Understanding your international Ecommerce VAT obligations: A brief guide by SimplyVAT.com
Partner article by Alexandra Wyatt, SimplyVAT.com
Selling Online Internationally – The Market
The growth of the eCommerce market is phenomenal – totalling €500 billion in online sales last year in Europe alone. Cross border sales currently providing 10% of that figure are expected to account for 20% of all online sales in 2017!
This is providing online retailers with a huge opportunity to increase their profits by tapping into overseas markets. You no longer need to conquer your local market before you contemplate world domination; you can operate a successful global business from your spare room. However, with this global reach comes a little bit more for online retailers to think about. These include: Local currencies, payments, shipping and tax laws, amongst many others.
What are your international VAT obligations as an online retailer?
Whether you are a small independent retailer selling to a niche market, or you have a big international online presence like ASOS, you need to be aware that you have VAT obligations when selling online abroad! There are rules and regulations that cannot be ignored. Ignoring these can lead to some severe consequences, such as having your goods seized by customs, resulting in your customers not receiving their goods. Not complying with your VAT obligations can therefore cause loss of income for your business and you may also face financial penalties from one (or several!) tax authorities.
Holding stock in an EU country
If you hold stock in any EU country, this triggers an automatic obligation to VAT register in this specific country. Registering for VAT is a legal process which will require you to provide official documents. After your VAT registration is approved you will get a VAT number and, once registered, you will have to submit VAT returns to the tax authority.
Once VAT registered in one country, you will be able to sell your products from this country throughout the EU so long as you do not exceed the distance selling rules. You can use the distance selling rules (see below) to sell directly to private customers in other EU countries.
EU distance selling rules:
If you are selling goods to customers in Europe, you are governed by the EU distance selling rules for VAT. These rules state that if you sell goods to consumers in the EU, you charge local VAT until you reach the set VAT registration threshold in any other EU country. Once you reach this threshold you need to register for VAT in that country and charge the VAT applicable to your particular goods. This must be paid over to the relevant tax authority on time – and in the format and language requested. Depending on your business and your level of sales, you may have to VAT register in more than one country.
There are 2 bands of VAT registration thresholds:
For most of the EU the threshold is €35,000 (or equivalent). However, in Germany, the Netherlands and Luxembourg the threshold is set at €100,000.
If you are an EU company selling into the UK, the UK distance selling threshold is £70,000.
For companies selling medium to high value goods it doesn’t take much to breach the lower set threshold of €35,000. For example, if you sell watches priced £2,000 you would only have to sell about 15 of them to exceed threshold in Belgium or Austria.
So, you need to be aware of your international VAT obligations so you can factor in the cost of compliance into your cash-flow, along with other staples such as web-hosting or accountancy fees. Ignorance is no defence, and the tax authorities will issue penalties and fines for late or non-compliance – sometimes up to 400% of the VAT owed!
Selling through marketplaces
If you are selling through marketplaces such as Amazon or eBay, you may think you are exempt from VAT regulations… you are not! If your sales exceed the VAT Registration Thresholds in the country (or countries) you are trading, you have the same obligations as a registered business selling to consumers. The tax authorities are known to trawl through such marketplaces looking for potential violators.
Don’t Be Put Off Your Plans For Global Domination
Don’t let the thought of having to be VAT compliant put you off your international expansion plans. Our advice is to ‘plan ahead’ and we are here to help! At SimplyVAT we can offer you a wide range of services that are designed to help you manage you international VAT obligations, so you can focus on the core needs of the business.
– Provide you with expert, friendly and customer-focused service and advice
– Help you get VAT registered
– Give you the right country information to make sure your invoices are compliant
– Help you submit your VAT return, and, if necessary, your intrastat declarations on time
We have produced two free booklets to provide you with helpful hints on what to think about, including a list of the VAT registration thresholds in each country. These guides, titled ’10 pitfalls to international trading’ and ‘Ecommerce and European VAT: The essential guide’ can be downloaded free via our website.
Follow the direct link here: