What impact will tax changes in the European e-commerce market have on sales on Amazon?

Significant changes are underway in the Community market from 1 July 2021, which may affect the e-commerce sector. Find out what tax rules will apply for goods sent to EU member states by suppliers from third countries. What will change for sellers storing goods in Europe? Modifications introduced by Council Directive (EU) 2017/2455 regarding tax calculations are beneficial for new companies making shipments from the Community area.

What do the new EU regulations on goods tax entail?

Until 1 July 2021, an exemption from VAT applied to imports from third countries for goods valued at no more than 22 euros. This regulation was often exploited to register more valuable shipments and undervalue their price so that no tax needed to be paid. This meant significant losses for the EU treasury. Consequently, specific changes for sellers sending goods from warehouses outside the EU or based in a third country were decided upon. 

What’s new in taxes?

The VAT exemption has been completely abolished; this tax will have to be paid regardless of the shipment's value. The seller will pay this tax even if they state that its contents are worth 1 cent.

The regulations exempting from the obligation to pay import tax for shipments not exceeding a specified price limit have been revoked.

Sellers outside the Community will have to register all goods they wish to send to the EU in advance using an electronic form.

For transactions valued at up to 150 euros coming from a third country, which are not subject to customs duty, a new procedure is introduced. A taxpayer without a registered office in the EU must appoint an intermediary who will submit monthly VAT declarations on their behalf and pay due taxes. 

Check what advantages the new solution offers for companies based in one of the member states. If you have questions or doubts related to selling on Amazon, schedule a thematic consultation.

Facilitations for sellers based in one of the EU member states

If your company's headquarters is in Poland or another EU member state, you can take advantage of the new VAT settlement mechanism, known as the One Stop Shop (OSS). It’s worth considering registration for OSS, as it represents a great facilitation in settling this tax in community trade. You only need to be registered as a taxpayer of this public tax in one of the EU countries.

As of 1 April this year, to sell goods to customers residing in the Community area, you do not need to apply for a tax identification number in each country to which your shipments go. This applies to businesses whose total annual sales in the Community do not exceed 10,000 euros. Therefore, having a Polish VAT number and registering for OSS allows you to conduct trade in the European market without obstacles. This avoids the need to apply for 26 additional identifiers in other foreign tax offices. Detailed information can be found in the Guide to the VAT One Stop Shop. You can also leverage the expertise of professionals in Amazon sales who will discuss any uncertainties with you and assist in completing the formalities required to start selling. 

What effects will the new tax regulations have?

According to the Marketplace Pulse portal, there are currently about 6 million sellers on Amazon. More than half come from North America (USA, Canada, Mexico). In the European market, many firms offer goods on several or all local marketplaces. It is estimated that as much as 40% of them are Chinese. For example, out of 691 thousand sellers on amazon.de, more than 180 thousand are Chinese companies, and about 200 thousand did not specify their country of origin. Therefore, it can be assumed that they also come from East Asia. 

Fig. 1 Number of sellers on Amazon by regions (as of March 2021)

Compiled based on: Amazon Tops Six Million Third-Party Sellers, https://www.marketplacepulse.com/articles/amazon-reaches-six-million-third-party-sellers

The introduction of new tax regulations in the EU will make it easier for local businesses to operate by relieving them of the burden of multiple registrations with tax offices. It will also compel Asian competitors to pay taxes on goods and services where actual sales take place – in Europe. The abolition of the exemption for shipments valued up to 22 euros will increase tax revenues for member states.

What are the advantages of OSS for sellers on Amazon?

According to estimates, in 2020, losses associated with the VAT gap amounted to about 7 billion euros. The new directive will eliminate, among other things, attempts to undervalue goods entering this market. For sellers, this means:

Fair competition; the introduction of fair play rules requiring all entities involved in online sales in the Community area to pay goods and services tax.

Elimination of companies profiting from undervaluing shipments; this will now become much less profitable for them.

For companies based in the EU, the ability to take advantage of OSS – a unified tax mechanism facilitating business operations in the European market, provided their turnover does not exceed 10,000 euros annually (in total for the entire EU market).

Increased importance of product offers of higher quality; until now, in sales portals, one had to compete with much cheaper products from Asia; from July, customers, having a choice between two similar offers, will compare parameters other than price, increasing the chance of selling better quality goods.

The mere announcement of changes has brought effects. Already in 2018, when it became known that e-commerce platforms such as Amazon and eBay would be responsible for any tax frauds committed by their customers, these platforms introduced new registration rules. They began requiring all sellers to have a local tax number. This ensures they have certainty that the required legal duties are paid on sales through their service.

In Germany, at the Berlin-Neukölln Tax Office, which handles the registration of foreign companies for VAT, the number of Chinese companies registered for this tax increased from 435 to 40,000 in three years (data as of September 2020). During this period, 400-600 applications for tax numbers were submitted weekly.

What will the sale of goods shipped from outside the EU or by sellers not based in the Community look like?

According to the Austrian "Der Standard", after 1 July this year, local customs authorities plan to tighten controls on small shipments and "gift packages" arriving in Austria from third countries. This will allow for their verification. Compliance between the declared value and the actual amount that should be entered on the form will be checked. Officials will also be more effectively identifying goods whose import to the EU is prohibited.

Planned regulations will also eliminate situations where companies based in Asia send products from European Amazon warehouses (FBA). Theoretically, they are then selling from the EU area. From now on, VAT will also need to be paid in Europe in this case. Previously, this obligation was usually passed on to the customer. One could exploit this legal loophole and count on luck when the tax office did not realize that an untaxed transaction had taken place between the European consumer and the Asian seller.

From 1 July 2021, this will be impossible. The goods and services tax will become payable for every product, regardless of its value. If you would like more information, contact professionals. We will prepare your company for selling on the Amazon platform!

Happy selling

Go2Market Crew 

Amata Borys - Chudek