VAT For Pan-European Fulfilment By Amazon (FBA)

Amazon Prime is big business, and its popularity is only increasing. The membership scheme now offers same day delivery in some locations, and has been steadily adding more strings to its bow, including free music, movies, books and video games for Prime customers.

Surveys indicate that 85% of Prime members visit Amazon at least once a week, and 46% make at least one purchase in that timeframe. By comparison, only 13% of non-Prime members make a weekly purchase. The free, fast delivery of Prime is an incentive to make impulse purchases – and if your products don’t offer Prime, you could be missing out on a wealth of sales.

Pan-European Fulfilment By Amazon (FBA) is designed to make Prime even harder for businesses to resist. By signing up to this scheme, domestic sellers can finally offer products with Prime delivery to international markets, without establishing themselves in that territory. While there are many positives, the main drawback is the requirement to register for VAT.

What is Pan-European FBA?

To extend the benefits of Prime to international sales, Amazon has come up with a new option for sellers: Pan-European FBA. Under the previous FBA system, your products would be sent to a single Amazon fulfilment centre in your home country, and shipped abroad from there for international customers.

This offered the benefits of domestic Amazon Prime delivery and the ‘fulfilled by Amazon’ seal, but did not offer fast prime delivery to international customers. Domestic businesses who could offer Prime delivery from a local fulfilment centre therefore had an innate advantage.

By signing up to Pan-European FBA, your stock will be redistributed between seven European fulfilment centres: Spain, France, Germany, Italy, Poland, the Czech Republic and the UK. This stock will be eligible for Prime, thereby boosting your chance of securing international sales. The distribution is taken care of by Amazon, and your products will arrive at European doorsteps faster.

This process is also more cost-efficient than selling to each country without FBA. While UK fees rose in April 2018 due to changes in Sterling, FBA fees are still significantly lower than the equivalent European Fulfilment Network (EFN) fees. In other words, you’ll save on the price of cross-border shipments, and will only pay the local fulfilment fee when you make a sales.

What are my FBA VAT obligations?

As part of a UK and EU crackdown on VAT collection, online marketplaces have been forced to ensure that all sellers are VAT registered in each territory. This is designed to prevent foreign sellers from avoiding sales tax as a means of pricing out domestic sellers.

As a result, businesses applying for Pan-European FBA are required to register for VAT in each of the seven territories your stock will be distributed to. This is necessary regardless of whether your sales exceed distance selling thresholds for those territories.

As a result, your business will be required to:

  • Charge the VAT rate local to each customer
  • Keep VAT records for each territory
  • File VAT returns each territory

This differs from businesses using a single fulfilment centre or the EFN. As your stock is only contained in and shipped from a single country, you are only required to register for VAT in that country (e.g. the UK). In this instance, distance selling thresholds for VAT registration still apply.

What are the penalties for non-compliance?

Amazon have been pressured into clamping down on VAT avoidance, and so any failure to fulfil your VAT obligations is likely to result in your account being suspended.

You are also liable to face investigation by the tax authorities in any given territory, and could potentially face heavy fines or backdated VAT payments.

What do I need to be eligible for Pan-European FBA?

The most important step is to register for VAT in each of the seven countries with Amazon fulfilment centres. This can be a lengthy process – it can take as much as three months to register in one country – and will likely involve submitting paperwork in the local language.

You must also ensure that all of your products have an Amazon Standard Identification Number (ASIN). If you are selling books, then the ISBN number is the same as an ASIN number. For everything else, you must either look for existing ASIN registered products, or upload their details to the site to secure a new ASIN.

It’s also important that you can demonstrate your ability to shoulder the burden of FBA costs. While Pan-European FBA can be cheaper than other means of international distribution, the cost of VAT compliance can be a burden that you will need to accomodate for.

How can Accountancy in Europe help?

Our service is designed to eliminate the administrative burden of cross border VAT registration. Our partners and specialist chartered accountants will register your Amazon business with each country’s tax authority, allowing you to save time and money on translation and paperwork.

Our service guarantees that you will meet Amazon’s requirements for Pan-European FBA. As well as registering your business for VAT, we can also offer advice on return requirements, provide templates, compile and file reports and negotiate on your behalf. We offer a wide range of VAT support and advisory services, with different options to suit different needs.

Our accountants and business specialists will provide the support and oversight to ensure that you are recording and reporting your VAT obligations correctly. We can also help to settle any disputes, rebates or refunds you may encounter with the various tax authorities.

Are there any alternatives to Pan-European FBA?

Sellers who do not wish to commit to the Pan-European FBA can continue to utilise the European Fulfilment Network (EFN) for cross border sales. While the fulfilment fees are higher for EFN than FBA, you will benefit from the distance selling thresholds in each country. However, you will continue to miss out on the benefits of Amazon Prime for EU customers.

Alternatively, you may wish to consider Amazon’s Multi-Country Inventory (MCI). This ‘diet’ version of the FBA allows you to choose one of five countries to store your stock in. This is a handy way to test the merits of Prime in specific markets if you do not have the confidence to jump straight in.

We can also offer advice and assistance with your VAT and tax obligations for both of these services. We can also help you to keep track of distance selling thresholds, and to register with authorities and pay taxes if you do need to pay VAT in a specific country.

However you decide to proceed, don’t be caught out by the tax obligations for your Amazon business. For more information on Pan-European FBA, or to find out how we can assist with VAT consultancy, registration and compliance, please get in touch with us today.