E-Commerce And VAT In Europe
The European Union estimates that around a whopping 50 billion euros in VAT are lost each year due to cross-border sales that the EU can’t track. Countries in the EU, such as the UK, have been cracking down on non-compliant sellers and marketplaces in a bid not to lose millions of pounds in Tax each year.
Non-EU online businesses selling goods into Europe
Great news! As an online seller, you have the benefit of not actually needing to be physically present to sell your goods in the EU, allowing your e-commerce business trade internationally.
Whether you are selling goods to private consumers or buyers in European counties, you still need to be aware of the rules and rates of VAT. N.B, The rate of VAT changes depending on which EU country you are selling into. It can range from 17-27%.
For specific information on selling to the EU from China
Am I responsible for VAT?
The responsibility for taxes and duties depends on who is the ‘importer of record’ when selling goods into Europe.
Firstly, this could fall to the consumer, who may be asked to pay the import charges and VAT, via the parcel carrier. Where possible try to avoid this, as consumers can become disgruntled, resulting in high returns.
Secondly, you may choose to hold stock in fulfilment centres, or a warehouse in an EU member state to fulfil orders more quickly and cheaply.
As a Non-EU business, if you sell to private individuals and hold stock in an EU member state, you have now created a ‘taxable supply’. This requires an immediate need for a VAT registration.
The good news is once you have VAT registered, you become governed by the distance selling rules. I.E the same rules which apply to EU businesses selling into the EU.
For further information and a full list of regulations check the distance selling directive.
Amazon and other marketplaces – what is their role in staying compliant?
A new legislation has come into force in the UK, whereby online marketplaces are accountable for Tax fraud. Thus, if overseas or UK sellers are paying incorrect taxes, then HMRC has the right to pursue the Marketplaces themselves, as well as the seller. As a result, online marketplaces such as Amazon and eBay have been active in shutting down accounts of non-compliant sellers.
The UK is leading the way in tackling online VAT Fraud and it is now mandatory for online marketplaces to ensure sellers using their platforms display a valid VAT number. For more guidance on VAT in the UK.
Brexit: What impact could it have on your sales into the United Kingdom?
Once the UK leaves the European Union, they may become a ‘third country’ for VAT trading purposes. Small e-commerce business’ will need to register for VAT immediately in any EU country. Furthermore it’s likely that there will be a new 20% import VAT bill for goods coming from the EU into the UK.
What happens if I don’t pay VAT as a non-EU business.
If you’re not compliant with European VAT Law, you risk being caught by the tax authorities, which could result in penalties as well as a hefty backdated tax bills.
Brussels have proposed an overhaul of EU VAT which could come into force in the next few years, in line with a global clamp down on online tax fraud. Since many current EU laws are outdated and created in the early nineties. The EU crime agency, Europol, estimates that have lost well over 50 billion euro to cross fraud.
As a non-EU based company when registering for VAT, you may be required to appoint a Fiscal Representative.
Fiscal representatives are jointly and severely liable for the VAT owed by a non-EU company and will incur extra fees and possible bank guarantees in countries such as France, Italy, and Spain.Over half of EU member states have this stipulation. The countries listed below in Red, require you to do so.