A basic guide on how EU-VAT works for NON European companies
When you are considering to expand your e-commerce business to Europe, you have to understand how taxes and VAT works to create a compliant and long-lasting environment. In this podcast Christoph from fbahero answers the most common questions for NON European companies considering to purchase a dragonflip FBA business.
What is VAT?
Value added Tax is the most relevant tax for e-commerce businesses. Each European country has it’s own rules and regulations and it’s own VAT number. It’s comparable to the US sales tax, where every city/state, etc. gets it’s share. VAT needs to be included into the sales price. On avarage VAT is 20% (on the total price a customer paid).
How do I know in which country I have to register for VAT?
There are two simple rules when you have to register for VAT:
- Rule 1: If you store goods in a country (your own warehouse or an FBA warehouse)
- Rule 2: If you exeed a sales limt to that country (distance selling threshold limit)
Whatever applies first (mostly the storage) you have to apply for a local VAT number and pay you VAT to that country on a regular (monthly or quaterly) basis.
How to register for a VAT Number?
You can register for a VAT ID by applying for it at the local authority. It takes about 1–2 months to receive the acual number and it’s valid from the application date. You should not start selling/storing before applying for a VAT number. In some countries it’s required to apply for the number via an fiscal agent/representative. It’s an accountant representing your business and organizing the correspondance and VAT payments (fba-hero.com can help you with that)
Do I need to found a local EU company?
Absolutely not. There is no legal requirement to have a european based company to be able to sell in Europe. There is a big misbelief that by founding a EU company you don’t have to pay VAT. It is true that small EU companies have a certain VAT-free turnover (Germany: 17K, United KingdoM: 85K), but once you exeed that turnover you have to pay both, VAT and local corporation taxes. Furthermore you need an address, bank account, payroll accounting, etc…
If I want to buy a European Amazon based business on Dragonflip, what to do next?
Once you found the right trademark and agreed about the price you can start the purchase process. During that process there is no need for a VAT ID yet. One week before you get the final right to sell the products you should open a new Amazon account and add your companies details (Amazon will ask you for a VAT ID, but you can skip this step for now). Right after you should register for a VAT ID and add the ID, once received, to your sellercentral. Now you are ready to sell in Europe.
For more questions about VAT and to see how fbahero can automate our VAT Registration and Filings for you, book a free consultation.