How does VAT work?-en

Why do I need a VAT registration in Europe?

Backstory: Many foreign sellers did not pay the VAT in the last years. Now the government did something to change that. Because its to difficult to sue every single foreign seller that doesn’t pay the VAT, the government has decided to make the marketplaces (like Amazon) responsible for it. Starting in 2019: if a seller doesn’t pay VAT, they government can sue the marketplace. To avoid this, Amazon and co. will forbid every seller to sell without proper registration. 

The upside is: Once you are registered, you will get all the money back that you have spend on the Import-Tax.

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How does the European VAT-System work?

We can explain that by making an example. Let’s say you sell on Amazon by using Amazon FBA. To do so, you import your products into one European country (Let’s say you import into UK). Now the products are in an Amazon Logistic Centre in UK. 

There are 3 different scenarios: 

  1.  A UK-customer buys your product: You register for UK-VAT and you give 20% of the gross product price to the UK Tax-Office.
  2. A non-UK-customer buys your product from Amazon.co.uk: Now you have an export from UK to another country. As long as you don’t do that to often during one year, you still give 20% of the gross price to the UK Tax-Office
  3. You use the Amazon PAN-EU- or Amazon CEP-Program and a non-UK-customer buys your product (Let’s say a german customer): Now it get’s a bit more difficult:
 When you use Amazon PAN-EU, Amazon will store your products in all the PAN-EU countries. That means: products that you have originally imported into UK, now will be shipped and stored in another European country. You don’t have to pay for those kind of Imports and exports, but you have to report the value to both countries (to UK and Germany in our case). Also you have to register for the German-VAT.
Now the product is stored in a German Amazon-Logistic-Centre and from there it will be shipped to the German customer. (So it is no longer an export from UK, because the German customer buys from Amazon.de and not from Amazon.co.uk)

You no longer have to pay the 20% VAT to the UK. Now you have to pay 19% VAT to the German Tax-Office. (Every European country has a different VAT rate)

How to handle Amazon PAN-EU in conclusion: (See graphic below):

  1. You register in the country where you import your goods.
  2. You import into this country and store your products in an Amazon-FBA-Warehouse
  3. Now Amazon can send your goods to Warehouses in another European country. You have to register there as well.  
  4. You have to track every shipment that goes to a warehouse in another European country and report it to the tax-offices from both countries (import & export)
  5. You have to track and report every sale to every customer. According to the country he lives in, you have to pay a different VAT-rate and report those to the tax-offices of the respective county
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