How will the tax changes in the European e-commerce marketplace affect sales on Amazon?
Important changes are coming to the Community market from the 1st of July 2021 that could affect the e-commerce sector. Check what tax rules will apply to goods sent to EU member states by suppliers from non-EU countries. What will change for sellers storing goods in Europe? The modifications to tax assessment introduced by Council Directive (EU) 2017/2455 are beneficial for start-ups shipping from the Community.
What do the new EU regulations on goods tax consist of?
Until 1st of July 2021, there was a VAT exemption for imports from non-EU countries of goods with a value not exceeding €22. This regulation was often used to register more valuable shipments and undercut their price so that no tax would be paid. This meant large losses for the EU taxpayer. It was therefore decided to introduce certain changes for sellers who send goods from warehouses outside the EU or are based in a non-EU country.
What is new in taxation?
– The VAT exemption has been abolished altogether; this tax will have to be paid regardless of the value of the shipment. The seller will pay this tax even if he determines that the contents are worth 1 cent.
– The exemption from import tax for consignments below a certain price limit has been repealed.
– Non-Community sellers will have to register all goods they want to send to the EU in advance using an electronic form.
– A new procedure is introduced for transactions of up to €150 sent from a non-EU country, which are not subject to customs duty. A taxable person not established in the EU must appoint an intermediary to submit monthly VAT returns and pay the taxes due on his behalf.
Check the advantages of this new solution for companies based in one of the Member States. If you have questions or concerns about selling on Amazon, arrange a subject matter consultation.
Improved convenience for sellers based in one of the EU member states
If your business is based in Poland or another EU Member State, you can benefit from a new VAT settlement mechanism, the One Stop Shop (OSS). It is worth considering registering for the OSS, as it makes it much easier to settle this tax in Community trade. You only need to be registered as a payer of this public duty in one of the EU countries.
As a result, as of April 1st this year, in order to sell goods to customers residing within the Community, you do not have to apply for a tax identification number in each country to which your consignments go. This applies to companies whose total annual sales within the Community do not exceed EUR 10,000. Therefore, you only need to have a Polish VAT ID number and to register with the OSS in order to trade freely in the European market. This avoids the need to apply for 26 further identifiers at other foreign tax offices. You can find detailed information here: Guide to the VAT One Stop Shop. You can also benefit from the know-how of experts in selling on Amazon, who will discuss any confusion with you and help you with the paperwork required to start selling.
What impact will the new tax regulations have?
According to Marketplace Pulse, there are currently around 6 million sellers on Amazon. More than half come from North America (US, Canada, Mexico) and a quarter from Europe. In the European marketplace, many companies offer goods on several or all local marketplaces. It is estimated that up to 40% of these are Chinese. For example, of the 691,000 sellers on amazon.de, more than 180,000 are Chinese, and around 200,000 did not specify their country of establishment. It can therefore be assumed that they also come from East Asia.
Fig. 1 – Number of sellers on Amazon by region (as of March 2021)
Compiled from: Amazon Tops Six Million Third-Party Sellers,
The introduction of new tax rules in the EU will make it easier for local companies to operate by removing the need for them to register multiple times with tax authorities. It will also force Asian competitors to pay tax on goods and services where the real sales take place – in Europe. Removing the possibility of using the exemption for shipments of up to EUR 22 will increase Member States’ tax receipts.
What are the advantages of OSS for Amazon sellers?
Estimates put the VAT gap loss at around €7 billion in 2020. Among other things, the new directive will eliminate attempts to undercut the prices of goods entering this market. For sellers, this means:
– fair competition; introduction of fair play rules obliging all entities selling online within the Community to pay VAT;
– elimination of companies that used to profit from undervaluing shipments; this will now become much less profitable for them;
– the possibility for companies established in the EU to benefit from the OSS – the harmonised tax mechanism making it easier to operate in the European market, provided their turnover does not exceed € 10 000 per year (total for the entire EU market);
– increase in importance of the offer of higher quality products; so far, on the sales portals, one had to compete with much cheaper products from Asia; from July, customers, having a choice of two similar offers, will compare parameters other than price, which will increase the chance of selling better quality goods.
The announcement of the changes itself has had an effect. Already in 2018, when it was known that shopping platforms – Amazon, eBay, etc. – would be responsible for possible tax evasion of their customers. The portals therefore introduced new registration rules. They started to require a local tax number from all sellers. In this way, they can be sure that the legally required taxes are paid on sales via the service.
In Germany, at the Berlin-Neukölln tax office, which registers foreign companies for VAT, the number of Chinese companies registered for VAT has risen from 435 to 40,000 in three years (figures from September 2020). During this period, 400-600 applications for a tax number were submitted there per week.
How will sales of goods shipped from outside the EU or by vendors not established in the Community be handled?
According to the Austrian “Der Standard”, after the 1st of July, the local customs authorities are planning stricter controls on small consignments and “gift packages” arriving in Austria from third countries. This will make it possible to verify them. The conformity of the declared value with the actual amount to be entered on the form will be checked. Officials will also be more effective in identifying goods that are prohibited from being imported into the EU.
The planned regulations will also eliminate situations where companies based in Asia send products from Amazon’s European warehouses (FBA). In theory, they are then selling from within the EU. From now on, VAT will also have to be paid in Europe in this case. Previously, this was usually passed on to the customer. It was possible to exploit this loophole in the law and count on luck if the tax authorities did not realise that a tax-free transaction had been concluded between a European consumer and an Asian seller.
From the 1st of July 2021, this will not be possible. Goods and services tax will become due on every product without exception, regardless of its value. If you would like more information, please contact the professionals. We will prepare your business to sell on the Amazon platform!
Amata Borys – Chudek