I’ve written about VAT a number of times on this blog, and with good reason – it’s a topic that causes a lot of confusion for online sellers and if you get it wrong it can really destroy your business. In my opinion, registering for VAT when you don’t need to is the biggest tax mistake an eBay or Amazon seller can make!
But all that has been covered before on my blog, numerous times in fact, so what’s the point of today’s article?
Well today’s post is really a warning about Amazon’s Pan-European fulfilment service – which is a HUGE tax trap under new EU law.
As you all know, when you sell on Amazon you get access to all 5 European marketplaces:
- Amazon UK
- Amazon Germany
- Amazon France
- Amazon Italy
- Amazon Spain
And you can sell to all of these marketplaces with your one seller subscription, which is great! In fact you don’t even need to create multiple listings – you simply create your listings on your home marketplace (Amazon.co.uk for example) and if they’re eligible, they’ll “automatically be re-created in the remaining four marketplaces via Amazon’s ‘build international listings tool’.”
But Amazon have gone one step further and recently a very exciting addition to the Fulfiled by Amazon fulfilment service was introduced, called Pan-European FBA.
The idea behind it is very simple – it allows you to offer your products to all 5 European marketplaces but rather than your stock being stored and shipped from one fulfilment center (as is normally the case) – Amazon will distribute them across ALL 5 countries.
This of course provides a number of important advantages to us as sellers:
Amazon don’t charge you to distribute your stock and you don’t even have to do it yourself. You simple send your FBA items to your local Amazon fulfilment center and Amazon then spreads it around all 5 countries (plus two more) based on expected demand.
Your products become Prime-eligible!
Having your stock stored in the home country makes it eligible for Amazon’s sales boosting Prime delivery service in all 5 European marketplaces, meaning you’ll see a big boost in international sales.
It obviously goes without saying that shipping domestically is going to be faster than having all orders sent out internationally from one Amazon fulfilment center. Faster deliveries means happier customers and more repeat orders.
Yep, you read that right! Even with all the added benefits, Amazon’s Pan-European fulfilment actually saves you money! How? Well because you only pay the local fulfilment fee for that particular marketplace when one of your items is sold and you save the usual cross border fee charged when you sell via Amazon’s European Fulfilment Network (EFN).
Let’s take a quick look so you can see what difference this makes:
So as you can see, you save between 13-38% in Amazon fulfilment fees, depending on which country you sell to, which is a significant amount and nothing to be sniffed at.
I’m guessing you’re now wondering what the problem with Pan-European FBA is? After all, it’s free, it will increase your sales, and it actually saves you money in fees…!
But there is a huge downside to it that, judging by the emails and questions I receive, a lot of people are seemingly unaware of:
It means you have to become VAT registered in every country that your stock is stored in!
This is due to the EU law introduced last year to try and tackle overseas sellers who store stock in Europe, allowing them to undercut local sellers WITHOUT having to pay the same taxes.
Following this new rule, you now have to register for VAT as soon as you have inventory stored in a country. So if you have stock stored in Amazon’s fulfilment center in Germany, you need to register for VAT in Germany. If you have stock stored in Amazon’s fulfilment center in Italy, you need to register for VAT in Italy, etc. etc.
What this basically means is that you’ll have to register for VAT in every single country that Amazon stores your stock in, which also includes Poland and the Czech Republic (as well as the 4 European marketplaces).
And no – it doesn’t matter how much you’re selling. This is different to local VAT registration, where you only have to register once you reach the sales threshold (this is currently £83,000 in the UK but it’s generally increased every year).
As soon as you have stock stored in a European country, you need to register for VAT in that country (even if your sales are £0).
In comparison, when you store and ship products from a sole Amazon fulfilment center, we’ll use the UK for this example, then you only need to register for VAT in the European countries that you sell to once you reach their distance selling thresholds. Now these differ from country to country but generally it’s €35,000 (roughly £30,000) with the exception of a few countries (Germany, Netherlands, Luxembourg) where it’s €100,000 (roughly £85,000).
Just so there’s no confusion – using Amazon’s Pan-European fulfilment service means registering for VAT in 6 different countries. You’ll have to charge the correct VAT rates to the correct customers, keep records and file VAT tax returns for all of them as well.
People find it too much cost and work to do this for one country, never mind 6! I shudder just thinking of all that paperwork – and the cost is going to be huge as well as you’ll most likely need to hire a local accountant to take care of all the country specific details.
Realising how this is going to put off the majority of sellers, Amazon have teamed up with KPMG (one of the “big four” auditors with a revenue of $25 billion a year) to offer a special, discounted rate VAT service for Amazon marketplace sellers.
KPMG are offering Amazon sellers VAT registrations and filings in up to 7 EU countries at special bundle and discounted rates.
The cost is £700 per country per year OR £3600 per year for all 6 countries (which works out at £600 per country per year):
Now this may seem like a lot of money, and well… IT IS! But that’s because you’re registering and filing VAT returns in 6 different countries – so it’s actually not an unreasonable fee to charge. And to me it’s a perfect measuring point – unless you’re happy to pay £3600 for the privilege, then you should simply continue selling to Europe from Amazon’s UK fulfilment center.
After all, how much do you need to be selling to make that worthwhile? We discussed earlier how you save 13-38% in Amazon fees by using this service, so let’s call that 25%. That means to save the £3600 yearly fee you need to be paying £15,000 in Amazon seller fees per year (and that’s just talking about your fees for sales to European countries).
I know that’s a very simplified way of looking at this and it ignores the other benefits, but I just wanted to illustrate how this should only be considered if you’ve got the sales numbers to back it up.
All in all, I can’t see how this is beneficial at all and I hope you see why I called this a VAT trap – really nightmare is a more accurate term.
If you’ve fallen for the Amazon sales talk and signed up for this Pan-European fulfilment, then I’d love to hear from you in the comments section below. Has it made a huge difference to your sales and how are you handling all the tax requirements?
Until next time!
All the best,