Selling on Amazon and VAT - basic principles for FBM and FBA sellers

Regardless of the country in which you conduct your business, compliance with VAT regulations is mandatory. It is a relatively complicated issue that does not come to the fore in running a business, but it is something that can potentially jeopardise the entire enterprise. Proper VAT accounting becomes complicated when the sale and shipment of products to customers occur from and to different countries in the European Union.

Changes in VAT accounting for intra-community transactions
Why is this a Challenge with a capital “C”? Namely, because VAT regulations within the Community are very diverse – some apply to specific countries, while others are applicable throughout the EU. An example of the latter is the introduction in July 2021 of certain superior solutions for comprehensive VAT service, known as the One Stop Shop (VAT-OSS) functioning under EU regulations but operating at the level of local member states. This solution aims to:

• seal the VAT system at the European level,

• minimise opportunities for tax arbitrage,

• simplify the process of complying with VAT regulations for both foreign and EU online sellers operating within the EU.

A particular case of internet entrepreneurs is Amazon FBA sellers. They sell and ship products to customers in several countries, but they also store them abroad under the Fulfilled by Amazon programs. As a result of storing products in other countries, they are subject not only to general regulations but also to additional obligations arising from local VAT regulations.

EU threshold for delivery value
One of the most significant changes in 2021 was the abolishment of delivery thresholds applicable in individual countries for B2C distance sales in favour of one significantly lower threshold applicable across the EU.

The previous thresholds ranged from EUR 35,000 to EUR 100,000 depending on the country. Once these were exceeded, the Amazon seller was required to:

• register as a VAT payer,

• apply local VAT rates,

• file regular VAT returns in that country.

The new threshold introduced along with OSS is only EUR 10,000 and covers the entire EU. This means that cross-border sales are subject to VAT accounting obligations in the destination countries much faster. Sellers must therefore react and register much more quickly with the relevant offices.

To correctly account for VAT and complete local tax returns, the assistance of local accountants is often necessary. Tax authorities usually communicate solely in the language of the respective country and may require the presence of a local representative.

OSS for Amazon sellers
OSS allows VAT accounting across the Union via a single declaration and a single payment to the national tax office. The seller reports all cross-border B2C transactions in their country of origin, and the local office then transfers the funds to the respective states.

Although the procedure requires detailed sorting of transactions by country and VAT rates, it represents a huge simplification for sellers who ship goods solely from their home country.

VAT regulations for Amazon FBA sellers
This is where the problem arises – OSS does not apply to domestic sales, and Amazon FBA sellers store goods in various warehouses throughout the EU. This means that they must register as VAT taxpayers in every country where their products may be stored.

For participants in the PAN-EU program, storing products in at least four EU countries is required – which automatically entails the necessity of VAT registration in those states.

How to set up VAT in the seller panel on Amazon?
A few practical tips for Seller Central:

• You will activate OSS in the Settings → Tax Information section.

• You will add your VAT number in the same section (verification time up to 48 hours).

• You will set the storage locations for products in FBA under Settings → Fulfillment by Amazon → Cross-Border Fulfilment Settings.

• You will find the inventory location report in Reports → Fulfillment by Amazon → Inventory → Multi Country Inventory.

Happy Taxing,
Go2Market Crew