Whether one sells through platforms such as Amazon, E-bay or your own website, when selling goods into the European Union one must be compliant with the VAT regulations of the member state of sale. Even if your business is not registered in Europe.
The European Union estimates that around a whopping 50 billion euros in VAT are lost each year due to cross-border sales that the EU can’t track.
Non-EU online businesses selling goods into Europe
As an online seller, one has the benefit of not actually needing to be physically present to sell the goods in the EU, allowing one’s e-commerce business to develop internationally.
Whether one is selling goods to private consumers or buyers in European countries, that taxpayer still needs to be aware of VAT regulations. The rate of VAT changes depending on which EU country one is selling into. It can be anywhere from 17-27%.
Is one responsible for VAT?
The responsibility for taxes and duties depends on who is the ‘importer of record’ when selling goods into Europe.
This could fall to the consumer, who could be asked to pay the import charges and VAT, via the parcel carrier. Though where possible try to avoid this, as consumers can become disgruntled, resulting in high returns.
However, one may choose to hold stock in fulfilment centres or a warehouse in an EU member state to fulfil orders more quickly and cheaply.
As a Non-EU business, if the sells are to private individuals and are holding stock in an EU member state, one has created a ‘taxable supply’. This requires an immediate need for a VAT registration.
Once the e-commerce supplier has registered for VAT purposes, the latter becomes governed by the distance selling rules – the same rules which apply to EU businesses selling into the EU.
What happens if one doesn’t pay VAT as a non-EU business.
If you’re not compliant with European VAT Law, you risk being caught by the tax authorities, which could result in penalties as well as a hefty backdated tax bills.
Brussels have proposed an overhaul of EU VAT which could come into force in the next few years, in line with a global clamp down on online tax fraud. Since many current EU laws are outdated and created in the early nineties, the EU crime agency, Europol, estimates that have lost well over 50 billion euro to cross fraud.
As a non-EU based company when registering for VAT, one it is required to appoint a Fiscal Representative.
Fiscal representatives are jointly and severely liable for the VAT owed by a non-EU company and will incur extra fees and possible bank guarantees in countries such as France, Italy, and Spain. Over half of EU member states have this stipulation. The countries listed below in Red, require you to do so.
|E.U. Country||Fiscal Representative Required|
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Ionut is the Managing Partner and the founder of Tax Representation. He is a Fulbright scholar, holding a B.A. Finance, a JD and a MS in International Tax at Bentley University. Ionut has 20 years of experience in Romanian and international tax with a focus on foreign investments into Romania, tax controversy and litigation, M&A and international tax structuring.