Of all the aspects of online selling probably one of the least pleasant is tax management. But, in order to avoid making mistakes and ending up with more serious problems to solve, it is enough to understand these few tax aspects that we will explain in a clear simple way in this article.
1 Which Seller Central reports to use for tax information
If you have already started selling you surely have already had to fill in your daily takings book, issue invoices and other accounting documents, but where do you get the information about the sales you make on Amazon?
1.1 VAT Transactions Report
There are many reports available to the seller in Seller Central, each containing different kinds of information useful in various ways. Luckily for European sellers, Amazon creates an ad-hoc report that contains all the information relevant to tax purposes, called “VAT Transactions Report”.
This is the description we find in Seller Central:
The Amazon VAT Transactions report provides detailed information for sales, returns, refunds, cross border inbound, and cross border fulfillment center transfers generated through Amazon’s European websites (amazon.co.uk, amazon.de, amazon.fr, amazon.it, amazon.es), Webstore by Amazon (WBA), and Amazon European Fulfillment Network (FBA and multi-channel fulfillment). These details can be helpful for the seller in fulfilling his VAT reporting obligations in Europe.
Amazon states that this report contains information which is useful for tax purposes.
1.2 On which date do I enter sales
It is important to note that for online sales what really counts at the fiscal level is the actual transfer of currency. This means that a sale should be recorded in the daily takings book only when the customer actually effects payment.
When a customer clicks on the “Buy now” button on Amazon an order is generated, but the amount will be debited only after the product is shipped, and until then the customer can cancel his order without causing a refund.
This means that if we enter daily takings based on the order reports, the dates will be wrong and we run the risk of recording orders that could be cancelled later on.
So, in order to register the daily takings correctly we will pick the date the transaction is actually completed from the “VAT Transactions Report”.
Whether you sell on Amazon FBA or FBM, you can download this report in Seller Central in the Reports > Fulfillment by Amazon > Amazon VAT Transactions Report menu.
2 Amazon’s VAT calculation service
Amazon offers its sellers a free service for calculating VAT on sales, let’s see which aspects should be considered before choosing whether or not to use it.
In order to use this service the seller must indicate in Seller Central the VAT IDs of the European countries in which he is VAT registered. Furthermore, if products with special VAT rates are sold, the correct tax code (PTC) must be assigned to each product.
Doing so will enable Amazon to calculate VAT applicable to the sales and also, in the case of business clients, to issue invoices on account of the seller.
This is clearly a very good service, considering the fact that it is also free makes it seem like a very good choice, but there are still a couple of details you should know…
2.1 Taxation abroad
Before activating the service Amazon informs us that:
…if the seller has not exceeded the distance sales thresholds in one or more of the countries in which he is VAT registered, he must be sure to have duly informed the competent tax authorities of his choice for immediate taxation on his distance sales in the country of arrival in the European Union, before signing up for the VAT calculation service.
We will examine this topic in further detail in part 2 of the guide.
2.2 For flat-rate tax scheme sellers
Amazon does not include flat-tax rate schemes in its VAT calculations. Therefore, if you have opted for this tax scheme you cannot activate this service, otherwise the invoices issued by Amazon on your account would erroneously include VAT.
2.3 Additional fields in the VAT reports
If you have activated the VAT calculation service, besides not having to worry about issuing your invoices, you will also dispose of some very useful additional fields in the VAT Transactions Report.
Among them are the following:
- country of VAT jurisdiction
- VAT rate applied to each transaction
- existence or not of an invoice for each order
- whether the transaction is intra-EU or export
In the practical guide on how to fill in the daily takings book, we will see how to use this information.
3 Activating the pan-European program
The pan-European program offers sellers operating on European marketplaces the possibility to store their products in FBA warehouses throughout Europe. This represents an advantage that results in the reduction of shipping time to the final customer as well as saving on the FBA costs on distance sales.
In this case before registering to the program, the seller should consider some very important aspects, that, if ignored, could lead to serious consequences, like getting one’s account blocked.
3.1 Storage abroad
The European legislation obliges a company that stores its products in a warehouse, either of its own or of third parties, that is located in a different European state, to register for VAT in that country.
This means that if you want to activate the pan-European program, you must necessarily register for VAT in each country in which your goods will be stored.
3.2 Returns abroad
Keep in mind that, even if you have not activated the pan-European program and you have shipped your goods only to FBA warehouses in Italy, it is quite possible that they end up in a foreign warehouse.
How come? Here’s an example.
A German customer buys one of your products, but then returns it. At this point the product could end up in a nearby FBA warehouse in Germany. If the product is still sellable, it will be shipped directly from Germany upon the next order.
Incidents like this often happen with the seller discovering his account has been blocked because he hasn’t furnished any VAT registration info for the country in which even only a single product is being stored.
In order to avoid all problems regarding Amazon logistics, I advise you to arrange for storage of your goods, including returns, to be carried out exclusively in those countries in which your company is VAT registered.
3.3 VAT registration abroad Test
If you have any doubts and want to find out what to do in your particular situation, you can carry out this very simple test that will quickly allow you to determine if you need to VAT register in other European countries other than Italy
Now you know how to avoid costly tax-related errors. In part 2 of this guide we will explain the local VAT criteria for international sales.