As an Amazon seller in America, you need to pay taxes once you cross a certain sales or income threshold. While you may be aware of the tax obligation for sales made in America, you also need to keep in mind that if you decide to expand to other markets like the UK or the EU, you’re also subject to tax regulations there.
If you’re considering an expansion across the pond (or even have started on it), it’s a good idea to learn about your tax obligations there. Keep reading to learn more about value-added tax (VAT) for Amazon sellers.
Note that TraceFuse does not provide tax or accounting advice. This article is for informational purposes only. We recommend consulting a tax professional for guidance on your VAT obligations.
The Basics of VAT
Value-added tax (VAT) is a consumption tax typically paid by end-users when they purchase goods and services. While the end customer pays for this tax, VAT is charged at each stage of the supply chain, from production to sale, and the seller is responsible for collecting and remitting these tax payments.
Should You Pay VAT As an Amazon Seller?
Strictly speaking, as an Amazon seller, you don’t pay the VAT; the customer does. But it’s your responsibility to charge these taxes to the customer and later remit them to the relevant tax authorities.
VAT Registration Distance Selling Thresholds
Distance selling is when businesses sell and ship goods from a European country to an end customer in another European country. So, if you’re located in the UK and sell something to a person in Germany, that counts as distance selling.
In most of Europe and the UK, VAT rules work by thresholds. Once your total sales in a country exceed a threshold, then you’re required to register for VAT and collect the tax for every sale made there. Thresholds are usually counted by annual sales made and vary depending on the country. For instance, France has a € 35,000 annual threshold while Germany has € 10,000.
The Link Between Amazon FBA and VAT
Sales thresholds don’t matter if you have stock in that particular country. So even if you make under € 35,000 in sales every year in France, if you have stock in FBA warehouses in Italy and Spain, you’re still required to register for VAT in those countries.
What Happens If I Ignore VAT?
Even if the EU and the UK are just small parts of your Amazon market, ignoring VAT is still not a good idea. The HMRC, the UK’s tax authority, often pursues overseas sellers who haven’t registered for VAT and may get your account suspended. If you have stock in UK-based FBA warehouses, not paying tax may even get your inventory seized.
Do I Need to Form a UK or EU Company as an American Amazon Seller?
As a non-EU, non-UK Amazon seller, you don’t need to create a local company to fulfill tax obligations. Instead, you can just register for VAT in each country where you sell and have inventory. While there are perks to setting up a local company, like faster VAT processing, it’s a lot more work to juggle tax obligations between your EU or UK company and your American one.
How Do I Register for VAT?
VAT registration procedures differ by country, but here’s a general breakdown:
- VAT for selling in the UK: You can register for VAT in the UK through the HMRC’s website. To start, you can read the HMRC’s guide for overseas businesses selling on online marketplaces in the UK.
- VAT for selling in EU countries: The VAT registration procedure varies by country, but you can usually register by post or online.
For selling in the EU, you can also alternatively register for VAT through the One Stop Shop (OSS) that allows you to register for VAT in the entire EU from a single portal.
VAT Compliance As an Amazon Seller
As an Amazon seller operating in the EU or UK market, you have several responsibilities to consider to remain compliant. Here are the four key compliance items for VAT compliance as an Amazon seller:
Charging VAT on Customers
Once you’re registered for VAT, you’re responsible for charging it to your customers on every sale. You can set a VAT rate on your Amazon Seller Central account according to the rate of the country where you’re selling products. Be sure to input the appropriate rate, because different countries have different VAT rates.
Another thing to remember is that some products may have reduced or exempted VAT rates. For example, VAT-exempt items in the UK include antiques, medical equipment, children’s clothes, and publications.
VAT Invoicing
VAT invoicing is usually required for B2B transactions, but it’s a good idea to do so for B2C transactions as well. Invoices should include your VAT number and transaction details. If it’s a B2B client, include their VAT number as well.
To ensure proper compliance, research what VAT invoices in your destination market include and follow the required format.
Filing VAT Returns
Sellers are obligated to file periodic VAT returns to report how much tax they’ve charged to customers and paid to the relevant authorities. This is usually done quarterly, and methods may vary depending on the location. In the UK, you can do so through HMRC’s portal.
Making VAT Payments
Once you’ve collected VAT from customers, you need to pay it to the relevant authorities. Punctuality is crucial, because late payments may result in penalties. Again, it’s essential to research how to pay VAT in the relevant countries to ensure timely payment.
How Amazon Helps American Sellers With VAT
Fortunately, as an Amazon seller, you have some help in managing VAT requirements. Amazon offers VAT calculation, reporting, and filing services for sellers on its platform. Let’s take a closer look.
Calculation Service
The Amazon VAT Calculation Service (VCS) helps you calculate VAT for customers and create invoices for them. To take advantage of this feature, you need to provide your VAT registration numbers, relevant addresses, and shipping locations to Amazon.
However, it’s important to note that the VCS is only available in the UK, Spain, Ireland, France, Belgium, the Netherlands, Germany, and Italy. These are some of the biggest European markets you can sell to, so for the most part, you may be covered by the VCS. But if you plan on selling to smaller European markets, you may need to do your own calculations for those countries.
VAT Reporting and Filing
Another immensely useful VAT-related feature that Amazon has is its VAT reporting and filing. The platform utilizes your sales data to automatically generate VAT reports, saving you a significant amount of time and effort. Then, it can also automate VAT filing, preventing you from missing any tax deadlines.
That said, these VAT services aren’t free. You need to pay a monthly fee to take advantage of Amazon’s VAT filing services.
VAT Tips for American Amazon Sellers
As an American seller, it may be challenging to keep up with all the VAT requirements needed to sell on UK and European marketplaces. To help you avoid regulatory scrutiny and sell with peace of mind, here are several tips to keep in mind:
Review Your VAT Calculations
Your VAT calculations are rarely one-and-done things. Be sure to review its settings regularly to ensure they’re up to date with the latest rules and regulations. It’s especially important to review and update after changes in operations like expanding to a new country or adding stock in another country’s warehouse.
Record Transactions in Detail
As with tax obligations in America, detailed transaction records are important. Record your sales, purchases, and VAT invoices. Amazon’s VAT services save your VAT invoices so you can download them later for reference.
Use Amazon’s Services Or Seek Professional Assistance
VAT may be extra complicated to deal with as an American, especially because you have to deal with sales tax as well. Fortunately, Amazon’s VAT services can help lighten the load by automating some processes to ensure you don’t miss anything.
Another alternative to Amazon’s VAT tools is to ask for professional tax advice. Find a tax professional who understands international VAT regulations to advise you in tax matters as you expand your store to the UK and Europe.
Key Takeaways
Even if you’re based in the United States, you still need to pay tax obligations when selling in the UK or the EU. To fulfill your tax obligations, you need to register for VAT in the relevant countries and charge it to your customers.
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