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The European eCommerce market has always been booming. More and more traders are flocking to it to try their luck on Amazon, eBay and Shopify. This article will tell you which requirements have to be met to sell in Europe. In addition to general measures and tips, we will take a closer look at the VAT and reporting aspects.
621 billion euros. This is the approximate amount of sales made in the European eCommerce market. A big cake, but one that more and more sellers want a piece of. Building an online business and competing against many other sellers sounds time-consuming, expensive and exhausting, but it can definitely be worth it and many processes can be automated or outsourced.
In Europe there are many national and international online marketplaces that sellers can choose from. The highest potential (and turnover), aside from big mail-order businesses, is made on 3 different channels: Amazon, eBay and via an own online shop. Amazon sellers especially can benefit from a Europe-wide distribution network, which makes selling cross-border rather simple.
There are numerous opportunities for online retailers to become successful in Europe. Whether it is worthwhile to sell in Europe is subjective. The right product, distribution channels, and many other factors ultimately decide success or failure. However, Europe (especially Germany, the UK and France) has purchasing power that should not be underestimated. What do you need to consider when deciding to trade in Europe? And what does the whole thing look like from a tax point of view? More on this in the following paragraphs.
The first step when deciding to sell on the European online marketplaces is selecting the right distribution channel(s). It always depends on the product. For example, handmade and designer items are more often sold exclusively on small marketplaces such as etsy or Made. The big marketplaces on which most sellers are active are Amazon and eBay.
For Amazon sellers in Europe, there are certain FBA (Fulfilment by Amazon) programs that sellers can choose from if they want Amazon to take care of storing and shipping. The other possibility is FBM (Fulfilment by Merchant), which means that the seller themself stores and ships their products. Many online sellers do sell on Amazon and via their own online shop. A mix of distribution channels can definitely be worth it.
As Europe is a dense net of different countries, finding the right country to start in might not be that easy. Here is what you do. Let us assume you want to start selling on Amazon, so you can decide from the 1-5 marketplaces Amazon has in Europe. Namely those in Germany, the UK, France, Spain and Italy. Orders to all other EU countries are fulfilled from there (e.g. orders to Austria from the German marketplace).
When you start selling, you need to decide on one main marketplace, regardless of the Amazon FBA program you pick.
It is recommended to start in the UK or in Germany:
a) When selling in the United Kingdom (Amazon.co.uk), all documents, regulations, etc are in English which makes it easier for people not speaking the local language to enter the European market.
b) The German Amazon market (Amazon.de) is the biggest Amazon market in Europe. There are also many English speakers using it. There is less competition than in the UK and the fiscal side is easier to handle in Germany (and Brexit will probably not make tax matters easier in the UK).
Whenever you want to sell something in the EU market, make sure that your products meet EU regulations (requirements to protect human and animal health, as well as the environment and consumers rights).
These regulations can be rules and specifications which are harmonised within the EU or country-specific but recognised by the EU (mutual recognition).
Let’s talk about the taxation side of selling in Europe and about VAT – the main issue when selling in or to various European countries at the same time. Online sellers need to be aware of their VAT duties, when they need to register for a new VAT number, and when VAT return payments must be made. But first of all: what exactly is VAT?
VAT, short for value-added tax, is a consumption tax which is assessed on the value added to all goods and services in the EU. The aim is to make intra-European trade as fair as possible and simplify tax payments in the EU - even though tax rules and regulations differ from country to country.
This starts with different VAT rates. Each and every member state has its own VAT rates (both standard and reduced). The only requirements there are regarding setting VAT rates are the following:
a) The standard VAT rate has to be at least 15%
b) The reduced VAT rate has to be at least 5%
NOTE: Some countries have several reduced rates. These reduced rates usually apply for certain products and services such as medication or books.
Registered retailers are given a VAT number and must show the VAT collected from customers on invoices and provide proof of this through declarations, filings and reports. This way, if the customer is a registered trader, they know how much tax they can deduct and the consumer knows how much tax they have paid on the final product, and the authorities know how much VAT needs to be paid.
VAT does not always apply the same way. In Europe, it makes a big difference if goods or services are sold from and if it is sold from a company directly to the consumer (B2C=business to consumer) or from one business to another one (B2B=business to business).
How VAT applies in the EU depends on what you’re selling, and to whom. Goods and services are viewed differently, as well as the distinction between selling B2B and B2C.
When selling goods B2B, you do not charge VAT if the other business has VAT ID as well. In this case, you need to deduct any VAT you paid in order to make that sale from your quarterly/monthly (depending on the country) VAT return.
If you sell goods B2C, you will state the VAT of your home country on the invoice and you will transfer the tax there as well. As soon as you reach an annual limit in terms of sales to a certain country, you will need to register for VAT in this country and then VAT there. More about that in the VAT Registration chapter below.
When selling services B2B in Europe, usually the reverse-charge mechanism applies. It shifts the responsibility for reporting a VAT transaction from the seller to the purchaser. This reduces the requirement for sellers to register for VAT in the country where the delivery is made.
The recipient of the goods or services reports both his purchase (input tax) and the supplier's sale (output tax) in his VAT return if a transaction is subject to the reverse-charge mechanism. These two declarations then cancel each other out, but the authorities have full transparency about the transactions and whether tax has legally been paid.
For most services, the VAT rate of the service provider's country is applicable. However, there are some exceptions like telecoms, broadcasting, etc.
When it comes to registering for VAT, 2 aspects are decisive for online sellers in Europe. Despite setting up a business in Europe, the 2 main reasons which lead to the obligation to pay VAT are the following:
1. Storage in a country
2. Reaching a country’s annual threshold limit
When you store goods in an EU member state, e.g. in the countries with Amazon warehouses when you are selling with FBA, registering and paying VAT in those countries is unavoidable. Storage always leads to having to register for VAT.
Despite storing, one of the main reasons which makes sellers register for VAT in additional European countries is reaching the annual threshold limit. This means that whenever you sell goods from one EU country to another one (also known as distance selling), you need to keep in mind the VAT threshold limit of the country of import.
E.g., the VAT threshold limit for Germany is 100,000.00 EUR and if you are storing in the UK and selling from the UK to Germany, you will need to get a German VAT number (with all duties that come along with it) as soon as you reach this 100,000 threshold with sales from the UK to Germany within one calendar year.
NOTE: A Europe-wide uniform threshold limit of 10,000€ is planned for 2021. As there are still quite a few uncertainties, we will keep you updated as soon as there is more information.
With different rules and regulations in all EU countries, we highly recommend checking for the documents you need for each and every EU country you want/need to register in, or simply check with your accountant.
Despite local regulations for the application and registration process for getting a VAT number, sometimes there are also additional country-specific regulations which have to be kept in mind. For example, as of 1 Jan 2019, operators of online selling platforms are liable for VAT (or rather VAT that was not paid by sellers using the platform). Some operators request tax certificates which prove that a proper VAT registration was made.
E.g. in Germany, Amazon sellers active on Amazon.de need to provide the so-called F22 VAT Certificate to Amazon, which is basically an official proof that the seller has registered himself correctly for VAT in Germany.
When you register for VAT in an EU country, it is not over after receiving a VAT registration number and paying VAT from time to time.
Being registered for VAT means regular filings and returns, as well as various reports. VAT needs to be found in your invoice as well. Now let us quickly talk about which documents, returns, and reports you need to know (and take care of) when selling online in Europe.
VAT returns have to be submitted monthly or quarterly (depending on the country) to the local tax authorities. It has to be in the local language and you need to meet the frequency and deadline – again, this differs from country to country.
In addition to the returns mentioned above, you need to file a yearly report as well in every country you are registered in to even the VAT duties by the end of the year.
As mentioned before, just filing VAT returns is not enough. To support your returns, you need to give insights on your sales and goods movement within the EU (or rather from one VAT registered company to another one.
Basically, the EC Sales List should include the following information:
Note: Make sure the relevant VAT IDs are registered with the VIES System!
Intrastat declarations are used for statistical reports and are essential for the balance of payments of a country and for the trade policy.
Each country has an annual threshold of arrivals and dispatches when it comes to Intrastat reporting. Below these thresholds, no reporting is required. Once having reached it, you need to take care of your intrastate reports on a monthly basis. Italy is the only exception in terms of Intrastat thresholds (there are none). Everyone needs to file Intrastat forms there.
Intrastat reports should include the following data:
Seller VAT ID
Sometimes, and again depending on the country, additional information might be required (e.g. delivery terms).
The EORI number (Economic Operators Registration and Identification number) helps identify economic operators within the EU.
Focus is on the relation and interaction with the customs authorities and on simplifying the customs clearance. Therefore, the EORI number can be seen as a sort of “customs number”. It usually consists of 17 characters with the country code at the beginning (2 letters) followed by a sequence of 15 digits.
EORI numbers have to be checked for validity for every dispatch within the EU. This can be done on the site of the European Union and is only required from companies, sellers, etc. and not from private persons.
More and more measures are introduced on a European and national levels to avoid VAT fraud and ensure a proper VAT payment. The e-commerce sector specifically had to introduce various measures reducing the big losses due to missing tax payments.
Therefore, consequences for VAT registered businesses have become more serious in the last few years. Not being registered or paying VAT properly can quickly lead to:
Long story short: When selling in various EU countries, make sure to stay VAT compliant and to meet all regulations!
Selling online in Europe can be quite worthwhile. More money is made in e-commerce every year and it is blooming throughout Europe. It’s not coincidence that there are more and more active traders on online platforms such as eBay and Amazon. But if you want to sell successfully in the long term, you should be aware of the tasks and paperwork involved.
Unfortunately, it is still the case that most online sellers fail due to the administrative hurdles and tax aspects - but with the right partners, this can all be avoided.
Since non-compliance with tax and reporting obligations is being punished more and more severely, you should really not fail because of it. There are more and more service providers for e-commerce whose service helps streamline the most difficult processes.
There are a wide range of services, including invoicing, offer and delivery note service from easybill, to online tax consultants who take care of VAT compliance across the EU such as hellotax.
Either way, once you have found the right partners you can rely on, the biggest challenge is already over.
P.S. Learn how to research great products and launch your very own best-sell product using this step-by-step tutorial and checklist HERE.
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