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A Sellers Guide to VAT in Europe

Avoiding Online Marketplace Potential Pitfalls

Whether you’re using an online marketplace such as Amazon or CDiscount, when selling cross border, it’s becoming increasingly prevalent for online sellers to ensure tax compliance. 

In recent months, e-marketplaces are facing pressure from European tax authorities to ensure sellers are complying with tax legislation. Germany is the latest country to propose new regulations making marketplaces jointly liable for any unpaid VAT. 

Furthermore, sellers have felt increasing pressure to stay on top of tax and navigate the complexities of the European union VAT system.

As you look to grow your business and expand successfully into new countries and new marketplaces it’s important to understand your obligations as a seller.

This guide aims to help sellers who trade cross-border to private consumers understand their obligations in the European Union. 

Distance selling rules 

When selling into Europe as a non-EU or EU based business to private consumers, the most important thing to understand around VAT is the Distance selling rules. 

As a non-EU business, you will need to register for VAT in at least one European country to make use of the distance selling rules. VAT registration is required in each country where you hold your stock.

If you’re an EU based business, and your stock is held in your local country, you will have set thresholds for local companies to reach before having to VAT register in the home country. You will then you’ll need to monitor your sales into each EU member state.

Note the thresholds vary from country to country in the European Union. There is no standard limit!

Once you have exceeded the threshold of the country you are selling to you will need to register and begin filing for VAT according to the frequency of the member state. The thresholds begin at €35,000 (Belgium, Austria, Italy, etc) and can be as much as €100,000 (Germany, Netherlands and Luxembourg). 

Remember, once you have crossed the threshold you will then need to charge the rate of VAT of that country.

Selling across multiple platforms? Utilise the help of a platform such as S-VAT software which monitors and calculates your distance selling thresholds for you! 

Storing stock

If you are storing stock in another country and selling to private consumers, you have created a taxable supply and will automatically need to register for VAT in that country.

Be prepared if using Amazon’s Pan-EU FBA - the downside of this FBA is that you will automatically need to register for VAT in all 7 countries even though you may not actually be selling to consumers in this country. 
Registering in all these countries can be costly and complex, so ensure you have added the costs and timings into your cashflow. 

Bear in mind there are other options for the FBA, if you are looking to test a few European markets, you may want to investigate using the Multi-Channel Fulfilment option that Amazon offers, instead of the Pan-EU FBA.
If you are already holding stock in a country and you are having to pay VAT, why not test out additional market places within the countries that your stock is being held. 

In the UK, fulfilment centres are now jointly responsible for the VAT obligations of those storing stock in their warehouses. So, you need to ensure you are compliant when looking to store stock here through a marketplace. 
Fiscal Representation 

As a non-European based company, if you wish to VAT register in EU countries you may need to have Fiscal representation. Listed below, are the Pan-EU countries, where a fiscal representative is required in order to be VAT registered:
- Spain 
- Italy
- France
- Poland 

A Fiscal Representative is jointly and severely liable for the VAT due and they have to be located within the member state in order to represent your business. 

Audits and Account suspensions

As you know marketplaces can often suspend your account without reason and sometimes unfairly.

Recently, online marketplaces have become jointly liable for ensuring that sellers are paying the correct VAT, this has caused an increase in suspensions due to a seller being non-VAT-compliant.
In a growing bid to prevent global tax evasion on online cross-border sales, governments are looking to make operator of electronic marketplaces obligated to gather data on sellers including their tax numbers and ensuring they are registered with the respective tax authority. 

The German government are the latest state to have drafted a bill making marketplaces jointly liable in a bid to stop online tax evasion, with France looking to follow suit. 

The UK also holds online marketplaces jointly liable if using fulfilment centres. This has caused increased caution from the larger marketplaces. 

As a result, sellers have seen an increase in marketplace requiring sellers to be VAT registered regardless of whether it is needed or not. 

As part of the crackdown, HMRC has increased the number of Audits on sellers. In this case you need to be prepared or seek the help of a professional to ensure profits are not lost as a result. 

Online sellers are facing their accounts being shut down immediately if they cannot prove VAT compliance. 
 
Paying your VAT

For sellers, paying VAT in European countries needs to be done in the local currency and quite often from a local bank account. Utilising the services of a payments specialist, saves you high exchange fees and offers the ability to open a local account.

Remember, in France you are required by the authorities to set up a direct debit to pay your VAT, as they will issue you with a €60.00 fine per month for a payment by other means. 

Brexit 

Post Brexit, the United Kingdom will continue to have a VAT system, regardless of the event of a no-deal or a deal. 

In the event of a no deal in March 2019, the UK will automatically exit the European Union. As a result, the UK will be treated as a non-EU country when it comes to trade and will be subject to increased import and customs duties. 
Respectively, EU businesses selling or storing stock in the UK are likely to need to register for VAT automatically as would UK businesses storing stock in the European Union. 

Likewise, as a UK registered business selling stock to consumers or storing stock in the EU you will need to register in at least one EU country to utilise the distance selling rules.
There is also likely to be the increased need to use Fiscal Representation. 

Most importantly, the distance selling rules will no longer apply to the UK trading goods online to the EU. This will mean that any goods for EU consumer entering the EU from the UK will be subject to associated import Vat and customs duties when they arrive into the EU. 

The above relates to business to consumer transactions, the rules around business to business transactions and VAT differ. 

For goods coming from EU businesses, the UK will introduce postponed accounting for import VAT in the event of a no-deal.

Read the Brexit NO-deal paper on VAT here

SimplyVAT offers an international tax compliance service and software helping e-commerce sellers globally. They handle registrations, filings and consulting for VAT and GST in all European countries as well as Canada, Australia and Japan. 

Need more information on European VAT or have a question on the services they provide – get in touch today or drop them an email at info@simplyvat.com.

 

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