Amazon and the One-Stop-Shop: the different ways to stay VAT-compliant across Europe
- •What is the One-Stop-Shop (OSS)?
- •Why does the One-Stop-Shop benefit Amazon sellers?
- •How can Amazon sellers stay VAT-compliant without the One-Stop-Shop?
- •What happens if Amazon sellers use the One-Stop-Shop?
- •Is the One-Stop-Shop advantageous for Amazon FBA sellers?
- •Enlist some help to determine the best method for your business
VAT compliance is one of the most important factors Amazon sellers in the US have to consider when selling their products on marketplaces across the European Union. It describes the process of taking care of VAT duties and fulfilling certain obligations, like registering for VAT, submitting VAT returns, and paying VAT debts.
There are several ways for Amazon sellers to fulfill these duties in the EU since 2001:
By registering and submitting returns in individual countries when necessary
By taking part in the newly introduced European VAT scheme “One-Stop-Shop”
What is the One-Stop-Shop (OSS)?
The One-Stop-Shop for VAT (OSS) is a new scheme that was introduced in July of 2021 in the EU. It changes the duties that need to be fulfilled across the European Union by eCommerce entrepreneurs and online sellers on their way to total VAT compliance.
Sellers using the One-Stop-Shop (OSS) can take care of all VAT matters and obligations that arise in a multitude of European countries in their home country or country of OSS registration while staying VAT-compliant.
However, the One-Stop-Shop scheme only applies to cross-border B2C transactions. This includes sales that US sellers make to private customers who reside in the EU.
Nevertheless, due to some other changes in VAT regulations implemented in July 2021, the OSS can be a worthwhile system for Amazon and other eCommerce sellers.
Why does the One-Stop-Shop benefit Amazon sellers?
Alongside the One-Stop-Shop, a new European VAT threshold for B2C cross-border sales was also introduced in July 2021. The new EU-wide VAT threshold replaces previously applicable country-specific thresholds.
The VAT threshold sets the limit after which one is liable for VAT. In clearer terms, after the revenue through B2C cross-border sales exceeds the limit, you have to register for VAT abroad.
Previously, all European countries set their own thresholds, usually at EUR 35,000 or 100,000, and VAT liability was set individually per country. While sellers had to monitor several thresholds, those with moderate revenues abroad also didn’t have to worry about being liable for VAT in a multitude of countries.
The new VAT threshold is set at only EUR 10,000. All US-European B2C cross-border sales are combined in this calculation.
As a result, it’s much easier to meet the new limit. Sellers might have to fulfill VAT duties in various countries at once and much earlier.
Consequently, the OSS, which allows them to fulfill their duties in the country of OSS registration only, is an attractive alternative. European sellers have to register for OSS in their home country and fulfill their OSS duties there.
Foreign non-European entrepreneurs are more flexible. They can choose freely which EU country to register for OSS in.
How can Amazon sellers stay VAT-compliant without the One-Stop-Shop?
If you are not using the One-Stop-Shop and instead follow the regulations concerning the newly introduced EU-wide VAT threshold, the situation is as follows:
All B2C cross-border sales prior to the crossing of the threshold are treated as domestic sales, taxed at domestic VAT rates, and declared in your regular VAT return in your home country.
At this point, local regulations apply. Foreign non-European sellers from countries in which VAT doesn’t exist might have to charge their end consumers other taxes. For example, US-based sellers might have to charge their B2C customers state-level sales tax instead. It all depends on local regulations.
Once you cross the threshold, you need to register for VAT in all European countries in which your end customers are located — even if you only made a single sale to one of them.
All further sales need to be taxed with country-specific VAT rates.
Following the registrations, you need to regularly file local VAT returns and, therefore, monitor due dates in a variety of countries.
Note that the threshold is an annual limit. If you unexpectedly cross the limit in November, you are liable for VAT for the whole year. Differences in VAT debt due to VAT rates charged are then your responsibility.
For example, imagine that you are a seller based in France selling products to French and Italian private customers. Initially, you expected a low cross-border turnover and, therefore, only charged your domestic VAT rate of 20% in France. Unexpectedly, you cross the European distance selling threshold and become liable for VAT in Italy. That means that you should have charged the Italian VAT rate of 22% instead and will have to cut into your profits to pay the difference.
Similarly, if you are a non-European seller and your country or state doesn’t require you to charge VAT, or you charge sales tax instead, you will have to pay the VAT debt out of your own pocket if you unexpectedly become liable for VAT in the EU.
That’s why it’s better to register even before it is necessary, even though you might have to fulfill more VAT obligations, and why correctly estimating future revenue is crucial. An alternative for Amazon sellers is the One-Stop-Shop, especially when you are expecting high fluctuations.
What happens if Amazon sellers use the One-Stop-Shop?
In order to use the One-Stop-Shop, you first need to register for OSS with your domestic tax authorities in Europe (or the tax authority in an EU country of your choice if you are a non-EU seller). Following that, you need to fulfill the following VAT duties:
Apply the VAT rates of the countries in which your customers are located to each sale, including the first, as the threshold no longer applies.
Forgo the VAT registrations and the submission of VAT returns. Instead, list all your B2C cross-border transactions in a unified OSS report.
Continue to declare all domestic sales in your domestic VAT return and pay your VAT debt as you previously did. If your non-EU home country or state doesn’t require you to charge VAT, you can skip this step.
File the OSS report quarterly in the country in which you registered for OSS and pay all OSS VAT debt combined to the authorities. These authorities will then redistribute the correct amounts to the corresponding foreign tax authorities based on your report.
As becomes clear, the OSS can be highly advantageous for Amazon sellers, as they no longer need to:
Monitor the threshold.
Register for VAT in foreign European countries.
File VAT returns in foreign languages.
Pay VAT abroad.
However, submitting an OSS report is a challenge in itself. In order to compile and structure the data correctly, you will need to be able to filter all sales by country of origin, country of destination, and VAT rate — a tedious process. All combinations then need to be transferred into the software of your domestic tax office used for OSS.
VAT service providers like hellotax can help you fulfill these duties. They specialize in VAT for Amazon sellers and eCommerce entrepreneurs and offer a worry-free OSS package. Their proprietary VAT software monitors and sorts through all transaction data and reports are automatically created.
Their team of local tax accountants can even register you for OSS in a variety of European countries and file your OSS reports, no matter if you are an EU seller or based abroad. You receive notifications when a payment needs to be made and can continue to concentrate on growing your business.
Is the One-Stop-Shop advantageous for Amazon FBA sellers?
However, compiling reports is not the only difficulty that comes with the One-Stop-Shop. Amazon sellers who use Fulfilment-by-Amazon (FBA) programs or otherwise store products in foreign European countries face further challenges.
That is because the OSS only applies to B2C cross-border sales. Therefore, products that are stored in foreign Amazon Fulfilment Centers and shipped to customers in that same country don’t cross borders and don’t fall under the scope of the OSS.
Furthermore, storage of products in a country always leads to VAT liability in itself. A VAT registration and the submission of VAT returns are, therefore, immediately necessary.
That doesn’t mean Amazon FBA sellers cannot use the One-Stop-Shop. It simply means that the new scheme is not as advantageous and its usability varies from business model to business model.
For example, if you are using the Central European FBA program and only store products in Germany, Poland, and the Czech Republic but serve customers all across Europe, the OSS is still fairly usable.
In this case, you would need to register and submit regular VAT returns in three or four countries, depending on whether you registered for OSS in Germany, Poland, the Czech Republic or a fourth country, and could still use the OSS to declare sales to the rest of Europe.
On the other hand, if you are using the Pan-European FBA program and choose to store in the maximum number of countries possible to ensure quick delivery times, the effort of sorting cross-border transactions from transactions that need to be declared in local VAT returns might not be worth the hassle.
Enlist some help to determine the best method for your business
Fortunately, Airwallex has teamed up with trusted partners who can help with VAT compliance.
For example, the team of tax accountants at hellotax can analyze your business model and choose the best option for you. Furthermore, if local VAT duties in the EU arise in combination with the OSS or by themselves, they receive your tax letters and monitor due dates and deadlines. Their software compiles VAT returns and their accountants file them all across Europe.
Whichever method for VAT compliance you choose, hellotax is with you along the way.
Antonia works as a content specialist at Hellotax. She dedicates her time to VAT and eCommerce topics with a special focus on Amazon FBA and intra-European mail order business.
How to manage team expenses with virtual debit cards