All You Need To Know
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 %)
The excise tax is applied on beer, tobacco, alcohol and mineral oil with the same rate that is applied when those goods leave the country.
What is the based value of the customs clearance?
Customs value is the basis of assessment for levying import tax. Normally this is the transaction value, meaning the net invoice price to be paid. Further information regarding customs duties as well as import tax can be acquired by indicating the customs-tariff number at the “electronic customs tariff”.
Sales tax: Tax obligations in Europe
After goods are stored in one of the German warehouses, retailers can start selling their products. For Europe this means: Sales tax is to be paid in the state where the delivery starts (BtoC deliveries). For BtoB other regulations apply. Those deliveries are normally free of tax. However, most deliveries are BtoC.
All European countries have different tax rates. Consequently, Non-European companies can benefit from storing their goods in a country with a low tax rate. As already mentioned Amazon has warehouses in the following countries: Germany, UK (Warning Brexit), Spain, France, Italy, Poland and Czech Republic.
United Kingdom 20%
Czech Republic 21%
Selling from a German warehouse
When selling from a German warehouse to customers in Germany 19 % sales tax need to be added to the net price and paid to the German state.
Note: The already paid import tax can 100 % be deducted.
Europe and its thresholds
European states have so called thresholds. If the threshold is exceeded, taxation according to the country of destination – not origin – begins. For example: The threshold to Austria is 35,000 EUR per year. The online retailer supplies his BtoC customers with goods from his warehouse in Germany. On 10/25/2018 the threshold of 35,000 EUR is surpassed. Consequently, sales tax changes from 19 % for Germany to 20 % for Austria. This also means that invoices need to be written according to Austrian law (every European country has different invoice regulations) and the sales tax needs to be paid to the Austrian taxation authorities.
EU-State Lieferschwelle Standard tax rates
Belgium 35,000 EUR 21%
Bulgaria 35,791 EUR 20%
Denmark 37,557 EUR 25%
Germany 100,000 EUR 19%
Estonia 35,000 EUR 20%
Finland 35,000 EUR 24%
France 35,000 EUR 20%
Greece 35,000 EUR 24%
Ireland 35,000 EUR 23%
Italien 35,000 EUR 22%
Croatia 36,000 EUR 25%
Latvia 34,052 EUR 25%
Lithuania 36,203 EUR 21%
Luxemburg 100,000 EUR 17%
Malta 35,000 EUR 18%
Netherlands 100,000 EUR 21%
Austria 35,000 EUR 20%
Poland 40,293 EUR 23%
Portugal 35,000 EUR 23%
Romania 28,012 EUR 20%
Schweden 36,232 EUR 25%
Slovakia 35,000 EUR 20%
Slovenia 35,000 EUR 22%
Spain 35,000 EUR 21%
Czech Republic 46,570 EUR 21%
Hungary 32,257 EUR 27%
United Kingdom 81,843 EUR 20%
Cyprus 35,000 EUR 18%
Amazon and its Programs
Amazon Central Europe (EFN)
Among other programs Amazon offers the “Central Europe” program. As explained before this means utilizing the warehouses in Germany, Poland and Czech Republic. Hereby, the online retailer benefits from favourable Amazon rates (0.50 EUR less with each unit sent by Amazon and leaving an Amazon warehouse in Germany, Poland and Czech Republic). Storing products in the warehouses in Poland and Czech Republic triggers additional tax obligations like Intrastat declarations. Therefore, the online seller not only needs to register in Germany but also in Poland and Czech Republic in order to provide the monthly VAT declarations in these three countries.
As highlighted above the “PAN-EU” program includes the following countries: Germany, UK, Spain, France, Italy, Poland and Czech Republic. If a retailer decides to participate in this program and sells his products on the European market, he only needs to pay the local fulfillment fee charged by the warehouse. In comparison, by using the EFN program the online seller has to pay an additional fee for each delivery that crosses the state line. However, whenever the PAN-EU program is utilized, this also means that registrations as well as monthly declarations in all named countries need to be done.
Costs of registration for each country amount to approximately 500 EUR and have to be paid once. Prices for the monthly sales declarations are around 100 to 150 EUR per month and country. Hence, if orders are approximately 500 units per month the Central European Program should be considered. Whereas orders of around 2,000 units per month suggest that the PAN-EU program could pay off. However, this calculation does not consider the additional savings from the normally applied cross border fee, which in this case does not apply.
Obligations of the company
The company owner is – with support from his freight forwarder – responsible for the import of his products. The freight forwarder usually handles the acquisition of the necessary EORI number. The EORI-number (Economic Operators Registration and Identification number) is assigned from the European Union to each economic operator for identification purposes among other business entities or customs authorities.
Furthermore, the retailer has to comply with VAT obligations and register in each country where the local warehouses are used. Normally this registration is carried out by tax advisors. In Germany there are several consulting firms who are specialized in coordinating the registration in other European countries (e.g. TaxFBA).
In addition, the retailer is responsible to declare monthly sales tax in each country where warehouses are used.
If additional thresholds are exceeded, the company owner has to register at the local tax authorities in the relevant country and provide monthly sales tax declarations.