With the holiday season fast approaching and the Black Friday following the madness of Black Friday, are you prepared for the increase in sales this could bring to your business?
As an online seller, this time of year can be manic but an increase in sales means you’re more likely than ever to cross the European VAT Distance Selling Thresholds.
Don’t bury your head in the sand (or snow!).
We bring you an overview of the EU Distance Selling regulations and what you can do to ensure your business stays compliant over the Christmas period.
The rules explained
Firstly, let’s explain the Distance Selling Rules and how they could affect your e-commerce business.
If you sell on a marketplace or through your own website and you’re trading across European borders these could apply to you.
Furthermore, for sellers who are storing stock in an EU country and selling directly to private consumers in Europe, you will be covered under the Distance Selling Rules.
As you know Value Added Tax (VAT) is a form of consumption tax where it is added at every step of the supply chain.
The EU created the Distance Selling Rules to help businesses trading across Europe to grow their sales without having to VAT register in each country until set thresholds are met.
Key points to remember
- VAT registration thresholds are set by each individual EU country
- They are calculated by your annual sales net of VAT into each respective EU country
- The rules are for EU VAT registered businesses selling goods to private individuals in other EU states
- Once you’ve crossed the set threshold you become obligated to VAT register and file returns as a non-resident trader in the country you are selling into
- If the threshold has been crossed the local rate of VAT needs to be charged
The Distance Selling rules will apply even if you’re not VAT registered, if you are a sole trader, or you sell only on a marketplace such as Amazon or eBay.
Remember, for sales within the European Union, if you have not exceeded the threshold for the buyer’s country, you should apply your domestic rate of VAT to those sales – if you’re VAT registered.
The thresholds can really vary, so depending on what you sell, you could cross these relatively quickly.
For example, the UK has a distance selling threshold of £70,000, Germany €100,000 and Italy €35,000.
Below is an overview of the standard VAT rate and the thresholds for the main Fulfilment by Amazon (FBA) countries:
Table 1. Overview of VAT obligations for the main European countries
Penalties and Fines
In recent years, tax authorities in the European Union have been cracking down on non-compliant sellers.
It’s important for online retailers to be aware of the tax obligations where your customers are based.
Ignorance of the VAT rules is no defence and Tax authorities have the power to levy penalties and interest charges on unpaid VAT.
- Keep up to date with the VAT registration thresholds and monitor currency fluctuations
- Know which VAT rates apply to your goods or services
- Once registered in another country, do not charge VAT for your own country as well as the buyers.
- It can take anywhere from 4-12 weeks to obtain a VAT registration
- Once registered make sure your invoices comply with local regulations
- Make sure you have systems in place to capture accurate sales information including which countries your customers are based in
We know that you’re short on time and want to ease the burden of Tax at this busy time.
Let us track the Thresholds for you, with our S-VAT software or take the FREE VAT health check to find out if you need to register!