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Every business owner knows Amazon. Millions of business owners use Amazon. Not many business owners understand how Amazon affects the whole sales tax situation. You know, the legal obligation to collect taxes from buyers and pay it to the government, on time or else.
This is a problem. Because European governments are getting increasingly strict about EU VAT compliance, from large online marketplaces like Amazon and from individual sellers like you. Under governmental pressure and worries about getting caught in a legal net, Amazon has started leaning on their sellers to get with the VAT program, too. If they find sellers that aren’t properly VAT registered, they’re shutting down the accounts.
So! Let’s avoid that from happening!
Here you’ll find all the information you need about how using Fulfillment by Amazon impacts your EU VAT obligations.
Really quick, what is Amazon FBA?
Might as well start with the basics! Here’s a brief overview of Amazon’s fulfillment solutions.
“Fulfillment by Amazon” is actually three service options that take care of some or all of the sale & delivery process. In three different ways, FBA can take product distribution and delivery off your plate.
Pan-European FBA
Amazon has seven marketplaces in Europe: Spain, France, Italy, Germany, Poland, Czech Republic, and the UK. With Pan-European FBA, your products are stored locally in all seven marketplaces, ensuring faster delivery times and avoiding many cross-border delivery fees. The catch: since your products are stored in warehouses in the seven countries, you must also register for VAT in all seven countries. (By the same token, since your sales are shipping from seven different origins, you likely don’t have to worry about hitting distance selling thresholds. More on this later!)
Multi-Country Inventory (MCI)
MCI is very similar to Pan-European FBA, except you get to choose one or more individual marketplaces, rather than enrolling in all seven at once. Wherever you enroll, you’ll have products stored in local warehouses and must then register for each country’s VAT scheme. For deliveries to any other European marketplace(s), you must pay cross-border delivery fees. And you’ll also have to watch your distance selling thresholds, in case you need to register for VAT in an additional EU country.
European Fulfilment Network (EFN)
EFN is arguable the simplest version, just Amazon’s solution to help you store and ship your items. Your products are stored in one Amazon Fulfillment Center, where you’re already registered for VAT (or you should be!). For deliveries to any other European marketplace(s), you must pay cross-border delivery fees. And you’ll also have to watch your distance selling thresholds, in case you need to register for VAT in an additional EU country.
How do you comply with EU VAT using Amazon FBA?
Each FBA option can affect your EU VAT obligations in very different ways.
1. Register for EU VAT in every country where your goods are stored. Ask yourself, which Amazon Fulfillment Centers house my products? Are they in Spain, Germany, the UK, or all seven places? Go register for VAT in those countries, like, now. Or right after reading this article.
2. Charge VAT when necessary, at the correct tax rate! This can be tricky. Each EU member state has its own VAT rate. Typically, you’ll charge VAT based on the rate of your ship-from country, the location of the warehouse where the product is stored. But there are a few cases where this changes.
- If the customer is a registered business and provides their own valid EU VAT number, then you don’t charge or collect the VAT. Instead, you follow the reverse-charge mechanism, and the buyer handles VAT on their end.
- If you’re registered for VAT in the destination country (because you surpassed their distance selling threshold), then you need to charge the destination country’s VAT rate. For example, you sell a ton to Portugal, well over the 35,000€ annual threshold. So you’ve registered for VAT in Portugal. Every time you have a Portuguese-based customer, you need to charge Portugal’s 23% rate.
3. Send VAT invoices to the customer, and keep them in your records for 10 years. Yep, that’s right. The EU requires VAT-registered businesses to store invoices for ten years, and to make them digital, too. Here’s what VAT invoices are required to include:
- Your business’ name and address
- Your business’ VAT number
- Invoice date
- Invoice sequencing number
- Buyer’s name and address
- Buyer’s VAT number. If you are using the reverse-charge mechanism, you must also add the text “EU VAT reverse-charged”
- VAT (amount and rate) applied to each item
- Final amount after VAT is added
- The currency used
4. File VAT returns in each country where you’re registered. It can get tricky here as well, since countries have different filing frequencies. Many EU member states require monthly VAT returns, while some only ask for it quarterly. And others want an additional annual filing on top! As for the Amazon marketplaces, most of them require monthly VAT filing, while UK and Spain are quarterly. Some of the countries require that comprehensive annual return, too.
5. Track your sales thresholds in every EU member state! Stay on the ball about where you might be liable for new VAT registration. As we’ve mentioned a bit above, EU distance selling rules require you to monitor your annual sales in foreign countries. When you’ve hit a foreign distance selling threshold, then your VAT obligations switch from your homebase (or your ship-from location) to the other country, to the ship-to location. Check out the various EU distance selling thresholds.
What can help you handle EU VAT on Amazon FBA?
Once you’re registered for VAT in more than one EU country, or even seven if you’re using Pan-European FBA, things can get really confusing. Especially for small businesses who need to track sales from (up to) seven different tax registrations!
While Amazon helps you fulfill your orders to customers, it does not necessarily help you fulfill any of these tax obligations.
Where Amazon’s service stops, Quaderno takes over. The Quaderno integration with Amazon FBA will seamlessly handle all the following VAT sticking points:
Automatic VAT calculation and collection. Quaderno charges the correct amount of VAT, based on the ship-from or ship-to location.
Automatic VAT invoices, fully customized. Amazon’s invoices don’t allow you to customize the tax information that EU laws require. Quaderno includes all necessary tax info. Plus it sends invoices automatically, in several foreign languages and currencies.
Automatic threshold notifications. While Amazon FBA doesn’t monitor any distance selling thresholds for you, Quaderno automatically tracks your annual sales and tax thresholds in every country.
Instant tax reports for easy filing. In the click of a button, Quaderno provides you with a full tax report for each EU country where you’re VAT registered. Before you file any VAT return, use Quaderno’s instant reports to have all the necessary info at a glance. This makes things so much easier, when you have seven different VAT registrations going at once!
And another great thing? Connecting Quaderno with your Amazon account only takes a minute. Give us a try with a free trial.
Resources
Amazon’s Pan-European FBA
Distance selling in the EU: How to do it right
Fulfillment by Amazon, accounting by Quaderno
What you must know about VAT if you have customers in Europe
How to handle sales tax for physical products around the world
* At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or accountant.
