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Let’s talk about Value Added Tax (VAT) as it relates to selling on Amazon.

Recently, there has been a storm forming around this subject, especially after the infamous Amazon invalid VAT number email that I covered in last week’s post. I have received tons of emails from my blog readers asking one simple question: DO I HAVE TO REGISTER FOR VAT?

Since I am often responding to each individual with the same answers and information over and over again, I’ve decided to create a blog post that answers this question in as much detail as possible. I will cover as many scenarios as I can think of, so that after reading this post, it is 100% clear whether you, in your specific case, have to register for VAT to sell on Amazon or not. With that, let’s get started!

The Basics of VAT

VAT is something we all hear about and experience on a daily basis, whether it’s through business transactions, Amazon forums, retail shops, or invoices and receipts. VAT (Value Added Tax), as the name suggests, is a consumption tax based on the value of goods and services. This tax is used in all European Union countries, as well as many other countries. In Canada, for example, it is called GST (Goods and Services Tax), but the principle remains the same.

The VAT rate varies from country to country, but in Europe, it is usually around 20%. Here are a few examples of current EU VAT rates for 2018:

• Belgium – 21%
• Austria – 20%
• Denmark – 25%
• France – 20%
• Germany – 19%
• Ireland – 23%
• Italy – 22%
• Poland – 23%
• Sweden – 25%

In the UK, the rate is set at 20%, which actually puts us amongst the countries with lowest VAT rate. In the past, it has been even lower; prior to 4th of January of 2011, the VAT rate in the UK was just 17.5%, and there was once a temporary period where VAT was only 15%.

The VAT rate we are talking about here is the STANDARD VAT rate, which is the rate used on most everyday goods like:

• Home products
• Garden products
• DIY & tools
• Clothing & shoes
• Etc.

Basically, most everyday products that you see on Amazon or in your local Tesco will have the standard VAT rate of 20% applied to them. It is the rate you are most likely to encounter on a daily basis.

However, there are some goods categories that have a special, lower VAT rate of just 5%, these include:

• Children’s car seats
• Radiators
• Gas/Oil fired boilers
• Solar panels
• Water and wind turbines
• Etc.

And there are some goods and services categories that are 0% VAT rated, like:

• Charity shops, selling donated goods
• Equipment for disabled people
• Low-vision aids
• Printed books
• Children’s clothing and footwear
• Motorcycle and bicycle helmets
• And others!

Lastly, there are goods and (usually) services that are completely VAT exempt, like:

• Admission charges by charities
• Lottery tickets
• Betting and gaming
• Bingo
• And others!

You can get a more detailed overview of goods and services and their various VAT rates on this page.

In each country, these categories of VAT rates for goods and services will vary. The information presented here only applies to the United Kingdom, so if you’re residing in another EU country, you will need to check your local information on this.

VAT is charged at the moment of a sale/transaction, and the business or person who is VAT registered is responsible for filling out regular VAT returns (usually quarterly) to forward the VAT amount they have collected from customers to the HMRC.

When you are VAT registered, you can claim back the VAT that you pay on your business expenses. So, in that VAT return, you will also provide details of all the VAT paid on business expenses—for example, VAT paid on goods purchases, online selling fees, and other business-related expenses—and DEDUCT that amount from the payable VAT.

Let’s do a quick example to really make this crystal clear. Let’s say that, in a three-month period, you have sold goods worth £10k (incl. VAT). The amount of VAT you charged was £1.67k (20%), but you also paid £1k in VAT in that period through your normal business expenses. In that case, you would only send £0.67k to the HMRC, which is the difference between what you have charged and spent in VAT.

This is obviously a simplified explanation. The VAT law and rules, especially in relation to international trade, are very complex. However, this is just to give you a basic understanding of how it fundamentally works for an average seller.

The most important thing to remember is: You do not want to register for VAT when you’re just starting out IF you’re not obligated to register for it. We’ll cover how to know if you’re obligated to register for VAT later in this post. Just know that it does not make financial sense or benefit you to voluntarily register for VAT because you will always end up paying more in tax than a seller who is not VAT registered, if you sell the same item at the same price.

As always, there are some rare exceptions to this.

It could be financially beneficial to register for VAT from ONE one IF:

• The majority of your sales will be B2B transactions. If you are selling the product to other VAT-registered businesses, then it might benefit you to register. Businesses don’t care about paying VAT because they know that they will deduct it from the payable amount anyway. Plus, businesses like to get a proper VAT invoice for their purchases. On Amazon, this is now very easy to do with the Amazon Business Services, which includes automated VAT invoicing solutions. More on this another time.
• You sell zero-rated or 5% VAT rated goods. It’s pretty simple; you will charge a small % of VAT on your end sales but will be able to claim back the full VAT paid on your business expenses. I would still recommend that you do the math to figure out exactly how beneficial it is in your particular situation, but if you sell 0% VAT rated goods, you definitely want to be VAT registered from day one, so you can claim back VAT on business expenses. As you won’t be charging your customers any VAT, the HMRC will actually be sending you payments for the VAT you have spent on business expenses. It’s basically free money.
• You plan on investing aggressive amounts of money into inventory, equipment, or plan to work with huge losses in the first year or two of trading. In this situation, you would be spending MORE in VAT than you earn, which creates the negative VAT balance. So again, the HMRC will pay you back the difference you have spent in VAT to what you have taken in sales. This situation will be very rare, though, and will be more applicable to bigger companies who usually come into the market very aggressively with offices, manufacturing plants, huge advertising budgets, etc.

I won’t go into detail on each of these three scenarios as they are the exceptions and not the rule. That said, if you do fall under any of these three categories, I would recommend you consult an accountant who can assess your situation and do the correct calculations for you to help you decide whether it is worth registering for VAT from day one or not.

There is also a FLAT VAT rate scheme available in the UK, which allows small businesses to pay a fixed amount of VAT to the HMRC to keep their accounting as simple as possible. For the sake of time and relevance, I won’t get into it in this post. We’re just going to cover the VAT information that will apply to the vast majority of sellers here. Just know that this scheme exists and might be worth looking into further if you’re UK-based.

For Amazon sellers, I do not specifically recommend this flat VAT rate scheme because some of the Amazon VAT services may not be available to you if you are using this option. But again, please consult a qualified accountant on this topic.

Ok, this is as far as I want to go into VAT basics. The topic is obviously huge, so if you want to dive deeper, you can find tons of reading material on the HMRC website or simply book a consultation with an accountant who can provide you with qualified advice. Please remember that I am not an accountant, so please do not ask me specific VAT/accounting questions as I can’t provide you with qualified information.

Now, let’s take a closer look at how exactly VAT relates to Amazon sellers, and, most importantly, how you can figure out whether you need to register for VAT or not!

VAT Registration Thresholds

I have already touched on this subject, but it bears repeating. When you’re just starting out and registering a Ltd. company or have Sole Trader status, you won’t be VAT registered by default. You can voluntarily register for VAT from day one IF you want, but most typically won’t and will only register for VAT when they reach a certain threshold of sales.

This threshold will be different in each country, and it often changes from year to year.

Right now, in the United Kingdom, for the year 2018, the threshold stands at £85,000 per last 12 months of trading.

So, you have to make at least £85k in SALES over the last 12-month period before you’re obligated by law to register for VAT in the UK.

Often people ask: what does this number include? Do I have to take off my Amazon fees or FBA fees?

No, you don’t have to take anything off this number. This is purely your sales/turnover—the amount of money you’ve taken in for the last 12 months of trading. Keep in mind that this is NOT based on a calendar year! It is based on the last 12 months of sales on a rolling basis.

So, if you think that you have come close to the threshold, you will want to check your last 12-month sales report in your Amazon account to see if you have reached the £85k threshold or not:

It is advisable to register for VAT in advance, e.g., when you see that you will go over the threshold in the next month, that’s when you should register. Otherwise, you’re just making more accounting work for yourself later on because you’ll have to calculate VAT on sales that happened prior your registration date. My advice is to just keep it simple and register at least a few weeks ahead of time.

Sometimes you will find that you balance right on the edge of the threshold. As we know by now, not being VAT registered is more beneficial, so you may want to lower your marketing activities at such a time to artificially lower your sales and stay below the threshold. That is only recommended if you know for sure that your sales won’t improve that much over time and won’t go over £100k or more in near future.

If you discover that you have gone slightly over the VAT threshold in one month but know for sure that you will go back under the next month, you can ask for a temporary exemption from the VAT registering process. You can find more details on this on the HMRC website.

And just like you have registered for VAT, you can also DEREGISTER from VAT if your sales fall below the threshold in the future. So, say you start selling a very hot product on Amazon and your sales go over the £85k threshold, but then, after two years, demand for the product drops and your sales are down to £60k per year. Then you can deregister from VAT and continue selling on Amazon as a non-VAT registered seller.

Ok, so far, so good! Keep in mind that everything I have covered so far in this post can also be applied to any offline business too since the VAT basics are same for offline and online businesses. However, there are a few slight differences that online sellers, including Amazon sellers, need to face—so let’s get into it!

Distance Selling VAT Thresholds

Yes, there’s another VAT registration threshold, and it’s called the “Distance Selling EU VAT Threshold”. This particular threshold was introduced just a few years ago to help fight VAT evaders in the EU and basically put the appropriate VAT money in the pockets of the country that the item is sent to. So, for example, if you sell something to a person in Germany, the German VAT rate is applied to the sale and Germany receives that VAT payment from you.

These VAT thresholds apply to any business selling to an EU country! It doesn’t matter where you’re located in the World—be it the UK, the US, China or Brazil—if and when you reach the specified threshold of each country, you must register for VAT in that country, start charging local VAT on sales to that country, do VAT returns, and pay the appropriate VAT to that country.

Sound complicated?

It is.

Registering for VAT in a different country, usually in a different language, and completing VAT returns can be a very complex and time-consuming task. It’s not usually something you can do easily on your own.

Luckily for us, these distance selling EU VAT thresholds are pretty high. Here are few examples:

• Austria – 35k EUR
• Germany – 100k EUR
• Ireland – 35k EUR
• Spain – 35k EUR
• France – 35k EUR
• United Kingdom – 70k GBP

Yes, the UK distance-selling limit stands at £70k, and this will be applicable to sellers living outside the UK but who are targeting the UK marketplace and, specifically, Amazon.co.uk. Once your sales reach £70k in a calendar year in the UK, you are obligated by law to register for VAT in the UK.

This is an important distinction. Unlike the normal VAT registration rules that we have already covered, these distance-selling thresholds are calculated per CALENDAR YEAR—not the last 12 months of trading. This makes the process much easier for you as you can do the calculations based on the current year instead of the last 12-month period.

Now, this VAT registration threshold kicks in when your sales to a specific country reach the limit set by that country, but when goods are NOT stored in that country. So, this applies when you store goods in your home country and send orders out internationally from your base location via regular post and courier services.

It is very important to understand this caveat, as there is one other factor that can kick in and require IMMEDIATE VAT registration in a foreign country:

Goods location

Yes, goods location.

This is one of the biggest misunderstandings when it comes to VAT and selling on Amazon. Goods location can and will trigger a legal VAT registration requirement. Many people are not aware of this because this EU law is just a few years old, but it doesn’t change the fact that it is currently effective and being enforced. Even Amazon has taken action to bring sellers in line with this legal requirement by asking for VAT numbers based on this factor alone.

So how does this work?

This time, the rules are very simple:

You must register for VAT in each country where your goods are stored, except your local/home country!

And there are no thresholds! It starts from day one, so even if you send just 10 items to another country and sell them from there, you need to register for VAT in that country. Even more, you don’t even have to sell to that specific country! The location of the goods alone triggers this VAT registration law. So, for example, you may not sell your goods in Poland but since Amazon has a European warehouse in Poland, you will have to register for VAT in Poland too.

This is why I strongly recommend you reconsider using the Pan-European Amazon fulfilment program. It will trigger your VAT registration requirements in multiple countries because your goods will be moved across Europe.

Obviously, it’s best to register for VAT BEFORE you send any goods to that country and start selling, just to keep your books clean and Amazon happy.

The only country this law does not apply to is your home country, which is where your business is registered. You can keep stock there without needing to register for VAT until you reach the VAT registration threshold.

Ok, with basic VAT information, thresholds, distance-selling and the goods location rules covered, it’s time to take a look at some real-life scenarios to help you better understand the whole VAT issue and determine with certainty whether or not you need to register for VAT!

Do You Have to Register for VAT?

Let’s start with some of the most typical situations that will apply to people based in the UK:

Seller location: United Kingdom
Stock location: United Kingdom
Turnover: £50k in the last 12 months
Have to register for VAT? NO

Your turnover is below the UK VAT registration threshold, you store goods only in the UK, so you don’t have to register for VAT.

Seller location: United Kingdom
Stock location: United Kingdom
Turnover: £90k in the last 12 months
Have to register for VAT? YES

As you have reached £90k in sales for the last 12 months of trading, you do have to register for VAT in the UK.

Seller location: United Kingdom
Stock location: United Kingdom, Germany and Poland
Turnover: £50k in the last 12 months
Have to register for VAT? YES

As you’re storing goods in Germany and Poland, you have to register for VAT in Germany and Poland. You don’t have to register for VAT in the UK as your sales are just £50k in the last 12 months.

Seller location: United Kingdom
Stock location: United Kingdom, Germany and Poland
Turnover: £90k in the last 12 months
Have to register for VAT? YES

You have to register for VAT in all three countries; in Germany and Poland because you’re storing your goods there and the UK because you have reached the VAT registration sales threshold.

Seller location: United Kingdom
Stock location: United Kingdom
Turnover: £70k in the last 12 months, £50k to Greece in 2017
Have to register for VAT? YES

You have to register for VAT in Greece as you have sold £50k worth of goods to that country. This is above the Distance Selling EU VAT registration threshold for Greece, which stands at €35k.

However, you don’t have to register for VAT in the UK yet since you have not reached the UK’s VAT registration threshold of £85k per last 12 months.

Seller location: United Kingdom
Stock location: Italy
Turnover: £10k in last 12 months
Have to register for VAT? YES

You have to register for VAT in Italy from day one because you’re storing goods there in Amazon’s warehouse. You’re not obligated to register for VAT in the UK, though, as you have not reached the UK VAT threshold.

These are the most typical scenarios a UK-based seller will face. Now, let’s take a look at what happens when someone from outside the UK but who is living in the EU sells on Amazon.

Seller location: Slovakia
Stock location: Slovakia
Turnover: £20k in the last 12 months
Have to register for VAT? NO

Your stock is held with you in Slovakia and you haven’t reached the local VAT registration threshold, which currently stands at 49,790 EUR (so almost €50k).

Seller location: Slovakia
Stock location: Slovakia
Turnover: £50k in the last 12 months
Have to register for VAT? YES

You have to register for VAT in Slovakia as you have reached the local VAT registration threshold, which stands at 49,790 EUR.

Seller location: Slovakia
Stock location: Slovakia
Turnover: £250k in the last 12 months, £75k in 2017 to the United Kingdom
Have to register for VAT? YES

You have to register for VAT in Slovakia since you have reached local VAT threshold. PLUS, you have to register for VAT in the UK as you have reached the Distance Selling EU VAT registration threshold, which stands at £70k per calendar year.

Seller location: Slovakia
Stock location: United Kingdom
Turnover: £20k in the last 12 months
Have to register for VAT? YES

You have to register for VAT from day one when your stock arrives in the UK, no matter how much you sell.

Seller location: Slovakia
Stock location: United Kingdom
Turnover: £100k in the last 12 months, £50k of that to Portugal
Have to register for VAT? YES

You will have to register for VAT in all three countries: your home country, Slovakia (as you have reached local VAT registration threshold), United Kingdom (as your goods are stored there), and Portugal (as you have reached the Distance Selling EU VAT registration threshold to Portugal, which currently stands at 35,000 EUR).

Ok, lastly, what about people who are based outside the EU? Sellers from the US, China and other countries around the world?

The same rules of distance-selling thresholds and goods placement country apply to them! If you reach the distance sales threshold to specific countries, you have to register for VAT there. If you store goods in an EU country, you have to register for VAT there.

Here are some of the most typical examples applicable to Amazon sellers:

Seller location: United States
Stock location: United States
Turnover: £20k in the last 12 months on Amazon.co.uk
Have to register for VAT? NO

You are storing goods in your home country and you’re not reaching the distance selling EU VAT registration thresholds, so you don’t have to register for VAT.

Seller location: United States
Stock location: United Kingdom
Turnover: £20k in the last 12 months
Have to register for VAT? YES

As you’re storing goods in the UK, you have to register for VAT in the UK from day one.

Seller location: United States
Stock location: United States
Turnover: £80k in the last 12 months to UK customers
Have to register for VAT? YES

You have to register for VAT when you go above the £70k threshold for distance selling to the UK, even though you still store your goods in the US.

Seller location: United States
Stock location: United Kingdom
Turnover: £100k in the last 12 months, £40k of that in 2017 to Spain
Have to register for VAT? YES

You have to register for VAT in the UK (goods location) and in Spain too since distance sales to Spain exceed the €35k threshold.

I really, really hope these examples will help clear this issue up for once and for all. And I hope it makes it easier to figure out how this whole VAT thing works and whether you need to register for VAT or not.

These are the most typical situations I could come up with, but this is not a full and exclusive list! Please let me know in the comments block below the post if there is a scenario I haven’t covered so I can add it to the list.

Conclusion

So that was it! A detailed overview of VAT registration for Amazon sellers. I have tried to include as much information as possible without being too specific or providing contradicting guidance. I will repeat myself once again and remind you that I’m not a qualified accountant and I can’t help you with specific VAT calculation questions or anything like that. You need to consult with a professional accountant to get qualified advice.

As Amazon sellers, we all wish that these laws, rules and regulations were never invented. We don’t have large budgets for accountants, tax lawyers and all the other resources that large companies have. It can get frustrating; trust me, I know the feeling because I’m an Amazon seller myself and I’ve had to figure it all out myself.

A few years ago, it was all total nightmare to navigate because there was no clear guidance or any of the tools and services that are available today.

Amazon does understand the problem this creates for small sellers, hence all the VAT tools and services they have recently introduced on the platform. No other third-party marketplace (eBay, Etsy, etc.) has done anything like this, so we should be thankful that they are at least trying to make it easier for us.

We should also be thankful for all the extra sales opportunities Amazon’s expansion into other countries brings us! I can’t really complain about the VAT issues—which is nothing to do with Amazon itself—when we get the opportunity to sell in almost every major country in the world, store goods at Amazon’s warehouse, and make money without lifting a finger.

So please, as you dive into figuring out your VAT situation, always keep the positives in mind, like the opportunity for international trade and what it can do for your business. These are opportunities that, just a generation ago, were inconceivable for a small business or individual. There are people who always complain about something. I ignore such people. Don’t waste your time and energy on negativity—look for solutions and be thankful for the opportunity!

If you need help with VAT registrations and returns for your Amazon business, I can highly recommend this company: VATGlobal.com

They did my EU VAT registrations and now are also doing my monthly VAT returns for PAN-EU sales. I have arranged a special deal with VAT Global for my blog readers. You will receive a special discount on the VAT registration and returns fees IF you mention this code when contacting them: ANDYVAT2020

I’m sure I will come back to the whole VAT issue very soon because there are some things I want to cover separately, like the VAT registration process itself, Amazon VAT services, etc. If you have any suggestions for what VAT topics I should cover in future blog posts, please leave them in the comments section below.