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European VAT: The Expert Guide For Cross-Border Sellers

While there’s no denying that international selling offers huge opportunities for online retailers, it also brings new responsibilities with regards to understanding and complying with VAT liabilities, charges and thresholds in each European country.

In fact, with value-added tax (VAT) on goods and services varying widely across the EU, it often acts as a barrier for eCommerce sellers wanting to expand into Europe.

But this doesn't have to be the case.

Throughout this article, we will address the key things you need to know about European VAT, including when you need to register for VAT in the countries you’re selling into, the EU VAT rates by country, and the EU markets you will need fiscal representation in.

The essentials of VAT

Firstly, what is VAT?

Value Added Tax (VAT) is consumption tax on the value added to goods and services in the European Union.

While it is used by every one of the EU member states, it’s important to note that each country will have its own VAT rate.

In fact, some countries will even have different rates depending on the goods sold.

Take the UK for example.

There are as many as three different UK VAT rates, with products such as coffee, children’s clothing and safety equipment being zero rated. In other words, no VAT is added to them.

As a seller, it’s important that you identify the VAT rate category that your product falls into, as they will vary widely across Europe and certain countries will provide a much more substantial profit margin on individual goods, due to the reduced rate of VAT applied to them.

Understanding Distance Selling Rules

When selling into or between European countries, you need to be aware of the distance selling rules and thresholds, which essentially determine when you are required to register for VAT.

While holding stock in any EU country triggers an automatic obligation to VAT register in that country – because you have created a taxable supply there – by using the distance selling rules you can sell your goods directly to customers in other countries, whilst keeping your stock in a single location, only having one VAT registration, and only charging the VAT rate of the country where your goods are held.

Only once you reach the set thresholds within a calendar year, you will need to VAT register in the destination country, start charging the local rate of VAT and declare this to the local tax authorities.

The exact thresholds are calculated using your cumulative annual net sales into an EU country, from stock held in a single EU country, across every sales channel that you use.

What happens once you’re VAT registered?

As soon as you are VAT registered you will be responsible for completing periodic VAT returns. The frequency that you need to file these returns will depend on the country that you’re registered in.

Usually, sellers will be required to file these either annually, quarterly or monthly.

Keep in mind that each EU member state will have its own set of filing frequencies that you will need to follow, each of which can be found below.

Storing goods in the EU

If you store your inventory in any EU country, you trigger an automatic obligation to VAT register there.

But what happens if you’re using Fulfilment by Amazon (FBA)? Or more specifically PAN-EU FBA?

As Amazon will circulate your stock to its warehouses across Europe, you will automatically need to VAT register in all seven of Amazon’s EU fulfilment countries. These are:

  • UK
  • France
  • Italy
  • Spain
  • Poland
  • Germany
  • Czech Republic

When do you need fiscal representation?

If you are a non-EU based seller, you will be required to acquire Fiscal Representation in some EU countries in order to register for VAT.

Fiscal representation is the process where an individual or business acts on behalf of a non-resident company for VAT purposes in a certain country.

The fiscal representatives are jointly and severely liable for the VAT debts of a non-EU based company.

It’s worth noting that, as an online retailer, there may be a need for bank guarantees and extra fees to secure the use of a fiscal representative. These additional requirements are dependent on the country that you are registering in.

Following Brexit, UK based companies may find that they will be required to start using a fiscal representative in the same manner as a non-EU based seller.

Understanding EORI numbers

If you are shipping your products into Europe, you may need to apply for a European Operator Identifier along with your VAT number.

This EORI number allows European customs officials to identify your shipment and issue the documentation needed to reclaim any import VAT that was paid to clear your goods through customs.

If you are using a Freight Forwarder, ensure they include both your VAT and EORI number in your bill of lading.

Non-compliance with VAT obligations

For eCommerce businesses globally, non-compliance is not a choice, it’s a legality.

Those who fail to pay the correct VAT or file their VAT returns and make their payments on time may face hefty fines and penalties.

This can have a huge impact on a business’ cash flow, especially for small and medium sellers, and can end up amounting to millions of pounds in the worst-case scenarios.

Expanding into new markets

When trying out new markets it’s important to understand your VAT obligations as a seller.

Many online retailers who move into the EU without prior research wrongly assume that VAT rates and thresholds are the same across each of the EU member states.

This can cause headaches further down the line and trigger the need for multiple backdated VAT payments, which costs sellers both in terms of time and money.

Key VAT dates

  • Making Tax Digital – UK (April 2019)
  • VAT MOSS – Europe (January 2021)
  • Brexit (March 2019)

VAT Rates in Europe

Below, you will find the VAT rates by country for some of the key EU member states.

VAT in Germany (DE)

Standard German VAT Rate = 19%

Filing Frequency = Monthly, although an annual VAT report is also required

Distance Selling Threshold in Germany = €100,000

No Fiscal Representation is required when selling in Germany.

VAT in Poland (PL)

Standard Polish VAT Rate = 23%

Filing Frequency = Monthly

Distance Selling Threshold in Poland = PLN 160,000

Fiscal Representation is required when selling in Poland.

In Poland, there is an additional SAF-T Report that needs to be filed monthly alongside the Polish VAT Returns, which declares every transaction within the country.

VAT in France (FR)

Standard French VAT Rate = 20%

Filing Frequency = Monthly

Distance Selling Threshold in France = €35,000

Fiscal Representation is required.

In France, VAT needs to be paid to the local tax authorities in the local currency, by SEPA B2B Direct Debit. Failure to so may result in a €60 fine for every filing*.

VAT in Czech Republic (CZ)

Standard Czech VAT Rate = 21%

Filing Frequency = Monthly

Distance Selling Threshold in Czech Republic = CZ 1,140,000

No Fiscal Representation is required.

VAT in Spain (ES)

Standard Spanish VAT Rate = 21%

Filing Frequency = Quarterly, although an annual VAT report is also required.

Distance Selling Threshold in Spain = €35,000

Fiscal Representation is required.

VAT in the United Kingdom (UK)

Standard UK VAT Rate = 20%

Filing Frequency = Quarterly/Annually

Distance Selling Threshold in the UK = £70,000

No Fiscal Representation is required

The United Kingdom also has the Flat Rate Scheme which allows small sellers turning over less than £150,000 per year to have a reduced rate paid to HMRC. With the Flat Rate Scheme, you cannot reclaim your import VAT, except in specific circumstances. It is worth taking advice from a tax agent to find the right scheme for you.

VAT in Italy (IT)

Standard Italian VAT Rate = 22%

Filing Frequency = Quarterly / Monthly, although an annual VAT report is also required.

Distance Selling Threshold in Italy = €35,000

Fiscal Representation is required

SimplyVAT is an international VAT agency with expertise in European VAT, as well as Australian and Canadian GST. If you have any questions about international VAT, get in touch with us here.

Want to find out if your sales have crossed the threshold? Take our free VAT health check which can calculate your total sales across multiple marketplaces.

Please note that the information included in this article is correct at the time of writing (November 2018). We would strongly advise that you seek advice from an international VAT consultant for further advice.  

Topics: VAT, Cross Border Trade, International Selling