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. This is a relatively complicated issue that does not come to the forefront of running a business, but it is something that can potentially threaten the entire business. Proper VAT accounting becomes more complicated when the sale and shipment of products to customers occur from and to different countries within 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 relate to specific countries, while others apply throughout the EU. An example of the latter is the introduction in July 2021 of certain overarching solutions for comprehensive VAT handling, known as the One Stop Shop (VAT-OSS), operating under EU regulations but functioning at the level of local member states. This solution aims to:

Tighten the VAT system at the European level

Minimize opportunities for tax arbitrage

Simplify the VAT compliance process for both foreign and EU online sellers operating within the European Union.

A particular case of online entrepreneurs is, of course, Amazon FBA sellers. They sell and ship products to customers in several countries, but they also usually store them abroad as part of participating in the Fulfilled by Amazon programs. Due to the storage of products in other countries, they are subject not only to general regulations but also to additional obligations arising from local VAT regulations and procedures.

EU threshold for delivery value

One of the most important changes in 2021 was the removal of delivery thresholds applicable in individual countries for B2C "distance sales" in favour of a lower threshold applicable throughout the EU.

The previous thresholds ranged from €35,000 to €100,000 depending on the country. When the value of deliveries made by an Amazon seller to individual customers in a given country exceeded the threshold applicable in that country, the seller was required to:

Register as a VAT payer

Apply the VAT rates applicable in that country regarding future sales

Submit regular VAT declarations in that country to the local tax authority.

Before exceeding the delivery threshold, they were treated as domestic sales and reported using local VAT rates in the VAT declaration. That was the case before July 2021.

The new threshold introduced with the implementation of OSS is only €10,000, which is significantly lower. It applies to the entire area of the EU, which is very important, as this cap is typically reached very quickly. Therefore, decisions regarding VAT accounting cannot be delayed. This means that all cross-border sales, regardless of which EU countries the customers reside in, count towards the limit. Once that limit is exceeded, VAT registration is required in all countries to which the Amazon seller ships products.

To successfully register for VAT purposes and regularly complete local tax declarations, it is advisable to hire local accountants. Tax authorities typically communicate solely in the language of the given country and sometimes require the presence of a native representative when submitting declarations. This change aims to minimize opportunities for "creative accounting" while simultaneously increasing bureaucratic burdens for Amazon sellers operating in multiple European markets.

OSS for Amazon sellers

The change in threshold limits occurred with the introduction of OSS, a new regulation that enables some online sellers to manage their EU VAT matters in their home country.

Participating in this program means waiving the €10,000 threshold. Instead, local VAT rates appropriate for the given state are applied from the very beginning. All cross-border B2C transactions are then reported in the OSS report, which is submitted in the country of origin, and the total VAT liability is paid to the tax authority in the country of origin. In short: you account for VAT across the EU via one declaration and one payment to the Polish tax office.

The national tax office then transfers the appropriate amounts to the countries due VAT. To facilitate this, OSS reports must be created according to very detailed guidelines. First and foremost, all transactions must be sorted by country:

Shipment destinations

Package destinations

Applicable VAT rate.

Then the sums of all these transactions must be entered into the OSS report.

Although the sorting procedure is very time-consuming, OSS simplifies VAT compliance obligations for Amazon sellers whose shipments are sent exclusively from their home country. They can forgo local accountants and tracking changing deadlines applicable in individual countries or sales limits in a given market.

VAT regulations for Amazon FBA sellers

Sounds good, right? However, there are difficulties associated with OSS. This primarily stems from the fact that it does not apply to Amazon sellers in the FBA program.

OSS only applies to cross-border sales, so it does not concern deliveries within the respective country. This significantly reduces its usefulness, especially for Amazon FBA sellers, who store products in this e-commerce giant's warehouses in various locations across the EU outside their country of operation.

Amazon FBA sellers do not always know where their inventory is currently stored, which may seem strange, but that is indeed the case. VAT registration in a given country is mandatory when a product can potentially be stored or is stored in that country. This means that sellers using FBA programs, such as PAN-EU, must immediately register as VAT taxpayers in the countries where their products may be stored. To participate in this program, the ability to store in at least 4 EU countries is required - and consequently - VAT registration in those countries. Which countries these will be depends, of course, on the seller. 

How to set up VAT in your Amazon seller panel?

Finally, a few practical tips regarding VAT settings in Seller Central:

You can find the option to enable OSS on Amazon in the Settings -> Tax Information section. 

You can also add a VAT number associated with the account in the above section. Verification time is up to 48 hours.

You will set the allowed storage locations for products in the FBA model in Settings -> Fulfillment by Amazon - Cross-Border Fulfilment Settings.

You can generate a report showing where your products are currently located in Reports -> Fulfillment by Amazon -> Inventory -> Multi Country Inventory.

Happy Taxing,

Go2Market Crew