Planning and preparation is key
As an e-tailer, do you know the international VAT obligations you could face once you start selling abroad? Failing to include these in your cashflow (along with other staples, such as web-hosting or accountancy fees) could put your business at a serious disadvantage.
The rules apply to you, even if you're not a registered business, or UK VAT registered. They also apply to you if you're just an individual using marketplaces like eBay or Amazon to sell directly to consumers!
Selling goods? What you need to know
If you're selling online to consumers in Europe, you're governed by the EU distance selling rules for VAT.
The European tax authorities have set VAT registration thresholds that apply to anyone making distance sales to European consumers. As a general rule, there are two bands of thresholds. For most of the EU, the threshold is €35,000 (or equivalent). But in France, Germany, the Netherlands, Luxembourg and the UK, the threshold is set at €100,000 (or the equivalent).
When your sales (including shipping/postage fees) reach the threshold set by the country where your private customers are (not business customers), you have an obligation to:
- VAT register in that country
- apply the relevant VAT rate to your goods
- file the relevant VAT returns in that country, by the deadline and at the frequency required by that tax authority
- (if you are VAT registered in your home country) charge local VAT on all your sales until you reach the threshold in another country and need to register there
Pricing – one size doesn't fit all
- Do you have enough room in your margins to absorb paying VAT in another country? For example, you might be a UK company, currently charging 20% on your sales to your EU customers. If you quickly become successful in Hungary, where VAT is 27%, the extra 7% paid to the Hungarian tax authority instead of 20% to the UK tax authority may be the difference between competing locally or being sent home
- Have you thought about having a net price and adding the relevant VAT rates as and when they become necessary?
- Can your online shop accommodate these changes easily?
It’s best to do the sums and plan ahead!
Are you using fulfilment centres?
Are you using another EU country's fulfilment centres to get closer to your EU customers? If you are, did you know that just moving your stock to that fulfilment centre creates a taxable supply? There are no thresholds to breach for non-residents in this scenario, and you have an immediate need to VAT register in that country.
Is ignorance bliss?
The European tax authorities set up mutual co-operation in 2012 to combat losses in undeclared VAT. They talk to each other and share data. And they issue penalties and fines for late or non-compliance, so ignorance is only bliss when it has no consequences!
we help online retailers just like you to trade internationally. We can provide the right advice and find the perfect solution to suit your business requirements.