Unlocking Growth in Amazon’s European Marketplaces: A Guide to Navigating VAT

Selling on Amazon’s European marketplaces, including Amazon UK, can be a game-changer for your business. However, it comes with the need to understand and properly handle European VAT (Value Added Tax). Getting VAT wrong can lead to fines, product seizures, or even the shutdown of your Amazon seller account. This guide provides everything you need to know about VAT when selling on Amazon in Europe.

What is VAT?

VAT, or Value Added Tax, is a consumption tax charged on most goods and services sold in the UK and EU. Unlike the US sales tax, VAT is included in the list price of the product in Europe, and it’s collected at every stage of the supply chain.

How Does VAT Work?

Here’s a simplified breakdown:

- A manufacturer pays VAT on raw materials.
- They sell the finished product to a wholesaler, who pays VAT.
- The wholesaler sells to a retailer, who also pays VAT.
- Finally, the retailer charges VAT to the end consumer.

Businesses can reclaim the VAT paid on business expenses, known as input VAT, which is deducted from the output VAT they collect.

VAT vs. US Sales Tax

Here are some key differences:

- Payable on Import: VAT is required for inventory shipped to the EU.
- Inclusion in Sale Price: VAT is included in the product price in the EU, unlike sales tax in the US, which is added at the point of sale.
- Impact on Working Capital: Import VAT can lead to substantial initial cash outlay for non-EU sellers.
- Distance Selling Thresholds: EU countries have sales thresholds for VAT registration, unlike the US.

VAT for Distance Selling

Distance selling occurs when you sell and ship goods from one EU country to consumers in another EU country. Each EU country has a distance selling threshold. If your sales exceed this threshold, you must register for VAT in that country and charge VAT at the local rate.

Ignoring VAT: The Risks

Neglecting VAT obligations can be tempting but risky. Tax authorities are cracking down on non-compliant overseas sellers. Ignoring VAT can result in:

- Seizure of products from UK warehouses.
- Assessments for back taxes and late fees.
- Large financial penalties.
- Suspension of your Amazon selling privileges.

VAT Registration Thresholds and Rates by Country

VAT rates and registration thresholds vary across Europe. For instance:

- Germany: 19% VAT, €100,000 threshold.
- France: 20% VAT, €35,000 threshold.
- UK: No threshold if inventory is stored in the UK.

Pros and Cons of Early VAT Registration

Pros:

- Legitimacy: Appearing as an established business.
- Threshold Freedom: No need to monitor sales thresholds.
- Expense Reclaims: Immediate VAT reclaim on business expenses.
- Cash Flow: Holding onto VAT between filing periods can ease cash flow.

Cons:

- Administrative Burden: Regular VAT returns filing.
- Risk of Errors: Potential penalties for incorrect filings.
- Ongoing Costs: Accountant fees or time investment.
- Increased Responsibilities: More complex compliance.

Filing VAT Returns

There are three main ways to file VAT returns:

1. Self-Filing: Manually submit forms or use accounting software.
2. Using a Tax Agency: Hire professionals to manage compliance.
3. Amazon’s VAT Services: Utilize Amazon’s services for registration and filing.

Can You Sell Without Registering for VAT?

While you might not need to register if below the distance selling thresholds, the risks are significant. It’s best to register once you start selling in Amazon UK or EU markets to avoid fines, penalties, and potential suspension.

Claiming Back VAT on Amazon Seller Fees

If you’re a UK business selling on Amazon, you can reclaim the 20% VAT on Amazon seller and FBA fees. Calculate the VAT amount and request a refund from Amazon Seller Support, providing evidence of your business status.

Final Thoughts

Understanding VAT is crucial for accessing the UK and European markets. While it may seem daunting at first, with the right help and early action, it becomes manageable.

Register for VAT promptly, outsource filing if necessary, and make sure to reclaim VAT where possible. With preparation and support, you can confidently expand into these lucrative markets and grow your business successfully.

To learn more about the nuances, we recommend you read the entire blog on Amazon Seller VAT.