This article is by Pedro Pestana da Silva, Partner at European VAT compliance company Marosa.
In the past, ecommerce businesses and Amazon sellers who shipped products to Europe didn’t have to worry too much about getting their products across borders and into the hands of their customers. All responsibility for import duties and taxes could be left squarely with the buyer.
Now the situation has changed. You need to think about the value of the products you sell, the platform you are selling them through (Amazon, other marketplaces, or your own store), as well as where you are shipping them from.
If you get it wrong, it won’t be a simple case of the buyer having to pay the fees as often happened in the past. Instead, your shipment could be rejected at the border and never make it into the buyers’ hands. Everyone wants to avoid that happening.
So, here’s what you need to know about VAT in the European Union as an Amazon seller based outside the EU.
How does VAT work in the EU?
If you are from the US, VAT is a totally new tax for you. In some ways, it is similar to US sales tax. In other ways, it is completely different. Here is a short explanation of how it works, and how it compares to US sales tax.
VAT is a consumer tax: Just like sales tax, the cost of VAT is borne by the end consumer.
VAT is paid on each stage of the supply chain: VAT is added to the price of each sale along the supply chain from factory to final customer, including sales between businesses as well as to individuals.
Businesses are not exempt from paying VAT but instead can deduct the VAT they pay on purchases from the VAT they charge on sales. Each business along the supply chain then pays to the authorities the difference between their “input” VAT and their “output” VAT.
The consumer at the end of the chain bears the total amount of VAT that was built up along the way, with each business acting as a collector of part of it. This is the first big difference compared to sales tax, which is only charged at the end of the supply chain, on the sale to a consumer.
Like sales tax, VAT is a neutral tax for businesses. But there are similar admin costs in getting set up for VAT, collecting it correctly, filing returns, and making payments.
Import VAT is paid at customs: If you are bringing goods into an EU country, VAT will be charged by the customs authorities. They will only release the goods once you’ve paid the VAT due. Thankfully, you are entitled to reclaim that VAT in your VAT return, so it remains a neutral tax if you are a business.
Special rules for ecommerce: Unlike sales tax in the US, VAT is harmonized for ecommerce sellers in the EU (although the rates do differ between countries). So, if you are selling your products online, there are special rules that you need to consider. In a nutshell, you will only need one VAT registration in Europe provided all your shipments are sent from outside the EU directly to the final consumer, and each of those shipments has a value below €150. There are more details on this below.
When do I need to get an EU VAT number?
The overall rule is that you need an EU VAT number if you make “taxable supplies” in an EU country. A VAT number is simply an identification number for all VAT purposes.
Put simply, if you are an online seller, you need an EU VAT number if you have to charge VAT in the destination country for your sales. You will also need a VAT number if you store inventory in an EU country.
OSS scheme: This is for sales within the EU – from one EU country to another. It means you are able to get a single VAT number that allows you to sell your products online in all EU countries. You still need to charge VAT at the destination country’s VAT rate, but you will only need one VAT number.
This means that you need to know the VAT rates in each country, and if you’re selling products that use a reduced VAT rate, you should take these into account too. However, the reporting side is simple because you only file one OSS VAT return for all EU sales.
IOSS scheme: While the OSS scheme is for sales within the EU, the IOSS scheme applies if you ship your products to the EU from the US or other non-EU countries. It also allows you to benefit from a one-stop VAT number for all of the EU. There are some conditions and exceptions to IOSS, which we will look at in more detail in the next question.
Multiple VAT numbers: Amazon’s FBA schemes complicate things from a VAT perspective. You will need an additional VAT number for each of the countries where Amazon holds stock for you.
Fiscal representative and intermediaries: Whether you are using IOSS or you hold separate VAT numbers in each country, EU countries may require you to appoint a representative to act on your behalf. This person is called an “intermediary” when you are using the IOSS scheme or a “fiscal representative” when you are registered with local VAT numbers in each country.
These representatives are jointly liable for your VAT obligations. This means that if you do not pay the VAT that is due, or fail to carry out your reporting obligations, they will have to do it for you or be responsible for the penalties. As a result, most fiscal representatives require some type of bank guarantee or deposit.
I ship orders directly to EU customers. Do I need to register for VAT?
If you ship an order directly from the US (or another non-EU country) to a customer in the EU, and the value of your shipment is below €150, you will need to pay VAT. You can register using the IOSS scheme explained above.
You will get an IOSS VAT number, which means that you will be able to make exempt imports (no VAT due at customs) but you will need to charge VAT on all your online sales to private individuals, at the point of sale.
Shipments above €150: For higher-value orders, you cannot benefit from the IOSS scheme. Instead the shipment is treated in the same way as all shipments were under the old rules.
You will need to choose if:
- You act as the importer of record; or
- Your customer is the importer of record.
Acting as the importer of record yourself will make life easier for your customers, as they will not have to deal with the paperwork or pay an additional amount to the courier company when they receive your product. However, you will need a local VAT number for each country where you act as the importer of record.
If your customer acts as importer of record, then you do not have to register for VAT in their country, but they will need to do all paperwork and customs-related admin themselves, just to receive your product.
In the end, the decision is usually driven by the volume of expected sales in each country. Most businesses will not go to the trouble of registering for VAT in a country for just a few sales.
Note that special rules apply if you make these sales via an online marketplace like Amazon or eBay.
What is the difference between selling on my own website or using a marketplace like Amazon?
There is a big difference between using a marketplace like Amazon or selling directly via your website when you are a non-EU business.
In most cases, the tax authorities in the EU will make the marketplace responsible for your VAT obligations. To do so, you will make a “deemed supply” to Amazon and, subsequently, Amazon will make a deemed supply to your customer. This means that for VAT purposes it will be treated as if you first sold the product to Amazon and then Amazon sold the product to the end consumer.
In the first deemed supply, from you to Amazon, you do not charge any VAT to Amazon. But in the second deemed supply, from Amazon to the customer, Amazon will charge VAT and report it to the tax authorities on your behalf.
In other words, the marketplace will be treated as an intermediary. Even though they do not take ownership of your products, for VAT purposes they will be treated as a buyer and a seller.
My inventory is stored with Amazon FBA in the EU. What are my VAT obligations?
If you use FBA in the EU, you will need a local VAT number in each country where they store your inventory.
Amazon allows you to choose in which countries your inventory is stored, so you should take into account that a VAT registration will be needed in each of those jurisdictions.
Once you are registered for VAT in each country where your inventory is kept, your sales in Europe made via Amazon will fall under the “deemed supply” rules described in the question above. This means that you will be treated for VAT purposes as if you first sold the products to Amazon. This sale is exempt from VAT, even if they are made from the inventory in each country. Amazon will then charge VAT to the end customer.
On the reporting side, you will need to submit separate VAT returns in each of the countries where you hold stock, even if all your sales were exempt because they were made through Amazon or other online marketplaces. These returns are in addition to the IOSS or OSS returns that you submit to report qualifying sales.
Does using Pan-European FBA make any difference to VAT?
Using Pan-European FBA allows Amazon to move your inventory across different countries so that your products are closer to your potential customers. This means delivery times are faster, which could increase sales, but it also creates some work for you as you will need a VAT number in each of the countries where Amazon stores your products.
In practice, Amazon will only store goods in certain countries for Pan-European FBA, which are currently Germany, France, Italy, Spain, Czech Republic, Poland, Netherlands and Sweden.
The UK was removed from the Pan-European program after Brexit.
I only sell in the EU through Amazon. Will they deal with VAT for me?
Amazon will be responsible under the “deemed supplier” provisions explained above for collecting and paying VAT to the tax authorities if you are:
- Selling goods from outside the EU with an intrinsic value below €150; or
- A non-EU supplier selling goods within the EU.
However, some additional obligations may fall on your business instead of Amazon. For example, if you hold stock in Europe, such as within an Amazon FBA warehouse, you still need to register for VAT in those countries where your inventory is stored.
Amazon requires you to be in 100% compliance with these additional obligations, such as getting VAT numbers and filing VAT returns in each country, in order to sell on their platform.
You will need a tax consultant who can get a VAT number and act as fiscal representative for you, in each country. We recommend using someone who can look after all your obligations with a single solution, instead of having a separate tax consultant in each country. Some providers also offer an automated integration with your Amazon seller account, so you do not have to send them details of your sales every month.
How do I register for VAT in the EU?
You should follow these steps to register for VAT in the EU:
- Confirm if you only need an IOSS VAT number or also additional country VAT numbers.
- For IOSS, choose one country of registration and follow the IOSS registration process.
- Collect all the information and documents required to show that your business is properly registered in your home country.
- Complete the IOSS registration form.
- Follow up until you receive your IOSS VAT number.
- For additional country VAT numbers, follow the above process but with individual applications for each country. Some countries have their own unique questions, and may take a significant amount of time to reply to your application.
You will need a tax consultant who can submit these registration forms for you.
Do I need to provide customers with invoices showing the VAT?
You do not have to issue invoices if all your sales fall within the IOSS scheme. For sales outside this scheme, for example, to customers from the same country where you keep your inventory, you will need to check the local rules in that country to evaluate if you need to issue a compliant invoice.
In practice, we recommend issuing an invoice for all your sales so that you have a standard process for all of Europe that is always compliant.
Your invoices should state VAT as a separate amount so that is clearly recognizable. This will normally be an additional line on your invoice. Provided that the VAT has been reported on a single line, you can still include your total amount to be paid as a gross number at the end of the invoice.
What kind of VAT returns and other filings are required?
If you only need to comply with IOSS or OSS returns, you will submit a VAT return quarterly (OSS) or monthly (IOSS) to report all of your sales in Europe.
This is a simplified compliance process, as you can report all sales in a single filing. The OSS or IOSS return forms are long because they include sections to report the total sales made in each EU country.
If you also hold local VAT numbers, in addition to IOSS or OSS VAT numbers, you will need to submit additional VAT returns in each of the countries where you have a local VAT number. These returns are completed in the local language and must be submitted using a digital certificate of your online credentials in the given country. You will most likely need a tax consultant for this.
When you move inventory from one EU country to another, such as happens with the Amazon Pan-European FBA program, you will need to track those movements of stock as they need to be reported separately on your VAT return.
Additionally, there are two types of returns that track movements of stock within the EU. These are ESL returns and Intrastat returns. ESL returns are always due for the country that the stock is moved from. Intrastat returns are only due when certain thresholds are exceeded.
Should I set my prices on Amazon to include VAT?
Yes, once you are VAT registered, all your products listed on Amazon will include VAT in the price. Unlike sales tax in the US, which is added at the checkout to the price displayed, in the EU the price shown to consumers always includes VAT.
As explained above, Amazon will ultimately be responsible for collecting and paying the VAT, but for your own purposes you must remember that the sale price you set includes VAT so you will not receive that portion of the sale.
What about the UK? Is that a different system now?
The UK has its own system, but the rules are similar to those applicable in the EU.
When you sell via Amazon or another marketplace in the UK, the rules depend on whether the goods are in the UK at the point of sale and whether the shipment value is above £135.
If you sell via Amazon and the goods are stored in an FBA warehouse at the point of sale, you would have incurred import VAT and (possibly) customs duties at the border. You will normally need a VAT registration in the UK to recover this import VAT. But your sales via Amazon will be exempt from VAT under the UK’s equivalent “deemed supplier” provisions as described for the EU above. This means that Amazon is responsible for collecting and paying VAT.
If you sell via Amazon and the goods are not in the UK at the point of sale:
- Shipments above £135: Import VAT is due. You will need a VAT registration, a UK representative and periodic VAT returns in the UK.
- Shipments below £135: No import VAT is due. You will not charge VAT on the sale and Amazon will be responsible for collecting VAT on your behalf. A UK VAT registration is not required.
Is there anything else I need to know about selling to the EU?
VAT is only one of the compliance rules that you need to think about when selling in the European Union.
Here are some of the additional aspects to consider before you start trading in the EU:
- Import duties may be due. The rate depends on the country of origin and the type of product that you are bringing into the EU.
- Excise duties: These are separate additional taxes only applicable to products such as tobacco and alcohol.
- Packaging rules: You will need to comply with EU packaging regulations.
- Product safety: Your products need to meet all the applicable compliance requirements, which can include specific documentation and product test reports.
- Green taxes: Some countries may charge additional taxes for the use of plastic in your products or packaging.
- EORI registrations: You may need an EORI number to bring shipments through customs successfully.
- Fiscal representation: As explained above, if you are a non-EU company, you will need to appoint someone to act on your behalf and take responsibility for your tax obligations.
Although the requirements for selling in the EU can be extensive, remember that it is a large market with many advanced economies and wealthy consumers. Ecommerce is very popular and the infrastructure for online payment and delivery of goods is well established. If you have products that EU consumers want, there is a lot of potential to grow your business here.
This article was by Pedro Pestana da Silva, Partner at European VAT compliance company Marosa.
Getting VAT numbers in different jurisdictions can be an administrative obstacle, but Marosa provides a quick, technology-driven service that makes it a smooth and cost-effective process.
The information in this article is for informational purposes only. We recommend that you contact a qualified advisor to get the latest advice, tailored to your particular situation.