How To Pay VAT When Using Amazon’s Pan-European FBA Service

Like it or loathe it, Amazon is the place to be for many small businesses. The platform dominates eCommerce in many key territories, and boasts particularly high engagement among its Amazon Prime members. 85% of Prime subscribers visit the site at least once a week, and 46% will buy at least one item in that timeframe.

What this means for Amazon sellers is that securing the ‘Prime’ stamp next to your product is critical to staying competitive. Until recently, that wasn’t possible for sales to other EU countries – but all that has changed with the Pan-European Fulfilment By Amazon (FBA).

Some however have claimed that the scheme is a ‘tax trap’, and have warned businesses that pan-European fulfilment could end up costing them more than they make in sales. So is this really true, and how do the undeniable pros weigh up against the potential cons?

How Fulfilment By Amazon (FBA) works

Fulfilment By Amazon (FBA) is the only way to provide Prime delivery, which gets products to the customer in a single day on average (and sometimes less in major cities). It is available to Prime customers for free, with non-Prime customers having to pay a fee for one-day delivery. Prime customers will almost always choose the Prime option, as it is both faster and cheaper.

Until recently, FBA only worked on a domestic level. Products sent to UK fulfilment were only available with Prime delivery for UK customers. Customers from other countries could still buy them, but they would not receive Prime delivery, meaning it was more likely that they would buy local products with Prime.

Pan-European FBA allows businesses to have their stock distributed between fulfilment centres in seven different European nations. As a result, these products can be made available to Prime customers with Prime delivery, making them far more competitive, improving shipping times, and generally increasing the value to the consumer.

The trouble with tax

The issue with this is the thorny issue of taxes, specifically value added tax (VAT). VAT is the EU’s primary method of sales tax, and applies to the vast majority of goods and services sold in Europe. Some products are ‘zero rated’, meaning they do not incur any sales tax, but you must still be VAT registered to report these zero-rated transactions.

Businesses selling products via Amazon’s European Fulfilment Network (EFN) rather than its fulfilment centres can avoid VAT as long as they do not exceed distance selling thresholds, which vary from country to country. If their sales exceed these thresholds in a country, they must register for VAT there. This allows small businesses in particular to sell small amounts to a number of countries, without incurring large administrative penalties for tax reporting.

For businesses using Amazon’s European fulfilment centres, however, these thresholds do not apply. Because the product is being sold and shipped from a local distributor, it is not being sold at distance – and the business must therefore register for tax in every territory where their stock is being stored.

Amazon has been increasingly strict about applying this since separate EU and UK crackdowns, and non-compliant accounts are likely to be suspended. There is also the small matter of being investigated by the tax authorities in the various jurisdictions, and potentially having pay a large amount in fines or backdated taxes.

Is Amazons FBA scheme worth it?

While tax registration is a burden, it may be offset by the savings made through FBA, as well as the increase in business. Because it eliminates cross border fees, the FBA fees are significantly cheaper per item than those charged for EFN. The UK also has a relatively low level of VAT compared to some of the countries, allowing you to collect more on some transactions.

This is good for larger businesses shipping greater quantities, but it still presents a dilemma for smaller businesses. The initial outlay and prospect of tracking sales to seven countries could quickly overwhelm a business with limited resources, and prove to be more trouble than it’s worth.

Thankfully, there are a few ways around this. The simplest is to continue selling products without that Prime logo. You will miss out on some Prime customers, but your international shipments will continue to benefit from distance selling thresholds, potentially allowing you to lower prices somewhat and stay more competitive.

Alternatively, you could sign up for another Amazon scheme, the Multi-Country Inventory (MCI). The MCI acts as a sort of diet FBA, allowing you to send stock to one fulfilment centre of your choosing. This is an ideal way to test the merits of Prime for your products while only having obligations to one country, and only signing up with one tax authority.

The Experts Solution To Paying Amazon VAT

There is a better way around all of this, however, that allows you to get the best of both worlds. By enlisting the help of expert accountants, you can secure registration with all seven tax authorities, receive year-round tax advice, and offload the hassle of reporting.

Delegating your tax registration means that you won’t have to deal with the large amounts of paperwork or translation services required to communicate with the various tax authorities. You could also receive assistance with your recording and reporting of tax data, ensuring that the information you submit is valid, and that any rebates or complaints are properly handled.

We have extensive experience dealing with European tax agencies, and can negotiate with them on your behalf. Contact us today to discuss your options as an Amazon business, and learn how we can help to ease your tax burden.