The ecommerce market offers a bright future for established brands and starting sellers alike, but for everyone involved, running an online business compliantly can be a challenge. Starting a new business should include careful thought and planning and what better time than now to set up. 2022 is predicted to be a fantastic year for online retail, so here are a few areas (and a few VAT considerations of course) that you may want to assess when planning to start an ecommerce business in the new year.
Finding a product: Source popular items or sell hand-crafted goods?
It’s all well and good to decide you want to start a business but finding a product or products to sell can be a challenging hurdle during this initial stage. This is arguably the most important step for businesses that are seeking to select and sell popular products via Amazon FBA. Or alternatively, you may already have a product that you manufacture or create, that you intend to sell online.
For those looking to source products to sell Oberlo might be a great tool to browse millions of potential products in almost any niche market. Through their platform you can also see each product’s performance data so you can make informed decisions about the products you will sell.
VAT should also play a part in this selection process – as an international seller you will need to consider VAT rates in each destination where you intend to sell. When selling in the EU, each member state has a different standard rate of VAT for goods/services which can range between 17-27%. When choosing what you want to sell, you should also think about where you would like to sell your products to make sure the rate of VAT is factored into your margins correctly. You should also be aware that some goods are VAT exempt in certain countries, and this will affect how VAT returns should be handled.
Picking a sales channel: Sell on a marketplace or via your own website?
Next, choosing where you want to sell is equally as important, as this is where all your business will be conducted. From marketplaces to stand-alone websites, ecommerce businesses have a wide range of choice when it comes to choosing a sales channel. And you don’t have to settle on just one, lots of businesses choose to use both a marketplace and their own website to get as much customer exposure as possible.
However, depending on where you choose to sell, VAT is a key element that will need to be considered in order to protect your profit margins and set up and online business compliantly.
If you are an EU-based business and you sell to EU customers from stock held within the EU, you will be responsible for charging and collecting VAT for each sale you make. As you are holding stock, you will need to VAT register in the country where your goods are held, plus in each country where your customers are based. You will however be eligible to register for the OSS (One Stop Shop) Scheme through which you can report all cross-border sales made through a marketplace.
Non-EU based sellers
For non-EU businesses who sell via a marketplace but hold stock within the EU for onward sale, you will need to be VAT registered in every location where this stock is held. However, as you are supplying goods to EU consumers from stock held within the EU as a non-EU seller, the marketplace will take on responsibility for charging and collecting VAT on all your intra-EU sales irrespective of the value of goods.
If you are non-EU based and you sell goods on a marketplace to EU customers from stock held outside of the EU and your consignment values do not exceed EUR 150, the marketplace will become the deemed supplier. This means the marketplace will take on responsibility for charging and collecting the VAT due on all your distance sales of imported goods to EU customers. All you will need to do is attach the marketplace’s IOSS number to your consignments and you’re ready to send!
If you are a non-EU business who holds goods outside of the EU for sale to EU customers via a marketplace and your consignments do exceed EUR 150, you will be responsible for collecting and charging VAT from your customers. You will need to follow standard customs procedures so an ‘Importer of Record’ will need to be appointed to cover any potential import charges or customs duties.
For EU-based businesses who sell through their own website, a local VAT registration will be required in any country where you hold stock. Storing inventory in an EU country for onward sale creates a taxable supply and as a result, triggers this obligation.
If you are an EU-based business selling cross-border through your own website, you can register for Union OSS in your country of establishment, through which you can report all intra-EU sales to EU consumers. This option reduces the cost and time required to VAT register in each country where your customers are located.
Remember that if you sell any goods domestically in a country where you are VAT registered, these supplies would not be eligible for reporting via Union OSS and would instead need to be reported through your domestic VAT return.
Non-EU based sellers
For most non-EU businesses distance selling imported goods to EU customers via their own website, a VAT registration in the country where your customers are located will be required. Selling to EU customers from stock held outside of the EU at point of sale will require you to pay VAT on all consignments imported to these customers.
For non-EU business conducting sales to EU customers through your own website, you could greatly benefit from the IOSS (Import One Stop Shop) Scheme. This scheme enables users to collect and report all VAT due on EU distance sales of imported goods on consignments with a value below EUR 150. Non-EU own website sellers will need to apply VAT to every order taken from EU customers, so IOSS can meaningfully reduce process time and lighten administrative burden.
However, if your business is established outside of the EU, but you hold stock within an EU member state for onward sale, you will still be required to VAT register in the country(s) where your stock is held. If this sounds like your business, you will be eligible for Non-Union OSS through which you can declare any intra-EU cross-border B2C transactions to EU customers.
Managing logistics: Dropshipping or warehousing?
Amongst the preparations for launching your online store, you need to plan the logistics of running your business. Shipping and fulfilment are essential factors that significantly affect customer perception of your brand and you don’t want to start off on the wrong foot!
Dropshipping is a model in which a supplier delivers a product directly to the end customers on behalf of a retailer. The retailer does not physically see or handle the goods themselves, however when the goods are shipped to the customer it will appear to be under the retailers’ name/branding.
Dropshipping can be a useful fulfilment model so that businesses can expand their inventory range and not have to make extra space in storage or warehousing facilities for these products. Setting up a dropshipping business can take just a few hours, so starting up can be very simple and fast.
Please bare in mind that even though dropshippers may not physically store or see the goods themselves, the dropshipping model can cause some complex VAT obligations so it’s essential to consult with an expert if you have questions about your VAT compliance.
Online sellers can also fulfil orders from a warehouse facility or distribution center. This model involves the supplier shipping products in bulk to the retailer’s warehousing facility and once it has arrived these supplies become the retailer’s inventory. The retailer would then organise delivery to the end customer from this warehouse.
Warehousing and handling your goods in person may be a better option for some businesses, as this enables you to physically oversee all your operations and carry out quality control over your goods.
Consignment value and shipping rates
You should also consider how your consignment values will affect your logistics and choose a shipping method that matches your margins. If you choose the dropshipping model for order fulfilment you will need to appoint an importer of record who will cover import VAT and duties. This is likely to be either you (the business) or the end customers – be aware that customs will hold the goods until VAT is paid so this will affect delivery times and customer experience. If you intend on making the end customer the importer of record, please be sure to make them aware of this responsibility prior to purchase.
Alternatively, if you’re a non-EU business shipping to the EU via a website or a marketplace with a consignment value not exceeding EUR 150, you will be able to use IOSS. Using IOSS means that import VAT and duties will not be due at customs and goods can pass through clearance procedures quickly.
Although this expense can seem daunting for smaller businesses, IOSS can significantly speed up delivery times and avoid delays entering destination countries. We also offer a lower IOSS registration package for smaller businesses which can give you access to all the benefits of IOSS without a negative impact on your margins. Get in touch with our team to discuss your eligibility.
Logistics services and parcel delivery solutions
Choosing a way to ship your products to customers is an important part of providing great customer service. As rules have tightened throughout 2021 and delivery delays have become a larger issue for ecommerce brands, finding the right fit with an experienced provider is key.
You may want to consider a logistics solution or parcel delivery provider that is able to handle importation and is well-informed with the customs process. Partnering with the likes of Shapiro, ParcelHub or Huboo can give you the competitive edge and agility to deliver a great service and have parcels shipped on time.
Starting up a new business can be equal parts exciting and challenging, and as you develop as an ecommerce brand, you’ll gain knowledge and experience that will continually improve your processes. At SimplyVAT.com we’re here to help solve the difficult puzzles that come with selling online, and these difficult areas tend to center around VAT.
Selling internationally online will always go hand in hand with VAT compliance. As your business grows you will need to stay updated on your VAT accounts and the processes you need to follow, here’s a brief checklist of things you need to remember when selling cross-border:
VAT checklist for 2022:
- VAT register wherever you are holding stock within the EU
- Apply the correct VAT rates to each sale made to EU customers
- File VAT returns monthly or quarterly through either the OSS or (optional) IOSS portal for all intra-EU sales
- Keep an eye on consignment values if using IOSS to stay within its parameters
- If you are not using IOSS, ensure you follow necessary customs procedures when importing
With our team of international VAT experts, we can take the hard stuff off your hands so that you can stop worrying about compliance and sell confidently cross-border. Our dedicated client managers are always on hand to answer your questions to help you set up an online business compliantly, no matter where you want to sell. Get in touch with our team today.