VAT Changes Impacting Amazon Sellers – What You Should Know
VAT compliance is one of the most important topics for every e-commerce seller – Amazon or independent. Non-compliance with current regulations can lead to fines, penalties, and even exclusion from Amazon marketplaces, threatening the core of your business.
That is why it’s important to always stay up to date with the latest changes to VAT regulations all across Europe and beyond. To make things easier for you, we compiled a list of recent and upcoming VAT changes in the EU and the UK and explained their impact on your VAT compliance process.
- New EU-wide Delivery Threshold since 2021
- Impact of VAT Threshold Change on Amazon Sellers
- New EU-wide VAT scheme “One-Stop-Shop” since 2021
- Changed VAT duties for Amazon Sellers in the OSS scheme
- VAT duties for Amazon FBA sellers in the OSS scheme
- New Postponed VAT Accounting in the UK since 2021
- New UK Making Tax Digital Procedure for VAT since 2022
- Other Upcoming VAT Changes in the UK in 2022
In July 2021 a new EU-wide delivery threshold for B2C cross-border transactions, that is sales to end consumers located in other EU countries, was introduced. It replaced the previously applicable country-specific VAT thresholds that were set by each country individually at usually 35.000€.
The new delivery threshold is set at only 10.000€ and is also reached by all B2C sales to foreign European countries combined. It is, therefore, much faster crossed than the previous VAT thresholds.
Prior to crossing the threshold, sales were and are still treated as domestic transactions. They are subject to domestic VAT rates, need to be listed in domestic VAT returns, and the corresponding VAT due is paid to the domestic tax authorities.
However, once you cross the threshold you have to adhere to the VAT regulations in the foreign countries in which your customers are located. Previously, you became subject to VAT only in the country whose threshold you crossed.
This meant that you had to monitor several VAT thresholds at once but didn’t have to take care of too many VAT obligations as long as your revenue through foreign sales was moderate.
However, the new EU-wide threshold is not only much lower, but also reached by all sales to foreign EU countries combined and, therefore, crossed much faster. Once this new threshold is reached, you immediately become subject to VAT in all countries in which your customers are located at once.
It should also be noted that the threshold is an annual limit, and you are still liable for the VAT due if you only unexpectedly cross the limit. For example, if you only charged your domestic German VAT rate of 19%, become unexpectedly liable for VAT abroad during the year, and should, therefore, have charged 22% VAT to some customers, you will have to cut into your profits to pay the VAT due.
That’s why correctly estimating future revenue is crucial, even though the now necessary estimations including multiple markets are much more difficult. An alternative for Amazon sellers is the One-Stop-Shop, especially when you are expecting high fluctuations.
Also introduced in July 2021 alongside the new EU-wide delivery threshold was the One-Stop-Shop (OSS). The OSS is a system that enables Amazon and other e-Commerce sellers to take care of most or even all of their European VAT duties that arise because of B2C cross-border transactions in their home country.
To use the One-Stop-Shop scheme you will need to register for it with your domestic tax authorities. With the registration, you implicitly waive the right to take advantage of the delivery threshold. However, the advantages of the OSS outweigh the cost.
Once registered all your B2C cross-border transactions are taxed with country-specific VAT rates, that is the VAT rate set by the country the customers are located in. However, all transactions are listed in a unified OSS report submitted in your home country.
You will also pay all VAT debt combined to your domestic tax office. The authorities then redistribute the correct amounts to the foreign tax authorities based on the report you filed. Since you no longer have to file VAT returns, you also no longer have to register for VAT in foreign EU countries, considerably easing your bureaucratic burden.
However, compiling OSS reports is no easy task. To submit a correct return, you will need to filter all transactions by countries of origin and destination as well as applied VAT rate and then transfer these numbers into your authority’s online systems. Thankfully, VAT service providers like hellotax exist to help out.
Hellotax is a VAT service provider specializing in Amazon FBA and offers a VAT software that easily monitors and sorts through your transactions and automatically compiles reports. Their team of local tax accountants not only registers you for OSS, but also files your OSS reports or VAT returns in a variety of European countries. They offer both VAT and OSS services in tandem, as not all Amazon sellers can fully benefit from the One-Stop-Shop scheme.
The One-Stop-Shop is less advantageous for Amazon sellers that are using Fulfillment-by-Amazon programs or otherwise store their products in foreign European countries. That’s because the OSS only covers B2C cross-border transactions.
If products are stored in a foreign Amazon fulfillment warehouse and transported from there to end consumers in that very country, as is the goal of FBA-Programs, these deliveries are not crossing borders and don’t fall inside the scope of the OSS.
Furthermore, storage of products in a warehouse location immediately requires you to register for VAT anyhow. Therefore, you will need to file regular VAT returns and list the aforementioned sales locally.
Of course, the usability of the One-Stop-Shop depends on your Amazon business model. The more countries you store in, the less likely you are to benefit from the OSS.
Not enough VAT news yet? There is more! Even though the UK is no longer part of the European Union and, therefore, unaffected by changes in European VAT regulations, the UK Amazon marketplace is still one of the largest and most important ones in Europe. Consequently, UK VAT changes need to be diligently monitored as well.
If you are selling products on the UK marketplace and ship them from Europe to customers across the canal, you might be liable for import VAT. Until January 2021, you had to pay import VAT on arrival in the UK. While you were able to reclaim it later, this negative cash flow seriously hurt small businesses.
That’s why the Postponed VAT Accounting scheme was introduced. It allows businesses to declare and immediately recover import VAT in their regular VAT returns, mimicking the EU Reverse Charge Mechanism. All you need to do is to profit from this scheme is make a tick in the corresponding box on the customs form. Your products will be cleared and on their way to your customers in no time.
Also, VAT-newsworthy is the UK’s Making Tax Digital initiative, which aims at making the UK government the most digitally advanced tax administration in the world.
Businesses with a turnover above the UK VAT threshold of £85,000 are required to register for VAT in the UK while businesses with a turnover below the UK VAT threshold of £85,000 are not. The first group has to participate in the new initiative while the second can do so on a voluntary basis.
If you have to or choose to participate, you had to start following the new rules and procedures put in place starting in April 2022. That includes keeping digital records of everything, ensuring that data is digitally linked, and using the new software to submit VAT returns.
Even if you are below the threshold because you are just starting out or are not selling a lot of products on the UK Amazon marketplace, you might want to start getting your Amazon business ready. Once you cross the threshold you will be required to follow the rules.
Lastly, you can look out for and forward to upcoming changes in VAT regulations in the UK toward the end of the year. The currently valid regime for penalizing taxpayers who file VAT returns or pay UK VAT debts late has long been criticized for being unfair and ineffective. On the 31st of December 2022, a new regime will be introduced. While not many details about the new fines and penalties are known yet, the new system is expected to be fairer, easier to navigate, and more consistent.