Today it has become very popular to sell products via online shops using e-commerce platforms. One of the most famous online sale platforms is Amazon. If you decide to use Amazon for selling goods, it would be helpful for you to be familiarized with tax responsibilities in details. Amazon offers different options for business cooperation, which could lead to various scenarios in terms of tax obligation.
Let’s look at several options for selling goods on Amazon within the European Union:
1. Selling goods in large quantities directly to Amazon.
From the tax point of view, this method reduces the seller’s responsibility for the following sale of the goods. In practice, this is a process of the supplying of goods directly to Amazon (to another EU country), followed by Amazon itself selling the goods to end consumers. From the VAT point of view, such a cooperation should be viewed as the sale of goods to a legal entity from another EU country. This sale will be exempt from VAT for you as a seller.
2. Sale of goods from the seller’s warehouse (FBM -Fulfillment by merchant).
In this scenario, the seller is using Amazon’s online platform, but the sale is actually taking place between the seller and the customer. The seller thus has a warehouse and the distribution at his disposal and under his control, meaning that he himself processes orders and sends the goods to customers. The seller will have to register for VAT in the country where the warehouse is located and sell items adding that country’s VAT rate. If the warehouse is located in the Czech Republic, a mandatory registration to VAT arises only if the sales turnover exceeds 1 million CZK in 12 consecutive months. If the warehouse is in another EU country (not in the Czech Republic), an immediate registration to VAT in the country where the warehouse is located will be required with the first sale, because you are not a resident in this country. In the event, when the turnover for selling goods to individuals (for their personal consumption in another EU country) will exceed the limit established by this country (each EU member state has its own limitation); it will become necessary to register to VAT in the country of target sales (customers), and start selling the goods with the VAT rate of that country and as a result to pay the tax (VAT amount) there. The limits for sending goods to other EU countries start at approximately 35 000 EUROs (for example, in France it is 35 000 EUROs, in Italy: 35 000 EUROs, in Austria: 35 000 EUROs, in Germany: 100 000 EUROs).
3. Sale of goods from the Amazon warehouse (FBA – Fulfillment by Amazon).
This model differs from the previous one with only key things: goods are stored in the Amazon warehouse, where they are processed and from where they are shipped to clients. In this case, the seller have to keep track of two fundamental points related to VAT registration:
1. Countries where the warehouses are used (registration to VAT is always required in the country where the warehouse is located)
2. Target countries where the goods are sent (the seller has to register for VAT in that country, where the sales limit is exceeded, see point 2 above).
4. If the seller chooses the highest model of trade and marketing cooperation with Amazon, the so-called Pan-European FBA, you also need to consider in case goods are moved between warehouses (cause by limited capabilities of a selected warehouse), it will be necessary to register for VAT in that country where the goods will be moved. Consequently, each movement of goods (sale, returns, and movement of goods between warehouses) have to be reflected in the declaration for each country when it will be required by the Law.
It should be mentioned that the taxpayer has the immediate right, even before exceeding the limit of a specific EU country, to sell goods with the VAT rate of that country, and about your voluntary decision, you will notify the tax office. The goods will have to be sold, at the VAT rate of the destination country, for a minimum period until the end of the next calendar year.
It is also important to note that the sale of goods subjected to “excise tax” is regulated differently, specifically: it is always a subject to VAT in the destination country.
Selling on Amazon in the USA
If we are talking about the sale of goods on the Amazon platform in the United States, it is necessary to pay attention to such a type of tax as a sales tax (analogue to the European VAT). In the past, the tax obligation to collect and pay sales tax occurred in that state where the warehouse was situated, and where the final consumer of the goods was located, also called “sales tax nexus”. Nowadays, the terms of payment for sales tax are very similar to European ones. From the moment of implementation of the economic nexus a seller also will have to keep track of the limits on turnover and the number of transactions (the conditions of which are set by each state on its own). In the country of tax residence (for Czech or EU companies), these Amazon sales will not be subject to the Czech / EU VAT; and will not be reflected in VAT reports, since the place of VAT liability is outside the Czech Republic / EU (i.e. in the USA). In case of importing goods from third countries into the EU, the goods will go through the import procedures. A non-payer of VAT company will pay VAT directly to the Customs Authority at the time of import, a VAT payer company will not pay VAT to the Customs Authority, however, this import transaction will have to be reflected in its VAT declaration.
Where the sales income is subject to income tax?
It is important to familiarize yourself with the Double Taxation Avoidance Law between specific countries, which specifies whether a given type of business activity leads to the registration of a representative office in another country. As a rule of thumb, the presence of an only warehouse from where the goods are shipped, but the sales itself are not conducted (meaning that there is neither an office space with employees nor a sales department), and it does not require to register a permanent establishment in a foreign state, and, therefore, the income received from such a sales warehouse will not be a subject to income tax in the country where the warehouse is located.
In the event of registering a permanent establishment (i.e. organizing a sales office, opening a company’s branch), all income generated by this office will be subject to income tax in a country of the permanent establishment location, unless this is excluded from the Double Taxation Treaty between specific countries.
In 2021, new rules for the sale of goods on the Internet will become into force. It will be possible to fulfill your VAT obligations within the EU via a digital online portal (called OSS) directly from the country of your tax residence.
You can read more about the specifics of selling goods via e-commerce platforms:
To summarize, we can add that the trade between the EU countries is a rather complex process, which has many scenarios in relation to VAT. It is important to study this topic not only in the country where your legal entity (company) has been registered but also, in addition, in those countries where you are planning to do business (i.e. to use a warehouse, to sell goods). If you have decided to do business on Amazon or on other e-commerce platforms, we advise you to consult a tax expert before starting an economic activity.
DoMyTax employs qualified tax advisers. We will be happy to help you find a solution based on your situation.