There’s a lot of EU VAT rules and regulations attached to the buying and selling of goods. But what about the more obscure EU VAT laws? Here’s a guide on some of the less well-known VAT issues that could affect your e-commerce business. But first…
Back to basics
A quick canter through some of the basics. Value Added Tax (VAT) is a tax added to most goods at the point they’re consumed by the final customer. So whenever you export a product to the EU you’ll need to consider the VAT implications.
Holding stock in an EU country.
When you hold stock in an EU country you need to VAT register in that country. It’s a legal process and you’ll need to provide all the relevant documentation. However, once you’ve got your VAT number, you’ll be able to sell your products in any other EU jurisdiction. That is, as long as you don’t exceed the distance selling rules…
Distance selling rules.
Nutshell version. You can sell and export goods charging local VAT in your registered country until you reach a threshold in another EU country. If you go over this limit, then you’ll need to VAT register in that country and calculate and pay VAT to the relevant tax authority. Find out more in the “Track the distance sales threshold” section, below.
EU VAT thresholds.
For most of the EU, the threshold is €35,000 (~£31,000). However, in Germany, the Netherlands and Luxembourg the threshold is set at €100,000 (~£89,000). The UK threshold is £70,000.
We always like to remind e-commerce businesses that it doesn’t take much to breach the lower set threshold. If you’re selling luxury watches at £2,000 a pop you’d only have to sell 12 of them to go over the Austrian or Belgian threshold.
But what of some of the more nuanced rules and regulations? Here’s an outline of the less obvious VAT considerations.
There are some standard invoicing rules relating to the supply of goods and services across the EU. But there are also instances at a national level where different rules apply. As a general rule of thumb, if you provide goods Business to Business (B2B) then you’ll almost certainly need to provide a VAT invoice.
For Business to Customer (B2C) transactions, you’ll need to provide a VAT invoice when you supply certain goods to a non-taxable person (generally a private individual). For example:
- distance selling when taxable in another EU Member State
- new means of transport supplied to a different EU country
However, in some EU countries, your obligations may be more (or less) complex. You may find that you’ll need to produce an invoice for supplies to private parties other than the example above. It’s worth noting that in this instance, your invoice might not need to contain all of the standard information needed for full invoices.
Varying reports. Varying deadlines
The frequency that you’ll have to complete VAT returns can vary from country to country. Different reporting requirements in member states may also have different or staggered deadlines. If you’re registered for VAT in several EU states, then you’ll need to keep track of when you need to respond. Other factors can affect deadlines too. If your turnover is over a certain threshold this can mean you need to produce VAT returns more regularly.
It’s worth noting that certain member states will allow you to select your preference for filing dates. This can be a really useful way to help you optimise your cash flow in different periods when you are reclaiming local VAT via a return.
It’s important to know the deadlines in each country. The advice is that if you’re in doubt? Speak to an expert!
No (VAT) margin for error
When it comes to calculating VAT for EU e-commerce it’s essential to think about your margins. How you price your goods can vary depending on the jurisdiction you’re selling to, and the mechanism you use to sell (your own website, for example, or Amazon).
Standard VAT rates vary across Europe from 17% to 27%. So when you calculate your prices in new markets it’s critical to factor in the VAT amount you’ll owe. Do the margins you’ve set on your goods cover absorb all of the variations in the different markets? Complete market research in different jurisdictions so you can assess the wriggle room you have for your margins. Do the maths. And stay in profit!
Track the distance sales threshold…
We’ve looked at how the VAT thresholds vary in EU states. This means it’s important to pay attention to your sales tracking. If you exceed the threshold in any one-year period you need to VAT register in that country. And you have just 30 days to make the arrangements. Failure to comply could mean you face some serious penalties.
The good news is that there are some great ways to track your distance sales.
…. And track sales on ALL channels
As an ambitious multi-channel e-commerce business, chances are you’re utilising a variety of ways to sell your products and services. Your website, Amazon, eBay to name but three. But it’s easy to forget that when tracking sales you need to report on sales made from all channels. Let’s be clear! All sales go towards the distance selling thresholds.
And finally, it’s important to note that you should also include shipping and fulfilment costs in your calculation.
EU VAT can be complex. But it shouldn’t put you off
Don’t let the VAT stop your expansion of your European e-commerce empire!
Our advice is to plan ahead. Add the cost of VAT compliance to your cash flow along with other staples such as web-hosting or accountancy fees. Understanding the cost of entering a foreign market will ensure your international business will thrive!
It can sound daunting. And we understand you might not have the luxury of a tax department to make sure you are staying ahead of the game.
What are your biggest tips on EU VAT? Your biggest questions? Tell us below or tweet us!