What Amazon FBA sellers need to know about VAT

For many sellers on Amazon Marketplace there’s no alternative to the online giant’s Fulfilment by Amazon (FBA) service. With FBA, Amazon handles the entire logistics process for its sellers, including returns. It’s a very comfortable solution but also a service that is not without big financial risks: FBA comes with the major challenge of what is called VAT compliance, i.e., you, as an online seller, are required to fulfil all the obligations stipulated by current EU VAT regulations.

VAT compliance in your home country

For any active seller, registering with the tax authorities before you start your business is one of these obligations. You then need to regularly inform your local tax authority about your input and output transactions. In this context, you can reclaim input VAT, i.e., reclaim the VAT paid by businesses on their purchases (input tax deduction). At the same time, you’ll have to declare VAT on your sales and pay it. Both is handled via the so-called preliminary VAT returns which you can submit electronically via ELSTER in Germany, for example.

All of you should be more than familiar with this procedure. Should you be using FBA, the obligations described above will very likely also become an issue for you in other countries. Why?

Amazon offers the lowest fees for its FBA program only if you process your products via warehouses abroad. However, this cross-border use of warehouses causes major VAT-related issues for sellers.

Cross-border warehousing and VAT

Even if you only ship one single product to a warehouse outside your home country, you’ll need to tax register in the respective country you’re delivering to and regularly submit preliminary VAT returns and often also other reports. These obligations start with the first product you ship, no matter how low the value of this item might be.

From a VAT perspective, shipping your goods to the warehouse abroad is an intra-Community movement of goods. You supply goods from one EU country, e.g., Germany, to another, e.g., Poland. Since every shipment of goods within the EU has to be registered and documented, mainly to prevent VAT tax evasion, there are numerous regulations that need to be fulfilled.

VAT compliance with Amazon FBA

Whenever sellers permanently ship a product to another EU country, respectively use Amazon’s services to do so, this basically constitutes a shipment of the sellers to themselves. This is exempt from tax. However, sellers need to declare this shipment in their home country (e.g., Germany) in the preliminary VAT return as well as in a special declaration, called recapitulative statement. In addition to that, they also need to invoice this shipment. However, since they are, in this context, invoicing themselves without a real transaction involving a third party taking place, this invoice is called pro forma invoice.

Sellers also need to declare the receipt of goods in the country of the warehouse (e.g., Poland) in their Polish preliminary VAT return as a so-called intra-Community acquisition. This acquisition is subject to VAT. However, sellers can at the same time reclaim the VAT on this purchase (input tax deduction). This process results in a VAT and input tax balance of zero, i.e., no real payment is necessary but the Polish tax authorities still know that sellers have shipped goods to Poland to sell them on from there.

Additionally, sellers in Germany have to submit information on intra-Community trade to the Federal Statistical Office should their shipments within the EU exceed certain thresholds. This obligation serving statistical purposes also applies in most other EU countries.

Tax authority checks

Some of you might ask themselves now whether anyone would actually notice should you simply continue to pay tax for all your Amazon sales in your home country only. The answer to that is a definitive yes. Even omitting to VAT register is no longer a trivial offence — and this applies to all EU countries. Most countries impose high fines and default charges that often can exceed the VAT amount that was due originally.

Being found out is also getting increasingly likely and the following examples show the creativity of tax authorities in their “detective work”:

  • German tax authorities use an internet crawler called Xpider to target sellers that do not correctly declare their VAT.
  • As the highest fiscal court in Germany, the Federal Fiscal Court decided as early as in 2013 that tax authorities can obtain information from marketplaces such as Amazon or eBay. In the context of the case in question, the tax authority had asked for a list of all sellers with a turnover of more than EUR 17,500 per calendar year which is the threshold in Germany to become liable to pay domestic VAT.
  • Austria even regulates by law that tax offices are authorised to obtain information from parcel services in order to check which sellers from abroad ship goods to Austria and might be exceeding the so-called distance selling threshold.
  • Danish tax authorities analyse credit card transactions.

Once tax authorities have established that VAT is not declared accordingly, they often start criminal tax proceedings. A voluntary self-disclosure to avoid a fine is then not possible anymore and it also won’t help to argue that you couldn’t know about the foreign VAT law: as entrepreneurs, it is your obligation to obtain information on tax duties prior to starting your business.

Don’t let it get to this point! Almost all your VAT obligations can easily be automated.

Automated VAT compliance

For sellers, VAT compliance either takes a lot of time (if you want to stay on top of everything) or is expensive (if all the work is done manually by a tax adviser).
Taxdoo automates the VAT processes that are necessary when using Amazon FBA.

Taxdoo can automate the process of extracting raw data from market places and ERP systems. External developers can easily push data into our system using a powerful API. At the same time, we automatically

  • prepare accounting exports
  • report your sales abroad
  • monitor distance selling thresholds on a day-to-day basis
  • document shipments
  • and much more

Click here to book a live demo for you and/or your tax adviser and get a personal introduction to the advantages of our automated VAT compliance tool.