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, you’ll only need to understand the following 3 tax aspects that we are going to explain in a clear and simple way in this article:
- The Right Tax Reports to Download in Seller Central
- International sales and foreign taxation
- The Tax Side of the Pan-European Program
You will also get a clear understanding of how to fully automate your Amazon tax documents, without going crazy in Seller Central’s maze of reports.
So let’s get started right away!
1. Which Seller Central reports to use for tax information
If you are already selling on Amazon you surely know that you have 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, but it should be read and contextualized according to one’s own kind of business activity.
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, so 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.
Let’s now move on to the second point of the article; we will make considerations to keep in mind when setting up the VAT calculation on Amazon.
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 to use it or not.
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 to issue invoices on account of the seller whenever business clients are involved.
This is clearly a very good service, and 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 before…
2.1 Taxation abroad
Before joining the service, Amazon warns us that:
“Amazon’s VAT calculation services do not offer support to sellers who choose to take advantage of the exemption granted to micro-businesses.”
So if you remain under €10,000 threshold in foreign sales and have decided not to join the OSS, you will not be able to join Amazon’s VAT calculation and invoicing service. Otherwise Amazon will attribute the VAT of your intra-EU sales to the destination country.
We will further analyze this peculiarity in our in-depth article entitled Intra-community sales and activation of the One Stop Shop.
2.2 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 joining the program, sellers should consider some very important aspects, that, if ignored, could lead to serious consequences, like getting their account blocked.
3.1 Storage abroad
European legislation obliges a company that stores its products in a warehouse, either of its own or of third parties, 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 your own country, 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 happen often 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, we 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.
If you have read the entire article you now know how to avoid the tax mistakes that could cost you dearly.
You should also know that there is a surefire way tested by thousands of users that helps you better manage the taxation of your Amazon sales. We’re talking about the ZonWizard suite that automates 100% of the tax reports that you need to provide to your accountant.
Try the Accounting Tool for Free
It will automatically complete VAT and OSS reports and much more. If you are not yet familiar with ZonWizard's Accounting Tool, you can start your free 14-day trial by clicking on the button below
You can continue to learn more about these tax issues in the article on Intra-Community Sales and Introduction of the OSS (One-Stop Shop) where we will clarify the critical issues of taxation of intra-Community sales.
Thank you for reading this article. We hope it is helpful to your business.