VAT on ecommerce sales of goods to Europe through websites. Ecommerce is growing faster than ever before and merchants today can reach customers worldwide within seconds through online stores. Online merchants might sell goods and products from their own websites, or use online platforms such as Amazon, Alibaba, EBay or Costco. In either case, a local VAT registration might be required prior to any international business transaction. Please find below a few sample online sales scenarios and the VAT liabilities when North American companies sell goods and products online to customers within the European Union (EU):
SCENARIO 1:
Sales of goods through own website.
Shipped from Non-EU warehouse.
EU customer acts as official importer of record into Europe.
In this scenario, the North American company sells goods from their own website, and the goods are shipped from the North American warehouse directly to customers within the European Union (EU). The North American company has appointed the customer to be the official importer of record, and it will therefore be the customer who will be responsible for paying the duty and local VAT to customs. In this case the North American company should do the following:
1. State on website that the customer* is responsible for the duty and local sales tax/VAT.
2. Make sure to prepare shipping documents so that the freight forwarder does not send the invoice for duty and VAT to the US seller/vendor. Or, absorb the duty and local taxes/VAT, but add into the price. However, the last option might lead to VAT liabilities in the country of shipment.
*Note the difference when selling to a company versus private person; VAT is usually refundable if the customer is a company, VAT is not refundable if the customer is a private person. The duty is always a cost.
This is generally the most convenient option for the North American company that is new to international sales, since the North American company generally does not have any VAT liabilities in this case. If it is possible to set the imports up this way then the North American company generally does not have to register for VAT or charge VAT to the European customers.
SCENARIO 2:
Sales of goods through own website.
Shipped from Non-EU warehouse.
North American company acts as official importer of record into Europe.
In this scenario, the North American company sells goods from their own website, and goods are shipped from the North American warehouse directly to customers in Europe. In this case the customer might not be able to be the importer of record, or, they might not want to be for a number of reasons. The North American company is therefore required to be the official importer of record in this case, and therefore also be responsible to pay the duty and local VAT to customs. Note that it is generally only in the European Union (EU) countries where the North American company can register for VAT without a local establishment. The North American company should do the following:
1. Register for VAT in the EU country of import.
2. Import under their VAT number, and pay duty and import VAT.
3. Charge VAT to the EU customers.
4. Deduct the VAT paid upon import.
5. Declare the VAT to the local tax authorities.
6. Budget for the VAT registration and related filings.
The basic principle for the VAT system is that VAT should not be a cost to any companies involved in the distribution chain, but will end up as cost to the private person who buys the product in the end.
SCENARIO 3:
Sales of goods through own website.
Shipped from EU warehouse.
North American company acts as official importer of record into EU warehouse.
In this scenario, the North American company sells goods from their own website, ships to a European warehouse, and from there ships and sells directly to customers within the European Union (EU). The North American company is the official importer of record, and pays the duty and local VAT to customs. In this case the North American company should do the following:
1. Register for VAT in the EU country where the warehouse is located.
2. Import under their VAT number, and pay duty and import VAT.
3. Make sure to state the prices on the local websites that includes the VAT.
4. Charge VAT to the EU customers per the EU laws.
5. Deduct the VAT paid upon import.
6. Declare the VAT to the local tax authorities.
7. Budget for the VAT registration and related filings.
VAT registration might be required in additional EU countries if sales are above the local thresholds (the thresholds vary from country to country). Ultimately the VAT will only be a cost to the private person.
SCENARIO 4:
Sales of goods through platforms like Amazon.
Shipped from EU fulfillment warehouse.
North American company acts as official importer of record into EU warehouse.
In this scenario, the North American company sells products on online platforms such as Amazon, Alibaba, EBay and Costco in the United Kingdom, and/or other countries within the European Union (EU). The North American company sends goods to a fulfillment warehouse in the EU and acts as the official importer of record. E-commerce websites, such as amazon.co.uk and costco.co.uk, require that the vendor merchant follows the local VAT laws of the country, which means that the North American company must do the following:
1. Register for VAT in the EU country of import.
2. Import under their VAT number, and pay duty and import VAT.
3. Charge VAT to the EU customers per the EU laws.
4. Deduct the VAT paid upon import.
5. Declare the VAT to the local tax authority in the EU country where registered for VAT.
6. Budget for the VAT registration and related filings.
The rules vary from country to country so if the North American company is planning to sell through Amazon in a number of different EU countries, then VAT registration is generally required in the countries where the fulfillment warehouses are located. This has to be reviewed and checked upon in detail for each country. The terms should also be stated on the Amazon contract, or on the Amazon websites for these countries.
Euro VAT Refund can assist in all scenarios mentioned above
The basic principle for the VAT system is that VAT should not be a cost to any companies involved in the distribution chain, but will end up as cost to the private person who buys the product in the end. Please contact our VAT experts for clarification and assistance, so the VAT does not end up as a cost to the North American company or its business customers in Europe.
Euro VAT Refund can:
- Often assess the VAT issue before international business transaction, including VAT on shipments. Please feel free to contact our VAT experts before any shipment occurs.
- Assess the VAT issue after the shipment, and assist in the reclamation process, when possible.
- Assist with VAT registration, management, and filings when required.
- Establish procedures, guidelines and training for how to charge VAT, collect the correct back up, prepare for the regular VAT return and other reporting required, and how to account for the VAT.
