Selling to Europe? What about the VAT...
As many non-EU e-commerce companies expand their business to overseas regions such as the EU, they must be aware of the European VAT responsibilities and obligations in place. Before you give order to your first shipment to the EU, the VAT impact needs to be addressed. Managing these VAT obligations correctly can help your company to optimize its revenues. Failure to do so will leave your company exposed to unexpected VAT payments or double taxation.
How to manage the European VAT? Here are 5 important notes.
1. Import procedure
When your shipments arrive in the EU, for storage or direct selling, in most EU countries import VAT and import duties must be paid immediately at the border. However, are you aware of the possibilities to exempt or postpone this VAT payment? In some EU countries appointing a fiscal representative could give you a cash flow advantage by using an import deferment licence.
2. VAT compliance regulations
When holding or selling stock in the EU, your company should register for VAT in most EU countries. Be informed in detail about the local registration procedures. Once VAT registered, there will be periodic compliance obligations to follow. These will include ensuring invoices are issued according to the local laws and applying the correct VAT rates.
3. Distance selling
Selling B2C to European private individuals means the distance selling regulation applies. The VAT rate of the country of the customer should be charged and reported when the sales threshold of the EU country is exceeded. Knowledge of this regulation is absolutely essential. Also keep in mind the developments at the European Commission with respect to this regulation. A new more VAT friendly system is approaching.
4. Control of e-fulfilment
An e-fulfiment serviceprovider can manage your B2C inventory and handle the order processing, pick and pack, and return management. If this serviceprovider is also responsible for your shipments, please make sure to take control of the administration process, such as keeping record of import declarations and transport documents. This is a key factor when providing evidence towards the European tax authorities regarding VAT.
5. Website optimization
Set up or adjust your website for European customers. Your website should be capable of showing different currencies and VAT rates. For European customers all prices need to be inclusive of VAT. We noticed that this is not the same in for example the US where prices are shown without sales tax. Also be aware of your margin per EU country since VAT rates vary across Europe. The same comments apply to your companies mobile environment.