(Value added) taxes for Amazon sellers in the EU: Pitfalls, regulations, reform 2021 and more

5. October 2021

Table of Contents
(Value added) taxes for Amazon sellers in the EU: Pitfalls, regulations, reform 2021 and more

EU VAT reform 2021 and what the new regulation and One-Stop-Shop mean for Amazon sellers

It is easy to see that current VAT laws in the EU were made for companies like the typical corporations in the 1980s and 1990s – not for online businesses. This means that online traders (and therefore of course Amazon sellers as well) become subject to turnover tax in other countries fairly quick. This might happen for example when Amazon stores your goods abroad and then sells them from there, or if you exceed delivery thresholds.

That’s why it’s time for some value added tax law reforms.

What are the effects of the new regulations after the EU VAT reform 2021?

Next year, big VAT reforms are supposed to come into effect in the EU – and they might revolutionize trades for some sellers. The VAT reform is supposed to lead to a so-called One-Stop-Shop, meaning every online retailer can submit all turnovers in their own country, the country of domicile. This means you would still have to pay VAT in other countries, but you can hand in all your documents at your own tax office and won’t need foreign tax numbers and the like anymore.

As soon as the One-Stop-Shop will be implemented, delivery thresholds won’t exist anymore in the way that we know them today. Instead, there will be one single European threshold of 10,000€ – meaning that everybody who generates more turnover than 10,000€ yearly in all European countries combined has to transfer the tax abroad but can easily do so in their country of domicile.

In order to get this whole new system running, however, a tool with a central user interface is necessary so that an online retailer can file all tax reports at one place for every tax office in every country to access – and developing this tool takes time.

When will the EU VAT reform 2021 take effect?

It is out of the question that the VAT reform will happen. It’s only still unclear when exactly it will take effect. The originally planned date was January 1, 2021. Then Covid-19 happened and everything got delayed for about six months. On top of that, some countries like Germany and the Netherlands asked for additional postponement.

This means the reforms won’t happen before summer or fall 0f 2021 due to two main reasons: The current pandemic and the effort it takes to build a tool that is necessary for the implementation of the new laws.

Naturally, this delay entails some confusion and misunderstandings: Some tax offices have been sending out emails to sellers to inform them that delivery thresholds will no longer be in effect come January 2021. This is not the case, of course, as the current thresholds will stay in place until the reforms that will happen at a later date.

How are Amazon sellers affected by the new EU VAT regulations?

If you now think that’s all, nobody will need foreign tax numbers anymore – that’s unfortunately not the whole story. The new regulations do not apply to services such as some that Amazon offers. Which means: If you store your goods in other countries with FBA and then proceed to sell from there, you can’t use the One-Stop-Shop, therefore can’t benefit from the new EU VAT reforms and still need foreign VAT numbers.

So all in all, the new regulations aren’t much help for sellers who use modern structures like Amazon PAN EU. This shows once again that legislation can lag far behind and we can only hope for later improvements.

Tax liability and voluntarily waiving delivery thresholds with Amazons Central European Program (CEP)

Amazon’s Fulfilment Network Expansion, also called CEP (Central European Program) is very promising for many Amazon sellers due to a special regulation. However, delivery thresholds still have to be taken into account.

Some of the following information and views may apply only to sellers registered on amazon.de, the German marketplace. Details may vary for sellers mainly based in other countries.

What exactly is the Central European Program and how does the Fulfilment Network Expansion work?

If you take part in the Central European Program (CEP), you allow Amazon to store your goods in fulfilment centres in Poland and the Czech Republic and send them out from there, in addition to the German ones. This is beneficial for sellers due to a delivery cost regulation: With the CEP, you save 50ct in delivery costs for every article you send out – no matter if it’s being sent from the extended centers abroad or from Germany.

This shows very clearly that Amazon takes a great interest in these international connections. The 50ct in price difference are generally seen as a penalty charge for sellers who do not participate in the program.

Tax liability in other countries with the Central European Program

So why don’t all sellers use this Fulfilment Network expansion? Storing or delivering your goods in or from other countries means you are liable for taxes in the respective countries. This applies from the very first article sent or stored and is not depending on delivery thresholds.

Therefore, if you want to check the box in the seller central to take part in the Central European Program, you have to be registered for taxes in Poland and the Czech Republic already and have both tax numbers on hand – otherwise, you’ll run into complications and even penalties.

Necessary steps to prepare for the Central European program

Even if most sellers want to get rid of the 50ct in penalty charge as quickly as possible, there is quite some time needed to complete certain steps in order to benefit from the Central European Program.

This time is needed for mainly two reasons:

First of all, you need to apply for the aforementioned tax numbers. This can take two to three months since the application has to be approved by local tax authorities in Poland and the Czech Republic. On top of that, unplanned events can slow down the process even more – during the peak of the Covid crisis, many of these authorities cut down their staff to one instead of usually five or six employees.

The other reason has to do with voluntarily waiving delivery thresholds.

SPACEGOATS reminder: A delivery threshold is the revenue limit in a country of destination up to which you have to pay the revenue tax (VAT) in the country of origin. After exceeding this limit, the tax has to be paid in the country of destination or delivery.

This means if you sell from Poland or the Czech Republic, you pay the Polish or Czech VAT when selling to other countries (including Germany) until you reach the delivery threshold.

Especially when selling to Germany, this is not very profitable since the German VAT at 19% is considerably lower (even more so with the current 16%) than the Polish and Czech at 23 and 21%, respectively.

That’s when waiving the delivery thresholds comes in: As a seller, you can request to voluntarily go without the delivery thresholds, meaning you only pay the German VAT (in this case) from the beginning. However, this request has to be done properly or else you cannot benefit from paying the lower tax rate. There is also a 30-day blocking period. Therefore, it is best to already apply for the voluntary threshold waive while waiting for the tax numbers. It’ll save you time and money.

Only after these two things are completed can you finally tick the box in the seller central to start the Central European Program!

Is the Central European Program worth it for my business?

When it comes to the CEP, it is generally very easy to weigh up cost and benefit: You simply have to compare costs for taking care of taxes in Poland and the Czech Republic with the 50ct penalty charge – and can then easily see when the whole thing is worth it.

SPACEGOATS Extra Tip from our colleagues at Taxdoo: As a rule of thumb, you can assume that the CEP might be worth it once you reach 500-600 FBA sales per month. Definitely worth it to do the math!

Tax liability doesn’t expire with the Central European Program

However, long-term planning is important for participants of the Fulfilment Network Extension: Once started, it’s not possible to simply stop the next month. The tax liability, especially the liability to report and declare, remains until the end of the calendar year.

This means as long as you have a tax number, you are obliged to declare your taxes in the respective country – even if you’ve deactivated the extension in seller central. Your taxes might equal zero, but this has to be reported to the foreign tax authority as well.

The liability only expires when the tax number gets deleted, i.e. fully deregistered. Costs incurred include a fee for the process which is similar to the registration – just the other way round.

VAT and tax declaration liability in other countries: When and how is an Amazon seller liable?

Where am I liable for taxes? What if I only store goods in a country but don’t sell from there? Important questions for sellers that are being cleared up in the following paragraphs.

VAT liabillity for warehousing in other countries

If you sell in another country, you are liable for taxes or definitely at least have to declare and report taxes there, that much is clear by now. But what if a seller only stores goods in a warehouse in another country without selling from there?

To give a tangible example from the Amazon world: In Slovakia, there’s a warehouse that is only used for returns from Amazon, not for immediate resales. Goods are only being stored and then shipped to warehouses in Poland, the Czech Republic or Germany to be resold from there. And just storing goods is not liable for taxes as a seller.

Unintentionally storing goods in other countries and risking an account blockage

Nevertheless, each seller should track and regularly check where their goods are actually being stored. It happens from time to time that Amazon ships goods to warehouses that the seller didn’t activate. This might be returns or occasionally low quantities of products. Despite it all, the seller might become liable for taxes in this country and is therefore responsible to keep an overview. The important information, however, might be buried deep in seller central and most sellers definitely don’t check up on this matter monthly. A tool or service provider might help with this issue. Otherwise, carelessness in this case might lead to an account blockage.

Amazon is especially careful in countries where Marketplace Faciliatator laws apply.

Marketplace facilitator laws and tax collection

In some countries, Amazon is especially cautious and therefore quick to block an account when it comes to unpaid sales taxes. This is due to marketplace facilitator laws in these countries that make Amazon liable for paying sales tax (VAT) instead of the seller. Since this could entail serious consequences for Amazon, they pay special attention to this topic and also ask sellers to provide VAT IDs (instead of just a regular tax ID).

In Europe, Germany was the first country to introduce these kinds of marketplace facilitator laws. Last year, France joined, which led to an enormous increase in French tax registrations. Austria will catch up next year, other countries will follow.

The reason for these marketplace facilitator laws lies in being able to control for example Chinese sellers better. Many non-European sellers didn’t exactly take a narrow view on sales taxes. That is why Amazon, as well as other sales platforms, is now obligated to make sure that every seller holds a VAT ID.

VAT obligation in other countries: Impending penalties for violations

What happens if I didn’t pay VAT or accidentally exceed a tax limit? Most of the times, these issues can be resolved fairly easily if the seller know what to do.

VAT in other countries: Impending penalties to consider

When it comes to sales tax in other countries, there are two areas that may entail disadvantages or even penalties.

The one is an indirect extent, for example if the voluntary waiving of delivery thresholds has not been requested properly. This means you’d have to pay the higher VAT and therefore have a disadvantage due to higher costs.

On top of that, European countries impose sanctions when it comes to unpaid sales tax.

The amount and extent of these sanctions depends on how much is owed and to which country: Several years of high amounts or just a few weeks or months where something went wrong? The respective country of course demands the owed money to be paid, as well as a penalty that may differ, usually a percentage of the amount owed in sales tax. 

To give an extreme example: In some cases, Italy charged 230% of the VAT amount owed as a penalty – not including the actual tax which was still pending!

Current developments with salex tax liability in other countries

However, things are constantly changing in this area. More and more countries request additional reports on top of the usual preliminary VAT return. Poland for example implemented the SAF-T (Standard Audit File Text). This means that Poland has the right to charge a penalty of 500 Zloty, about 100€, for every transaction that has not been reported. The question is rather if the state actually checks for every single sale – but if it would do so in a consequent manner, this could threaten the existence of some, especially smaller, businesses.

Forgot to pax sales tax in other countries? This is what to do!

Does that mean a forgotten or unpaid sales tax is the worst case possible? Of course not. In online sales, it happens more often than you think that a seller for example activated the Central European Program without knowing about the consequences, or exceeds a delivery threshold.

The important thing is to clear everything up in hindsight, to register with retroactive effect in the respective countries and also to retroactively report and pay all VAT. In complicated cases, it might help to consult a service provider.

Here’s an example of how to clean house in the VAT department if you exceeded a delivery threshold in Austria in the last year:

As a first step, you have to apply for a tax number in Austria. During this process, you have to name a start date – which is simply the date you exceeded the delivery threshold in the last year. This way, you can easily register and pay the outstanding amount of VAT with retroactive effect. In this example, you can even get the unnecessarily paid sales tax in Germany back.

Implementing changes like these afterwards does take up a lot of effort and time, for example when you have to revise invoices that originally stated the wrong VAT – but it is definitely worth it.

The future of Amazon in the EU: expansion, new marketplaces and taxes

In some areas, one can already guess what Amazon is up to when it comes to its future in Europe. Some developments concerning marketplaces or taxes can already be predicted.

Just in March of this year, the Netherlands were added as an Amazon marketplace. This already shows that Amazon is aspiring to expand in the EU. As a next step, it will be possible to warehouse in the Netherlands and Belgium. Then Scandinavia will follow as marketplaces, beginning with Sweden. This is how Amazon’s services will be extended to other European markets.

Scandinavian Markets for Amazon sellers: chances and obstacles

The Scandinavian countries will open up a plethora of opportunities for Amazon and sellers on the platform: The countries in Europe’s north are very online-savvy and already have strong e-commerce markets. However, as a seller, it’s important to observe how the fulfilment structures will be developed and which registrations are obligated in which countries – especially in the beginning. For example sellers based in Germany are usually not registered for tax in Scandinavian countries.

Amazon.nl: Marketplace in the Netherlands and Amazon’s approach to new markets

Usually, there’s a similar approach to every expansion of Amazon in another country: First, the marketplace is opened and the FBA warehouses follow only some time later. This means that in the beginning, goods are being shipped from other countries to the new marketplace. A current example can be seen in the Netherlands. The first sellers have already been informed that the Dutch warehouses are soon to come.

In the long run, developments like this can be expected in every country in which Amazon decides to expand.

Expansion and new Amazon marketplaces: What sellers have to consider

This means for sellers: Pay attention to delivery thresholds! Of course this is always important, but especially when it’s not even possible to store in a country and therefore shipping across borders is inevitable.

If you sell only on Amazon, it’s fairly easy to get an overview by simply filtering all of your turnover by sales to private customers in the respective country.

If you sell on several platforms and channels, however, things might get a bit more complicated. All turnover from all channels to the respective country have to be taken into account.

Especially when it comes to new marketplaces and countries, sellers have to be careful and check regularly if goods are already being stored in the new country or if a new warehouse has been opened. Amazon does not necessarily always communicate this ahead of time. And as soon as goods are being stored abroad, you are liable for tax.

Sellers who do not participate in the Central European Program have to be extra careful: For new marketplaces (and this might also be the cases for the new ones to come in Scandinavia), goods are often shipped from Poland. This way, it might be possible that a seller who usually doesn’t store goods in Poland suddenly finds their stock being stored and sent out from Poland nonetheless. This seller would then be liable for tax.
Since all this and the respective information in seller central can get confusing quite quickly, it may help to find a tool that shows an overview of where your goods are being stored and where you are liable for tax. (Taxdoo can help with this.)

Simplified e-commerce expansion