A common issue is the potential fines and legislative retribution that can result from non-compliance of tax and VAT regulation within the EU. It is no secret that certain factions of tax regulations are complex, but knowledge of these requirements should empower retailers to expand – not deter them.
Here’s what you need to know to avoid hitting these tax hurdles.
Hurdle 1: Retailers are required to charge local VAT rates on products sold internationally once they reach the tax threshold implemented by local authorities, and thresholds vary across separate EU states.
Hurdle 2: Products are generally VAT-free until revenue hits a level of €35,000 (which is changeable dependent upon the country), with the specifics of the item being sold also affecting whether tax must be paid. There are many variables to consider, for example, something as simple as the language of a book being sold can affect the tax that must be paid. Retailers can fall into the trap of viewing the EU as one commodity when, in fact, each country has its own individual legislation and tax regulations.
Hurdle 3: Local governments can claim unpaid taxes for up to ten years–with negative consequences including fines and imprisonment–so it is important for retailers to be aware of the regulations of each country they are looking to trade in.
Hurdle 4: Services such as Fulfilment by Amazon (FBA) will NOT oversee the tax process for retailers. As soon as stock is moved to a new country, even if this is through fulfilment services, retailers fall into the legislation of another country and must adhere to the local regulations.
These services lend support to online retailers through stock management, distribution and customer service but retailers are responsible for the calculation, reporting and payment of their own taxes. Where necessary, the retailer’s price must include VAT for the destination country when using FBA.
Hurdle 5: Consumer Protection Laws within the EU require that before a consumer purchases a good, the full selling pricing, including VAT, packaging and transportation be shown clearly before placing the order.
Since your webstore is an important platform for online sales, it is important that it is set up for international e-commerce. This means that should be capable of showing different currencies and the relevant VAT rate that will be applied on the product.
There is no golden rule when it comes to the tax and legislation issues associated with cross-border trade and retailers should not be undeterred by the perceived complexity. The potential for global expansion is vast, by taking the time to understand the VAT requirements of the EU retailers can expand safe in the knowledge that they are compliant.
Zoe Ripley is director of marketing for ChannelAdvisor where she leads the marketing and communications efforts for the EMEA region. With over ten years experience in marketing and events, Zoe previously worked for Cisco, Royal Mail, Roche and Knight Frank.
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