Editor’s note: This is a guest post from David Freel, Commercial Director at Channel Grabber.
If you’re a multichannel seller or an eCommerce business who sells in Europe, the very mention of VAT (Value Added Tax) probably invokes groans, worries and a bad mood.
Because VAT is complicated, for any company. There are a huge variety of rules for each European company, many requirements, some exemptions, and a lot of confusion over figures and percentages.
As a seller in the EU, you’ll have VAT obligations one way or another. If you want to be compliant and avoid any fines when handling EU orders, you’ll need to overcome these challenges:
For many smaller companies and start-up multichannel sellers, it’s tempting to think you can just ignore VAT and its implications. Bury your head in the sand, and just carry on – if you need to do something, someone will tell you.
Unfortunately, that isn’t the case. Tax authorities in every EU authority are increasingly cracking down on those eCommerce businesses they see as committing fraud by ignoring their VAT obligations.
HMRC has increasingly been cracking down on non-EU retailers who are selling in the UK and in Europe. And tax authorities across the EU have the power to seize goods and levy fines, which could have huge impacts on your business, so you need to make sure you’re compliant.
Using marketplaces likes Amazon or eBay to sell your goods does not make you VAT exempt. Far from it.
Authorities around the EU, particularly in the UK, France and Germany have recently become very pro-active in looking at online marketplaces for businesses that are non-compliant, and there is increasing pressure on the likes of Amazon and eBay too. They have come under investigation for their own tax affairs.
Tax authorities even have the power to hold marketplaces liable for any outstanding tax if they do not take action on retailers, so these marketplaces will probably be cracking down on you.
Registering for VAT isn’t simple either. You’ll most likely need to be registered in the country you are selling from, but you may also need to register in several other countries too.
The ‘Distance Selling’ regulations in the EU apply to any business selling goods within Europe. They state that businesses should just charge local VAT until they reach the VAT registration threshold for the country they are selling into.
You might be based in the UK, and selling into Germany, France and Spain. You would just charge UK VAT, until you reached the threshold for each country, then you would need to register in each country, charge the local VAT for each country, and pay the VAT back to each country.
For Germany, the VAT threshold is €100,000. It’s the same in Luxembourg and The Netherlands. But in France and most other European countries, the threshold is only €35,000. In the UK, it’s £70,000.
If your total sales amount to more than this threshold figure, you must register for VAT in that country. Ultimately, you could need 27 different VAT registrations, for 27 countries.
But there are other registration rules too
If you hold stock in ANY European country, you must register for VAT there. There are no thresholds. So if you use Fulfilment By Amazon (FBA) and keep stock in any of their seven fulfilment centres, you’ll need to be VAT registered for each of them.
If you are VAT registered in different countries, you’ll need to apply the relevant VAT number to each and every order.
With multiple orders going out on a daily basis, this can quickly become an administrative nightmare. You need to identify which country the order is being shipped to, and then find the VAT number which corresponds to that country.
Luckily, multichannel eCommerce software like ChannelGrabber can take care of that challenge for you. With our software, you can add multiple VAT numbers to your account, for multiple countries.
Just turn ‘VAT registered’ on in your account, and then you simply select the country code and add the VAT number.
We’ll then automatically include the relevant VAT number for the country you are shipping too, and send out a compliant invoice.
Even once you’re VAT registered in all the relevant EU countries, you still have to overcome the challenge of dealing with multiple VAT rates.
Unfortunately, there is no standard rate for the whole of Europe.
In the UK for example, most goods are charged VAT at 20%. Some – like smoking cessation products, energy saving materials and children’s car seats – have a reduced rate of 5%. Others are exempt, like children’s clothes and most food and drink.
But in France, the rates are set to different percentages and the exemptions are different too. Although 20% is also the standard rate, there is a reduced rate of 10% for food that’s ready to eat, a 5.5% rate for other foods and non-alcoholic beverages, and a 2.1% for goods likes newspapers and most medicines.
Trying to determine which VAT rate to apply for which country could quickly to turn into a mess of numbers and percentages, and could see you quickly becoming non-compliant.
However, you can use eCommerce software like ChannelGrabber to help again here. When you add any product to your account, you can set an individual VAT rate for each country. Add children’s clothing for example, and you can set the rate at 0% for the UK, and then adjust the rates as and where applicable for each additional country you’re registered in.
We then take care of all the rest, including invoicing and reporting, so whenever someone orders those products, you know that the correct VAT rate will be applied.
Although some goods are zero-rated – they don’t incur any additional VAT – this doesn’t make them VAT exempt.
In practice, what that means is you need to include all products and orders in your VAT record keeping. Even though you sell children’s clothes that are zero-rated at 0%, those goods are still classed as being VAT-taxable. They count towards your 12-month threshold and cannot be ignored.
You might also find that some buyers request a zero-rated VAT invoice from you, if they are a VAT-registered business in Europe. Again, you’ll need to record the VAT-taxable order, but set the rate as zero.
ChannelGrabber lets you go to any order and select a “EU Zero-Rate VAT” option. Just enter the customer’s VAT number, and then this will be applied to the order and update the invoice automatically.
You’ll also be able to see a full VAT breakdown of your orders, to aid with accounting and VAT returns.
One of the final challenges to deal with when it comes to handling VAT on EU orders is the payment of those VAT fees.
You could have multiple different countries that each require regular VAT payments be made on time. Late payments mean late fees.
You might need to transfer payments from marketplaces in different countries into one central place, and may also have to convert currency in order to pay your VAT.
That’s where Payoneer can help, with their dedicated VAT fulfilment service. By making VAT payments directly to the relevant tax authorities on your behalf, they can reduce transfer and conversion fees, and help you increase efficiencies.
VAT in the EU is complicated, and if you are in any doubt about what you need to do, you should always speak to a tax advisor. But using software like Payoneer and ChannelGrabber, can help you handle VAT on EU orders much more efficiently, saving you both time and money.
Dave has worked in the eCommerce industry for 4 years, gaining experience in management, finance, sales and marketing. As a seasoned Commercial Director, he is passionate about advancing the next-generation of online retail tools. In addition to ChannelGrabber, he is also involved in retail arbitrage. Outside of the office, Dave enjoys sci-fi/fantasy novels, listening to pirate metal music and binge watching Judge Judy. Seriously.