How VAT Works When You Sell in Europe from U.S.
We assume you are already familiar with the basics of VAT in the EU. If not, take a look at Amazon’s summary. Secondly, we assume you are interested in how VAT works in detail. The internet contains basic information, but the nitty gritty details are hard to find.
The scheme above shows how a U.S. seller brings goods to the EU. Let's suppose the U.S. seller wants to sell in Germany (DE), the second-biggest Amazon market in the world. Amazon.de's revenue reached $37.6 billion in 2023, and 500 million visitors visited the site.
As a seller, you probably prefer Fulfillment by Amazon (FBA), which means you can get worry-free quick delivery and, most importantly, the Prime Badge.
Amazon likes to serve its German customers not just from warehouses in Germany but also from warehouses in neighboring Czechia (CZ) and Poland (PL) to optimize delivery. This will have an impact on your tax obligations. That’s why if you allow storage in all three countries, you get a discount on fulfillment fees of 0.26 EUR per shipment.
1. Registration with VAT Authorities
First, if you want to use Amazon fulfillment, you need a VAT number in the countries where you store your goods. You also need to register with the local tax office wherever you enable Amazon to store your goods.
In the basic scenario, this means you need to:
Register in Germany with the Finanzamt Bonn-Innenstadt.
Directions
- Register in Czechia with Finanční úřad pro Moravskoslezský kraj,
- Register in Poland with Drugi Urząd Skarbowy Warszawa-Śródmieście
- You will need to apply for an EORI number to import.
This is a nonexclusive list of documents you will need during the registration process (each country has different rules):
- Registration forms in these three countries and the supplements to the form
- Certificate of Incorporation
- EIN assignment letter (IRS) CP 575
- Residence certificate from the IRS - form 6166
- Translation of the documents into Czech, Polish (from a sworn translator), and German
- Confirmation of bank account (preferably, get a European bank account before you apply - feel free to use our referral link to get a few extra perks such as transfer fee savings)
- Link to your Amazon account and a screenshot including the time and date taken
- Copy of the director's passport
- On top of that, you need a fiscal representative in Poland if you are not based in the EU. This has to be an entity based in Poland.
It is theoretically possible to handle these registrations and filings on your own, except in countries where the fiscal representative is a legal requirement. In reality, we handle these things for you to save you time and headaches.
Once you obtain the VAT numbers in these countries, add them to your Amazon account and start selling. If you use Minefield Navigator, you add them to your Minefield Navigator account and we periodically file for you.
2. Main Principles of VAT
First principle
The first general principle behind VAT is that it’s a tax on the final consumer, not the businesses. The VAT collected is the income of the state where the goods are consumed.
Amazon allows both consumers and businesses to be customers, but there is a tax difference.
Second principle
The second principle is that as the value of the goods accumulates in the supply chain, each business only pays the tax for the value added. That is, the VAT gets charged on the final B2C sale and, in your tax return, deduct the VAT on inputs (in your case, any import VAT, if you had to pay right at the border), effectively paying only the tax for value added.
Third principle
The third principle is the taxable event, which is an event or transaction that triggers the obligation to account for, charge, and remit VAT (even if, for certain situations, that might be zero). Usually, it is the event that brings "new value" to the market or is relevant for tax purposes.
The main taxable events for goods are:
- Sale of goods,
- Importing goods from non-EU countries,
- Acquisition of goods from EU countries, including just moving goods to a warehouse in a different EU country
So to understand correctly, we have to divide each chain of trade into the right links of taxable supplies.
3. Basic Scenario
Importing Goods to the EU, Warehouse Transfer, and Sale Now, let’s explain the basic scenario of Germany FBA and how it works if the warehouses around are used.
Our basic scenario has the following basic steps:
You bring goods from the US to the EU, let’s say to Czechia (CZ), go through the customs, and store them in a warehouse.
In the FBA program, Amazon is in charge of moving the goods as necessary. Anything can happen with the goods in Czechia.
They can be sold domestically to customers, both businesses and consumers.
They can be sent to a warehouse in Germany or Poland, so they would be closer to the customers. From Germany, again, the goods can be sold domestically in Germany or to different countries.
They can be directly sold to a business or customer abroad, in Germany, Poland, or other countries without going through another warehouse.
Each case has a different VAT effect, so let’s go through the scenario cases one by one. At the end of the article, there is a nice cheat sheet that sums it up.
4. Importing Goods From the US to the EU
We start with imports from the US to the EU, for example, to Czechia. When the goods pass through customs, you, as the seller, are usually responsible for handling customs as the 'Importer of Record.'
You are the one legally responsible for ensuring that all customs formalities are followed, and the goods are brought into the domestic market of Czechia and the EU.
As a businessperson, you don’t necessarily pay VAT immediately, but in some cases, as soon as you have the cash, the goods effectively move to a different business or to the consumer. The goal is to tax the entire value when reaching the end consumer but collect it in steps so that businesses make sure their input producers charge the taxes they could deduct.
Moving goods across borders is a taxable event, and the VAT needs to be accounted for. Thanks to that, there is less space for fraud, and we also have the “starting value” (of the future supply chain), which is VAT included. So, our business partner, who would be the next, will be able to deduct the VAT on input in a standard way.
But at the same time some countries don’t want the VAT to be actually paid right on import, since businesses can’t afford to leave 19-22% of the money idle as a tax security “just in case”, before they actually sell. This could be harmful to business.
Each EU country has its own specific rules, whether this works or the VAT has to be paid. In Czechia, for example, to postpone VAT on imports, you need to be registered for VAT and use the goods for business purposes within Czechia. The VAT is calculated based on the customs value of the goods, but because you deduct it immediately in your VAT return, there's no net cost to you at the time of import. You will account for it at a sale.
This is the case of a more general principle of reverse charge, an exception to the general rule that businesses are charged VAT in the supply chain. A reverse charge means that the business buyer, not the business seller, is liable for VAT collection.
For German imports, the situation is, however, different and specific, so it is really important you check the local import regulations.
5. Selling to Domestic Customers Without Amazon Marketplace
Let’s suppose that we managed to sell the goods from the Czech warehouse directly to the end customers in Czechia or to a Czech business, not using the Fulfillment by Amazon program. For example, we used our own e-shop on Shopify and used Amazon for the delivery only. This sale is another taxable event. This might sound like a purely hypothetical situation for you, but you will use this model for B2B domestic transactions in the end.
In this case, we are entirely in the domestic market of one EU state, and there are no special rules for Amazon as the marketplace facilitator we will talk about later. We have to follow the elementary domestic VAT rules of the state and all the transactions are to be reported on the domestic tax return.
This is important since we have to account for the VAT ourselves.
So, the basic rules apply:
So, if I sell it to a consumer (B2C), I have to charge him the price, including Czech VAT of 21 %.
And if I sell it to business (B2B), I charge her with Czech VAT since the state needs to collect the tax due, the goods will most probably end up with consumers on the domestic market and thanks to the sale I have the cash at my disposal. The buyer can then sell it to a customer at a higher price, including VAT, and deduct the VAT paid to me as part of the price. The difference between the higher price that the consumer pays and the price of goods supplied is the value added, and the buyer efficiently collects the VAT only for this increment since his suppliers already paid VAT for the inputs. This is exactly how we apply the principle that the value is added in steps, and the customer is the one who pays the full tax on consumption.
However, the situation is different when Amazon acts as a marketplace, not only as a “better postal service.”
Explore more insightful links related to this topic to help you better understand European VAT:
Intra-community Transfer of Goods
EC Explanatory Notes on VAT e-commerce rules
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