How to ensure VAT compliance in Europe whilst you grow your online business
This is a guest article by SimplyVAT.
Many online sellers are facing the threat of their accounts being shut down or huge backdated VAT payments, as recently, many governments have been cracking down on non-compliant online sellers.
Germany is the latest country to make marketplaces such as Amazon jointly liable for non-compliant sellers. France is also set to be bringing out measures later this year and the UK has already enforced a law on this
We bring you a step by step guide on how to stay compliant when selling in Europe either through online marketplaces or your own e-commerce website.
#1 EU BASED BUSINESS SELLING GOODS ONLINE TO PRIVATE CONSUMERS
If you are selling goods online to private consumers in the EU, you will need to VAT register if you hold stock within an EU country where you are not established, or, if you cross the distance selling threshold when selling cross border. This applies across all 28 EU member states. If you have high value goods you are likely to hit the distance selling thresholds a lot quicker, so it is important to keep track of your sales across all the platforms you are selling from.
- The distance selling thresholds for each country – check them here
- Each country has a standard VAT rate ranging from 17% to 27% depending on the country
- Most countries also tend to have a lower VAT rate that can vary depending on the products you sell
When you are supplying goods to a customer in another EU country who is not registered for VAT, this is classed as a DISTANCE SALE.
- This can be in the form of an online sale to a private consumer in another EU country
- The rules apply even if you are a sole-trader
- The rules apply even if you are selling across multiple online platforms
Before hitting the threshold, you should apply the domestic rate of tax to those sales if you are already VAT registered.
Once you have exceeded the distance selling threshold in a specific country, you will then need to switch to the arrival country’s rate of VAT and file according to the frequency set by that member state.
#2 EU VAT REGISTERED BUSINESS SELLING GOODS TO OTHER EU BASED BUSINESS
Goods sold from a VAT registered business in one EU member state to another VAT registered business in a different EU member state are zero-rated for VAT purposes. For example, if you are a German based business selling to a French customer with a French VAT registration number and you have declared on the invoice the obligatory phrase: ‘Intra EU despatch of goods – Customer liable to account for the VAT.’. (Please note you will need you customers VAT number for your VAT Return and paperwork). This is classed under the Reverse Charge Mechanism. For B2B sales, there is additional reporting that will need to take place:
- Ensure you record all the goods sold to the EU country on your VAT return
- Complete an EC sales list
- Fill in an Intrastat declaration if your total dispatches are worth more than the threshold for that country
You can check if a business has a registration that is VALID HERE.
If the customer is NOT VAT registered, then you will need to charge VAT on the sale.
#3 NON – EU BUSINESS SELLING GOODS TO EUROPEAN PRIVATE CONSUMERS
If you are non-EU based online business and you are selling goods in Europe then you need to ensure you identify ‘Who the Importer of Record is’.
- The best option is to VAT register in the country where your goods are imported to as it is usually difficult for the customer to complete the import themselves and they may be unhappy having to pay additional fees
- You will need an EORI number, which is a unique number used by customs in EU member states, to clear your goods through customs
- By using the EORI number on your import, you can then reclaim import VAT on your VAT return
#4 STORING GOODS IN ANOTHER EU COUNTRY EITHER AS A NON-EU OR EU BUSINESS
If you are using a programme such as Amazon FBA or using a fulfilment centre in a different country to where your company is established, then you have created a taxable supply and will need to register for VAT.
In this case, there is no threshold to exceed and you must register for VAT in that country and charge the local rate of VAT.
Failure to comply could result in the following:
- Marketplaces shutting down your account
- Backdated VAT payments
- Large fines
*With Amazons PAN-EU programe it is worth working out the cost of VAT compliance before agreeing to the programe. The PAN-EU FBA enables your stock to be held in at least 7 countries and you will be obligated to register in all 7 straight away. Read our guide to the PAN-EU.
Don’t let VAT hold you back from global expansion!