Europe represents a huge opportunity for expanding your e-commerce business and maximizing your income streams on a global scale.
The online retail sector is the main driver of growth in the European retail sector. Growth is constantly increasing by 12% annually. The UK, Germany, France, Italy and Spain are the largest online markets in Europe. The EU is home to some of the most important marketplaces in the world with e-commerce platforms having established integrated systems of warehousing and same-day delivery services.
Expanding your e-commerce business overseas has never been easier. Here is a list of essential information for you so that you can enjoy the full potential of the European market.
Ensure you are compliant with the local VAT (Value Added Tax) legislation
Storing goods in a warehouse facility in Europe (i.e. Amazon FBA) creates the need for a VAT registration and VAT declarations due to place of supply rules. As goods are stored in a physical warehouse in Europe, sellers are required to charge VAT on top of the retail price of the product. In Europe, the VAT element is incorporated in the retail price of the product, unlike in the United States where sales tax is payable at the checkout point. Each seller with a registered VAT number in Europe acts as a mini tax collector on behalf of the government by declaring VAT to the respective Tax Authorities.
Common misconception: There is a sales threshold where you do not have to apply for VAT until you hit this specific threshold.
The answer: As an “overseas seller” there is no threshold applicable and VAT registration is required immediately, along with the regular filings and charging your customers VAT at the applicable rate.
Shipping your goods into Europe
When shipping goods to Europe, each seller is required to hold an importation identification number for Customs clearance purposes. This is the EORI number. Each shipment needs be identified via the respective customs authorities. EORI is a unique number connected to the VAT registered number of the seller’s company in Europe. In every shipment to Europe, there are import costs. There are two main types of import costs: import duty and import VAT. For instance, in the UK, import duty is a non-refundable cost (about 3-9% of your costs of goods). Import VAT could be refundable provided that the correct shipment details and the seller’s EORI number are included in the clearance documents. You can find out more as to how your Tax Advisor can help you reclaim import VAT.
Common misconception: Sales VAT is the same as import VAT.
The answer: The answer is no. VAT is an indirect tax chargeable on the retail price of a product and is payable to each Tax Authority according to the filing frequency of each country, whereas import VAT is the VAT element of a set of different costings such as import duty, insurance, incidental costs etc. and is payable at Customs.
Selling your goods in Europe
In Europe, Amazon FBA is a popular solution for many sellers where sellers ship the goods to the FBA warehouse and Amazon fulfils the goods thereafter. Amazonfulfilment can be completed from one European country or multiple or by an independent warehousing/fulfilment provider. The Amazon EFN (European fulfilment network) allows you to choose where you hold your stock and enables fulfilment of sales across the whole of Europe from just one country. All sales will then be subject to VAT to that country until certain distance selling thresholds are met (EUR35k in most European countries and EUR100k to Germany). When starting out in Europe, most sellers begin here so that only one VAT account is initially required:
It is essential that listings need to be localised in the respective language of each country. Even though English is widely spoken and understood across Europe, listing your products in the local languages such as German, French, Spanish and Italian could drive more traffic to your storefront.
- Marketing and social media
Marketing should be an integral part of your advertising strategy for your brand. Social media such as Facebook, Instagram, TikTok can boost your sales along with an integrated strategy on PPC. Consult your Tax Advisor as to how you can determine your optimum selling price in Europe considering your marketing strategies and advertising budgets.
When trading in different currencies you may incur additional costs through international fluctuating exchange rates. Savings from transactions across different currencies could be a significant portion of your next purchase of goods for your next shipment to Europe. We can connect you to global currency experts who can assist you to that extent.
Consider the Amazon PAN-European FBA program
Since 2016, Amazon have launched the PAN-European FBA programme. The programme enables e-commerce sellers to reach more customers faster and with Prime eligibility in 5 marketplaces (UK, Germany, France, Spain, Italy). Amazon have more than 25 fulfilment centres distributed across 7 European countries (EU-5 along with Poland and Czech Republic). With the PAN-EU program, sellers can ship their inventory to any of the fulfilment centres where Amazon will distribute their stock throughout their fulfilment centres in Europe based on anticipated demand.
The fluidity of your stock should lead to faster shipping times and lower delivery costs. The VAT obligation through this option is that sellers will require VAT numbers in the 7 countries whereby the place of supply will take place from all the respective countries. Declarations of VAT based on the arrival or destination country offer opportunities for VAT savings. It would be advisable if you consult with your EU Tax Advisor and find out if there are any promotions on this matter.
An ever changing European (VAT) landscape
The UK and the European Union (EU) are working towards a trade agreement to be finalised by the end of December 2020. Until then, the UK is still bound by the same rules of the EU Single Market, such as distance selling thresholds and EU reporting. Whether the UK finalises a deal with the EU or not sellers will need to establish a VAT presence in the mainland Europe so that they can enjoy free trade. Sellers are to be advised that they should have enough stock to cover demand of up to 2 months both in the UK and Europe in the event of potential disruptions. Furthermore, several European Tax Authorities are tackling down on VAT evasion through online marketplaces for non-compliant VAT seller accounts. In light of the above, recording for the transfers of goods among different European countries and a single VAT prospect from 2021 are to be introduced for VAT harmonisation in Europe. Expert advice on these matters is indispensable.
On a positive note, Europe has a lot to offer if the goal is expanding your e-commerce business and if you can remain compliant and insist on quality products. European customers have a “race to the top” buying mentality. Quality and long-term product utility are at the core of the European customers’ behavior. In light of this, VAT rules are here to offer a level playing field among different players in different countries, yet to promote fair and even competition at all levels. So may the best win!
When you get ready to go expanding your e-commerce business on European market and start your sales journey on Amazon, read these useful tips on Top Ten Sponsored Ads Mistakes to Avoid.
AVASK Accounting & Business Consultants are an international firm of Chartered Accountants and Tax Experts, with a well-reputed specialism in global E-commerce expansion, international taxation, Accounting and business advisory services. As well as excelling in UK accounting and bookkeeping, AVASK assists e-commerce sellers with their VAT and Sales Tax compliance matters into the European, US, UAE, and Australian marketplaces.
About the author
Dr Angelos Katsaris is the Professional Services Director and the IP Manager for AVASK Accounting & Business Consultants. His expertise lies in assisting entrepreneurs in expanding their e-commerce business in Europe and beyond. Dr Katsaris has well-established networks in warehousing, shipping and other services and is highly knowledgeable in EU market entrance strategies.