Oct 10, 2019
So what is Value Added Tax—commonly abbreviated to VAT—and how is it applicable to selling on Amazon in Europe? Is it similar to sales tax in the United States? If you’re looking to begin selling internationally and need to learn how their tax system works—this is the episode for you! Kevin interviews Melanie Shabanga from AVASK Accounting in the UK.
Melanie is an international tax Guru, with 6 years of experience in the industry and an additional 10 working with small and mid-sized enterprises. She understands the ins and outs of international tax law and is a valuable asset if you’re looking to sell internationally.
Outline of This Episode
- [0:40] Diving into VAT with Melanie Shabangu
- [2:35] What does AVASK Accounting offer?
- [5:00] How does VAT compare to sales tax?
- [9:20] Understanding the EORI number
- [11:20] VAT must be filed quarterly
- [13:45] Selling thresholds across countries in the EU
- [19:20] Language localization
- [20:30] What is a Tax “scheme”
- [28:20] Does “Brexit” affect sellers?
- [33:20] Learn more
Understanding Value Added Tax (VAT)
In the United States, each state governs a sales tax—a tax placed on top of the sale of goods or services. Europe does things a little differently and operates using a VAT rate. Simply put, it is like a sales tax (the typical rate is 20% in the UK) that is added on top of the cost of a product (sort of) at each point in the supply chain. This percentage is what you pay to the government.
Traditionally, customers in Europe expect the advertised price on Amazon to incorporate VAT. For example, let's say you would normally sell a mug for £10 in the UK. Because the VAT is included in the selling price in the UK, you’d instead incorporate the 20% into the price of the mug and sell it for £12. While it’s a simple example, it’s an easy way to understand what you as a seller would likely handle VAT as part of your price otherwise it could eat into your margins.
What is an EORI number and why is it important?
EORI is short for Economic Operator Registration and Identification. You need an EORI number to import or export goods out of the European Union. A declaration is made for all products entering the country—and an import VAT is assessed. If you have your VAT registration in place and an EORI number this VAT may be refundable.
The import VAT can be refunded back to you. How?
When you sell the goods you import, in many cases you may be able to subtract the import VAT from the VAT you collected from the customers.
It’s a little complicated—to learn more about how this process works, keep listening as Kevin and Melanie discuss in detail.
[bctt tweet="What is an EORI number? What is Value-added Tax? If you sell on Amazon internationally these are terms you NEED to know. To learn what they are, listen to this episode of #MaximizingEcommerce with Melanie Shabangu now! #Ecommerce #AmazonSeller #ProductSales #Entrepreneurship #VAT" username=""]
Understanding how VAT works when selling in other countries
Melanie recommends registering for VAT in all countries you intend to ship to. Why? Amazon will store your product in all of those countries and distribute them locally. You can begin by selling in the UK and they will distance ship to other countries. VAT will apply in that transaction—but it is payable to the UK versus the country the product was purchased in.
But a distance selling threshold may apply.
This is where you need to accurately predict what your sales may be in the countries you ship to. If you go above a certain threshold in the fiscal year, you will be required to register for VAT in that country. So you either need to plan and register ahead of time, or work that countries percentage into your sales cost—just in case.
Melanie and Kevin discuss distance selling thresholds in-depth, keep listening.
Language Localization: Use the local lingo
Another slightly less tax-related detail that you must consider is language localization. Selling in the UK is easier because we share a language—English. However, phrases and titles for items in the US are going to wildly vary from those in the UK. Melanie gives the example of a “jersey” which they would call a “jumper”. If you want to sell your products effectively, be sure to adopt the local lingo.
As you begin to sell in other countries where the widely adopted language is not English, Melanie advises translating your item descriptions into the native language. In some instances, Amazon will do it for you. If they don’t, there are many tools out there that allow you to translate that you should take advantage of.
Melanie and Kevin continue to discuss what a tax “scheme” is and how it differs from an American understanding and whether or not we should be concerned about “Brexit”. This is a detail-oriented episode that you do NOT want to miss!
Resources & People Mentioned
- AVASK Accounting
- Brexit
- Google Translate
- Go to Internationalchecklist.com for Kevin’s guide!
Connect with Melanie
- melaniev.shabangu(at)avask.co.uk
Connect With Kevin Sanderson
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