The VAT Implications of Selling via Multi-Channels in the European Union
June 16, 2016 8 min read
This article was written and contributed by SimplyVat.com. SimplyVAT.com helps online retailers trade internationally and successfully without being burdened by complex European Value Added Tax (VAT) legislation. SimplyVAT.com is a team of VAT experts who provide first class expertise in international VAT compliance in all European countries and beyond where local laws prevail. Check out their site and contact them to see how SimplyVAT.com can help your business today.
Selling in the European Union – The Opportunity
Selling into Europe is the new black… with an online audience of 500 million people – opportunities to increase your sales and profit are second to none.
Many of the channels you are used to – Amazon, eBay, your own website - and others may be less familiar, for example, CDiscount and Fnac in France and Hitmeister in Germany– give access to a wide and willing audience of European online shoppers.
The biggest markets are UK, France and Germany which account for 60% of the online retail market with a population of over 210 million people between them. Online sales in the UK, Germany, France, The Netherlands, Sweden, Italy, Poland and Spain grew over 18% in 2015 and are expected to rise another 16% both this year and next year to reach £215.38 bn in 2017.
Using the infrastructure of the marketplaces gives the seller many of the tools needed for international success - from localized exposure, in-country warehousing, packing and labelling and delivery to the customer’s door – add innovative software such as Skubana and you will be most of the way to succeed in your international expansion plans.
Value Added Tax (VAT)
The final piece of the puzzle is vital but the least exciting - the tax element. Selling online does not excuse you from the societal rules of taxation and the tax man is entitled to a piece of the pie.
Value Added Tax (VAT) is the preferred transactional tax model in the EU and is equivalent of the USA sales tax. It differs from sales tax though as it is applied every time value is added– from the raw material supplier, to the manufacturer to the wholesaler and retailer and finally to the end consumer. Governments get revenue every step of the supply chain. It is not supposed to be a burden on businesses, who, once VAT registered, can offset any VAT collected on sales against any VAT incurred on expenditure – including import VAT.
Ignorance of the VAT rules is no defense. Not accounting for VAT properly or not reporting it at all can cost you your business.
The tax authorities are becoming more and more proactive in hunting down non-compliant online sellers as the tax authorities get to keep the VAT revenue collected from online sales. The UK government, for example, has introduced new legislation that allows the UK tax authority to work with intermediary sites, such as Amazon and eBay, to identify those who have not complied. If traders continue to evade VAT, online marketplaces can be made liable for VAT, according to new measures. This can mean that if you don’t prove to Amazon that you are compliant, they will shut down your Amazon account, AND, the tax authorities issue penalties and interest charges for non or late VAT compliance - sometimes up to 400% of the VAT owed.
What do you need to know about VAT when selling through multi-channels in Europe
How you choose to distribute your goods to your customers will have VAT implications for you as the seller. Here we explain which issues affect you:
- Using Fulfillment Centres in the European Union
- Wherever your stock is held, whether it be an Amazon fulfilment centre or other third party warehouse, as a non-resident, you now have an obligation to VAT register there. There are no thresholds to exceed.
- If your stock is in a number of EU countries, you will require VAT registrations in all the countries where your stock is held.
- The tax authorities do approach the warehouses and marketplaces for information on sellers and they will catch up with you if you don’t comply.
2. The EU VAT Distance Selling Rules
Once you are VAT registered in one EU country, sales delivered from that country to local private customers or customers in other EU countries are governed by the EU VAT distance selling rules. These rules state that local VAT is charged on any sales to any consumers within Europe until the set distance selling thresholds are exceeded in any one country.
The thresholds are:
- Euros 35,000 (or equivalent) in All EU countries, except:
- Euros 100,000 (or equivalent) in Germany, Netherlands, Luxembourg
- £70,000 (or equivalent) in the UK
The Distance Selling rules do give you a chance to test the European markets without the heavy cost of compliance.
3. Monitoring Your Sales
- When calculating whether you have exceeded the threshold, make sure you add sales from EACH channel you sell on – all sales go towards the distance selling thresholds.
- Also include the shipping amount in the calculation.
4. Other Reporting Obligations
- EC Sales Lists
When stock is sold or transferred between EU countries, there is additional reporting obligation to file an EC Sales List. For example, if stock is moved from the UK warehouse to a German warehouse, this will need to be reported on an EC Sales List as well as the UK VAT return.
- Intrastat Declarations
Intrastat Declarations are statistical reports that are obligatory once set thresholds are exceeded in each EU country. There are thresholds for both ‘dispatches’ and ‘arrivals’. See report here: Intrastat Reporting Thresholds_January 2016. You will need to monitor sales, for example, from the UK to any EU countries, once these ‘dispatches’ reach £250,000, intrastat declarations will need to be filed.
5. Fiscal Representation – as non-EU company, some EU countries require a non-EU business to have Fiscal Representation. A Fiscal Representative is jointly and severely liable for the VAT owed. There are additional fees associated which can include a bank guarantee. They don’t want to be left holding the baby or paying the bill!
6. Import VAT is applied at the first port of entry into the EU - local import VAT will be charged on the cost value of the goods you are importing, for example, in the UK the import VAT is at 20%. The import VAT and duties have to be paid straightaway.
If you are not VAT registered, your customer is usually left to pay the import charges before they can receive delivery of the goods. This is not really the best customer experience.
If you are VAT registered, you will account for the VAT:
- You charge the customer the VAT when they buy the goods from you so there are no unpleasant surprises for them on delivery. This is paid over to the tax authority on the VAT return.
- The import VAT charged is refunded to you via the VAT return.
7. Know the EU VAT Rates
Each EU country has a standard rate of VAT and a reduced rate of VAT. Standard VAT rates across the EU range from 17% to 27%. The VAT rate applied will depend on the type of goods, for example, groceries are ‘zero-rated’ in the UK and Ireland. Other EU countries apply reduced rates to groceries. Find out which VAT rates apply to your goods here: EU VAT Rates 2016
8. Is Your Pricing Right to Stay Competitive in Europe?
Be aware that one price might not fit all. Unlike the USA where sales tax is added after the sale (including ecommerce sales taxes), in Europe, VAT should always be included in the price shown to consumers. Should you charge different prices in different EU countries on different channels 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? Will you stay competitive once you have to VAT register in another EU country?
It’s always a good idea to do some local market research in your chosen markets and find out how you compare to local suppliers and how much flexibility this gives you. Keeping ahead of the game can avoid a lot of future headaches and can even mean the difference between the success and failure of your business.
9. Invoice Compliance
In some countries the provision of an invoice is compulsory. Each country has different criteria for what information should be presented on an invoice. Are you applying the right VAT rate and is the correct information on the invoice?
10. VAT Return Filings
Once registered, you will have to submit VAT returns to the tax authority, in the language, at the frequency and on the deadline specific to that country.
Don’t let VAT be a barrier to your European expansion plans
Head down in the sand works for a while as a business strategy, however it is not a long term solution. Planning and preparation is the key.
Don’t be put off by the VAT rules, we are here to help you. Our advice is ‘plan ahead’. Add the cost of compliance to your cashflow along with other staples such as web-hosting or accountancy fees. Those who have already taken the leap into selling into Europe find the rewards far outweigh the cost of compliance.
If you want to know more, please get in touch at http://www.simplyvat.com to discuss how we can help you.
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