the export within three months of the sale."

My small jewellery B2C webshop is registered in NL (inventory and shipping from NL). While I understand my VAT obligations within the EU, I'm still a little lost with the obligations outside of the EU. If someone purchases a piece and I ship to HK, for example, I would not charge the 21% VAT (as it would be considered zero rated?) but what are the strict rules? And providing evidence to who (NL, HK?). Are there other obligations?

In your opinion, if I have minimal business outside the EU, is it worth the inconvenience of additional obligations?

Thanks!

Ana
Ana

The customer is the importer, paying VAT, dues and fees, just like if they ordered themselves from China. You are a glorified sales person for the chinese, an agent or an affiliate, something along these lines for tax law, for broader legal liability of course you have some. You are most definitely not the importer, nor is the shipping company the importer (unless you want to become the importer, but you don't). Having said that, big shipping companies have been able to strike deals with some national authorities in recent years, and as a customer I was able to buy from two US shops and prepay fees and taxes and receive my goods in the EU as if I ordered from the EU. The webshop transferred the extras to the shipper and the shipper transfered to local authorities. These webshops were big and biggest, so not sure if anyone is offering such facilities to the moms and pops.

Darren
Darren

Hi

Is VAT payable in the country the customer lives e.g. Germany or the country the customer has goods delivered to e.g.France.
We have a number of transactions where customers are buying goods for their children at university in a different member states, hence the question..

Clark
Clark

Hi Claire,
If my company placed in Indonesia, planning to do B2C business with EU customers, and not holding physical products in any of the EU nations. Delivery method would be via Direct Delivery Company instead of establishing my own warehouse Thus, I'm consider as NON-EU residents Exporters, and my customers are considered as EU-Residents Importers right. In such situations, is it my EU-Residents Importers customers required to pay the VAT at their residing country? Eg, If I'm selling to Germany Customers, then the Customers need to pay Germany VAT Rate. Then, if I'm selling to customer residing in Belgium, then my Belgium customer need to pay the VAT Rate of Germany right?

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