This article is not financial or legal advice. Please seek a tax or legal professional prior to making any decisions about your business. 

Are you selling on the UK and European markets through Amazon? Online selling opens up new opportunities to access international markets. However, you must be aware of the laws in each country you sell to. This applies to Europe and the UK.

Many sellers are confused by the “Value Added Tax”, especially since it can appear quite complex at first glance. This is what you need to know about VAT for UK and European sellers.

What is VAT?

VAT stands for Value Added Tax and is a consumption tax paid by European and UK consumers. This is similar to sales tax, which is charged by many US states. You are expected collect this from buyers if you have a nexus with their state. It is possible that you will be required to collect VAT from customers in the UK or EU and to remit VAT returns back to the appropriate countries. It is important to note that every country has its own rules regarding when and how much VAT must be paid.

Important to remember that VAT does not equal company taxes, which you pay for business earnings. Many sellers based in the US have been confused as to whether they must pay VAT in the UK or Europe. However, this only applies if you are registered in one of these countries. VAT registration is required. You may also need to register in more than one country.

What do I need to do to start a local business?

We recommend that foreign sellers seek advice from local experts to make sure that they are properly set up for business. Many people recommend that Amazon UK sellers establish a UK-based Ltd company (like a LLC), but you can also sell from outside the EU.

Local business establishments can be complicated. You will need to obtain the appropriate license and pay taxes. You can also choose to remain a non-EU seller and have a designated fiscal representative take care of your VAT obligations. You can then have your profits returned to the US-based company and pay the applicable company taxes.

You will need an EORI to import into the EU. This is necessary for entry or exit summary declarations. EORI is not required to be issued to a company. However, individuals and sole traders can also get them. This is necessary for products you plan to ship to FBA warehouses within the UK or EU.

Do your research again and get advice from someone who can. It might be a good idea to start a local business, but you may find that your tax burden is greater in Europe.

What is VAT?

Each country in the EU has its own VAT rules. However, it is generally true that you will need to register with a VAT number. You may also need to register with multiple countries depending on where your goods are kept and where you sell them.

You are required to charge VAT to consumers in Europe and the UK for any sale. Then, you must pay the taxes to the appropriate revenue-collecting agency. You can subtract VAT you have paid to “taxable persons” in order to pay less.

There are “distance selling thresholds” in each country. If you have goods located in one country but sell into another country, you will be required to pay VAT for the country you are selling into. You might store goods in the UK but make many sales to Germany. The current levels state that sales exceeding EUR100,000. You would be required to pay VAT in Germany. If you had sales below the threshold, VAT would be charged at the UK rate to HMRC.

What happens if I don’t pay VAT?

You might be able to ignore VAT. However, we think that is not the best option. If you’re operating in Amazon UK or any other European country, you’re on their turf. More recently, there have been crackdowns on businesses that don’t pay their VAT obligations. If you don’t pay VAT, your business could be shut down or your products taken from the local warehouse. You could also face very heavy fines if you sell without VAT registration or collection.

Online sellers are a hot topic in Europe and the UK. Governments want to collect appropriate taxes and avoid local sellers being undercut or disadvantaged by foreign tax-dodging sellers. HMRC has been following non-compliant sellers across all platforms, including Amazon. To ensure compliance, they have approached sellers directly or through Amazon.

Once goods are stored in the UK at FBA warehouses, they become a taxable supply. You will need to register for VAT. This is a constant situation and there is no threshold. UK obligations can be seen in this link.

Amazon may inform sellers that they can’t sell until they meet the HMRC requirements. This could include providing Amazon login details, annual accounts, and import records. They are often interested in first-hand transaction histories. We believe it is sensible to protect your investment in the UK and European market entry and follow the rules.

How does Amazon handle VAT?

Amazon sellers can either manage their VAT by themselves (via their seller account), or with the assistance of a fiscal representative. Although it is possible to do it yourself, it can be difficult. It is often worth paying for a service to have peace of mind.

You should also consider that many countries have specific invoicing requirements. Customers will need compliant VAT invoices. You used to have to do this yourself, or use a third-party service, but it is now possible to make this a part of your Amazon account settings. Amazon also has a resource center that provides information about VAT, which can be found here. You should also consider:

1. EFN If you’re part of Amazon Europe Fulfillment Network, which allows you to be located in one market but have your products listed in other markets, Amazon will fulfill orders from the location of your products. You’ll need to keep track and note if sales exceed thresholds. You should register for VAT and pay it in the country.
2. Pan European FBA This Amazon service is designed to provide sellers with faster access to different EU markets. This service allows Amazon to automatically distribute inventory to warehouses across the EU based on demand. It is important to note that when you store inventory in a country, it creates a VAT obligation and must be registered. Many people believe that Amazon may be forcing sellers to join Pan-European, charging more per shipment if they don’t.

Final thoughts

Bottom line: correctly managing VAT obligations falls on the seller. Amazon won’t do that for you. You have two options: either you manage your VAT or you can hire a fiscal representative.

While you might be tempted to ignore VAT, which is what many online sellers do, it doesn’t seem wise when tax authorities crack down on businesses that don’t comply with VAT obligations. Amazon sellers may be subject to the tax authority’s direct visit to Amazon. This could lead to your account being closed.

Depending on where and how you sell, VAT can be complicated. We strongly recommend that you seek qualified guidance if you find it overwhelming.