All you need to know about taxes in Europe – A simple guide for Non-European Amazon sellers to start selling in Europe immediately
While the US e-commerce market seems to be largely saturated, many companies now find great potential in the Asian and European markets. With being one of the key markets Germany plays a major role. Since Amazon claims more than a third of the market, it is only logical to sell its products from the German and European fulfillment center.
Local warehousing means immediately paying local taxes
The tax law in Europe dictates that the accumulated VAT must be paid in the state in which the delivery starts. This means that, if warehouses in Germany are used, for example, for deliveries to several European countries, sellers are required to register their company at the German tax authorities. Now Amazon offers various programs:
By enrolling in the PAN-EU program the seller gives Amazon permission to use all European fulfillment center – more specifically UK, Germany, Spain, France, Italy, Poland and Czech Republic. This gives Amazon sellers the chance to place inventory closer to the end customer and thereby ensure faster delivery. Whenever a seller decides to activate PAN-EU he is immediately obligated to register in all countries named above. In addition requirements for the monthly VAT compliance must be met.
Instead of using PAN-EU it is also possible to make use of the European Fulfillment Network (EFN). Thereby sellers can benefit from using Amazon’s fulfillment network as well as the prime status and need to register for VAT only in the countries Germany, Poland and/or Czech Republic. On the other hand the delivery time can be significantly higher when selling to customers in other countries.
Depending on the number of orders, utilizing the PAN-EU or EFN program makes a lot of sense. By deciding on one of these different programs from Amazon, registration obligations in these different European countries arise and must be met.
Your monthly registration process
Along with the obligation to register, (mostly monthly) sales tax advances must be submitted. In the process, the revenues are assigned to the country where a warehouse (fulfillment center) has been used by utilizing a specially built software for that purpose. The monthly statements must then be submitted to the tax authorities in time. Subsequently, the sales tax must also be paid to these designated tax offices in time.
The easiest way to illustrate this is by taking one example:
The American online retailer has discovered the European market for selling their products. To ensure that all necessary tax related requirements are met, a decision has been made to contact a tax specialist.
Firstly, the expert advises to go with a warehouse in Germany, takes care of the registration in Germany and processes the necessary monthly declarations in the same country.
Extending your reach step by step:
After a certain period, sales are up! It makes sense to use fulfillment center in other European countries, as well. At his point, recommendation is to go with the Central European program of Amazon. Furthermore, this will trigger the registration requirements in Poland and the Czech Republic. Working alongside with several cooperation partners, the tax expert can facilitate the registration process in these countries while always considering distinctive regulations depending on the country. In Poland for instance, a so-called fiscal representative is necessary. Since the fiscal representative in case of doubt has to be liable for the tax loss at the Polish tax office, the American online retailer must deposit a large sum in a trust account.
Be aware of delivery thresholds within Europe
Selling in Europe, one must be aware of so called delivery thresholds. This means that deliveries from a German warehouse initially lead to tax liability in Germany. If a delivery threshold (in this case the delivery threshold to Austria) is exceeded (according to Austria, it is EUR 35,000 per year), the American online retailer must also register for tax purposes in Austria. By using a suitable software mentioned earlier, it’s possible to calculate exactly which sales are taxable in which European countries and take care of registrations and monthly statements.
Rinse and repeat for other countries
After a few months, the American seller wants to expand further and sell in other European countries. By familiarizing with the benefits of using the PAN-EU program, a decision is made to start the registration process in the other PAN-EU countries (United Kingdom, France, Spain and Italy). For Spain, the same requirements regarding fiscal representation apply as for Poland. The VAT returns are generated monthly.
Starting with a clear roadmap in advance, which is updated accordingly
It is important to know that the allocation of tax numbers in Europe can take up to six months. Therefore, sellers considering different Amazon programs should plan accordingly and start the registration process, e.g. applying for a tax number, ahead of time. In addition to the monthly statements, so called annual declarations have to be submitted in almost all European countries. With each state, in which a tax liability arises, there are further declarations to be made. For example, the so called intra-community displacement, which should be reported. This means that Amazon sends goods across Europe and the European tax authorities want to check these goods’ movements to avoid tax evasion. The acquired information is then shared between European countries.
The secret shortcut everybody can use now
The easiest way is to first register in Germany and initially only use the fulfillment center there. For American sellers the tax office „Bonn-Innenstadt“ is in charge of processing the registration and handing out the tax number. For the registration, various documents need to be submitted. The easiest way is to grant the chosen tax specialist power of attorney and transmit all necessary documents to the German consultants, so they can be further processed.
The American online retailer only has to pay sales tax in Germany or Europe. Income taxes continue to be fully paid in the US. It is also possible to establish a company in the form of a corporation (GmbH) in Germany. In this case, the income tax in Germany would also be payable and amounts to around 30 percent of the profit.
But let’s look at it in more detail:
Import to the EU (especially Germany)
The European Union is both – a political as well as economical union – with 28 member countries along Europe. Together they represent the majority of this continent and the biggest trading partnership in the world. In addition to this partnership the trading cooperation was extended to the EWR, including countries like Iceland, Liechtenstein and Norway. Through a bilateral agreement Switzerland is included as well – one important exception is that these countries are excluded from the European customs union.
Benefiting from the Internal European Market trading is made quite simple among most European countries. As mentioned before, the Internal European Market was established in order to optimize cross-border trading. As a result, import from the EU is both – a simple as well as good working process.
But first goods need to be imported to Europe. As one of the strongest European markets Germany is a good place to start. For the import from Non-European countries – so called third countries – the seller normally hires a freight forwarder who also handles the customs clearing.
European import duties include: import sales tax, excise taxes, customs duties
Import sales tax
The import sales tax is a special form of collection for the sales tax with one rule set (19 % or the reduced tax rate of 7 %)