Expanding cross-border can be a great move for your e-Commerce business if you take the time to make sure you are fully prepared. Europe offers some of the biggest e-Commerce markets in the world and branching out could easily more than double, if not triple your customer base. However, there is a lot to consider when taking your first steps outside of the UK to sell in a new country. Localisation of listings, customer service in multiple languages, international returns, finding the right products for a different target market and so on. But there’s one thing that tends to get left out. And that’s international VAT. As a UK business you’ll probably be familiar with VAT and the joys of dealing with tax authorities, but you might not be aware of the differences when selling internationally. Before you take the proverbial leap, find out how your VAT obligations could change and how to protect your business to ensure its longevity:
How to tell if you have a VAT obligation
As an e-Commerce business looking to expand into the EU, here’s a checklist to help you figure out if you will incur a VAT obligation. If any of the following will apply to your business, you may be required to register. Are you:
- Holding stock in an EU country?
- Selling on an online marketplace within the EU?
- Crossing over a set EU Distance Selling Threshold within a calendar year?
- Dropshipping from a supplier in the EU?
- Importing goods into the EU for onward sale?
If you answered yes to any of these questions, it might be time to VAT register! If you’re not clear on whether the above applies to your business – here’s a further breakdown of each trigger:
Holding Stock in an EU country
First things first, keeping stock for onward sale to private consumers in a European Union country immediately incurs a VAT obligation. This registration is required as the onward sale of your goods will become a taxable supply in that country.
If, for example, you ship your stock to Germany and hold it there, your VAT registration would be due from the date your stock entered Germany and may require you to backdate in order to be compliant. You don’t need to register for VAT in the countries your stock travels through as it journeys to Germany if you can prove Germany was always the intended destination, unless it is imported from outside the EU into a different EU country first.
Selling on Marketplaces in the EU
In a recent bid to crack-down on non-compliance, tax authorities across the EU have been putting the pressure on marketplaces to ensure their sellers are adhering to local VAT law. In Germany and France this has even prompted changes to their VAT legislation, making marketplaces liable for the VAT owed by non-compliant sellers. This, in turn, has caused some platforms like Amazon to require proof of VAT registration (in the form of a German VAT Certificate) from their sellers. Failure to provide this has led to some sellers having their accounts suspended or even shutdown. Further to this, marketplaces are also required to share your sales data with the tax authority. This means they will be able to assess your liability for themselves and hold to account any who are not compliant.
This trend is expected to be taken up across other European Union countries in the near future. With marketplaces now taking a share of the burden, sellers are going to have to prioritise compliance in order to run a successful business. Having your marketplace accounts suspended or fines levied on you will make profitability much harder to achieve.
Distance Selling Thresholds
When selling from one EU country to another, if you sell over the amount specified by the Distance Selling Threshold of the country you’re selling into, you will be required to VAT register.
So, for example, if you sell more than €35,000 worth of goods into France from the UK, you will need to register for VAT in France. If you’re selling high value items, you can cross these thresholds pretty quickly, so it’s important that you’re monitoring the volume of sales. Your registration will be required from the day you cross over the threshold, and whilst it is possible to backdate the VAT owed, it’s much better to be prepared before incurring this VAT obligation. It’s important to note that these thresholds reset every year, so forecasting your sales could be vital in keeping your business compliant.
Also of note, is that you will not be required to pay VAT in both countries. When you cross that threshold and have to register in another European Union country, you will pay VAT on those sales in that country and NOT in the UK. If you’ve crossed the thresholds without knowing it and have been paying VAT to HMRC when the VAT was due to the tax authority of the destination country, it is possible to reclaim that money back and pass it on to the correct authority. However, this can be a slow process and it would be much more efficient to track your sales and pre-empt the shifting of VAT registrations.
Drop shipping from a supplier in the EU
If you’re dropshipping, you might think you’d avoid any VAT obligations because you don’t ever handle your products. Unfortunately, this most likely isn’t the case. As a dropshipper, even if it’s only for a millisecond, you will own the products you’ve purchased from your supplier before ownership is passed on to your customer. In this time, if your supplier is in the EU, you will have triggered a VAT obligation through holding your stock in a European Union country. Also, the Distance Selling Thresholds still apply to drop shippers so exceeding these will result in the need for a registration!
What does compliance look like?
So, if you’ve incurred a VAT obligation, what does VAT compliance actually mean? You can contract with a VAT agent like ourselves who can handle everything and do the leg work for you. Or, you can handle the VAT yourself, though please be aware, there’s a reason (or several) most people leave this stuff to the experts.
If you need to VAT register, the first step will be collecting the relevant documents and providing them to the tax authority alongside the registration paperwork. Then, there will be the VAT returns that need to be filed periodically. Some authorities require these annually, whereas others request them quarterly or even monthly. The calculated VAT on each sale across your products will need to be included (remembering that the VAT rate can vary between countries and goods). Also, you’ve got to keep an eye on those Distance Selling Thresholds! Normally, the paperwork will be requested to be filled out in the language of the country you’re registering in and some of it must be filled out by hand.
Hopefully this has helped to give you a clearer picture of what’s involved when complying with International VAT law and trading cross-border. Although there is a lot to consider, expanding your business into the EU can be hugely beneficial! Don’t let the VAT hold you back. With the right knowledge and some preparation, you can have your business ready for the next step and new markets.
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This guest post was written by Holly Hawes, Brand and Marketing Manager at www.simplyvat.com – the international VAT services provider helping ecommerce businesses expand compliantly.