A detailed breakdown of the new tax changes for EU sellers. Alex from SimplyVAT put me in a state of trance as I desperately tried to take down notes on everything she had to say. With a number of big updates coming on July 1st 2021 it's important for you to understand how this impacts you as a seller in Europe.
In this episode we discuss:
You can connect with Alex on LinkedIn here.
[0:00:01] George Reid: Welcome to us always Day One. My name is George Reid, a former Amazonian turned amazon consultant. Each week on the podcast you're going to hear industry experts, brand owners and amazon employees share their answers to the basic yet fundamental questions you should be asking yourself bang your amazon business now, let's jump in. Hello ladies and gentlemen, welcome to another episode of it's always there one. Today, I've got Alex come and speak to us about a topic that's pretty terrifying to me with V A T. My prep for this has been three times the amount of I've done for any other podcast. But thank you, Alex is going to help navigate these choppy waters for us, Alex, gonna give us a brief background into what you do basically.
[0:00:45] Alex Wyatt: Yeah, sure. So um my name is Alex Wyatt, I work at simply that dot com. Um and essentially what simply that does is we specialize in uh international V A T for e commerce businesses. Um so anyone selling into europe, the UK Canada, we can help with all of the international V A. T. Registrations returns and compliance. Um, and yeah, well I do specifically, as I'm in charge of all of the changes that are happening, um, such as Brexit, um, that was a fun one. And now going into the EU that reform, um, and helping all of our clients and external sellers prepare for those changes, um, and make sure everyone's ready.
[0:01:24] George Reid: I imagine it must be a real headache. Just the amount of people who get in touch when you have these monstrous changes, like Brexit coming through and then it's just a bombardment of people who've got no idea, right?
[0:01:36] Alex Wyatt: Yeah. I think there's a huge, huge amount of confusion with changes coming. Everyone starts to learn the rules in one way and then, you know, the government changes uh, everything and people have to catch up and change their businesses and supply chains. Um, And it's, yeah, it's it's crazy, and V. A. T. Is one small bit of people's businesses, and it's usually the bit that people don't like to talk about. Um, So, yeah, it's really about bringing that uh conversation to the forefront and making sure people are prepared because ultimately impacts your business long term. 100
[0:02:10] George Reid: percent. So thinking about some of those big changes we've got coming up, what are the main ones that obviously simply about being talked about recently, is this bu bad package. Don't explain that to the listeners and me a little bit more of exactly what that is, what's happening and how it can impact them.
[0:02:29] Alex Wyatt: Yeah, sure. So we have a few new simplification measures coming in place, um, So there is the Union arse, it's the one stop shop, the Nonunion arse, and the import one stop shop, which we call it IOS. Um and these three are all going to be covering different types of services or goods, um and how they are sold across the EU, so the non union bosses specifically for um services supplied by non EU businesses. So, um, for the most part, amazon sellers, it won't really, you won't really need non union boss. Maybe if you're selling on your own website, uh digital downloads, etcetera, um that might apply to you, so make sure if you are selling that you're getting registered on the non union scheme, then we have the union scheme. Um The union off scheme is therefore, if you're holding stock in an Eu country selling cross border um in the Eu um to private individuals. So, any cross border sales will be covered under the Union boss scheme. Um And it's really an extension from the many one stop Shop scheme um which was implemented back in 2015 for digital services. And they're now just including and expanding um this scheme to uh to cover physical goods. And um what it does essentially is you are filing a quarterly V. A. T returns and all of your cross border digital sales or sorry, your physical sales are going to be um covered on this quarterly V. A. T. Returns under one EU country. So essentially, instead of having to V A. T register in multiple EU countries, it's simplifying that and you're just um you're just filing one quarterly vat return to cover these distant sales of physical goods to private individuals. Then we have the import one stop shop scheme. And this is going to be a huge simplification and hopefully will help a lot of businesses um you know post Brexit because we've seen a lot of trouble getting goods imported into the EU um post transition period. So the import one stop shop scheme is for low value consignments of less than 100 and в‚¬50. And these low value consignments will essentially be charged V. A. T. At the point of sale where the customer is located and then um will be cleared through customs. Really quickly be using your IOS number on the import documents. Um There will be no import V. A. T. Do. And what you'll do under the I. O. Scheme is remove all of the V. A. T. Collected under a single monthly um IOS return to one member state of identification. So um if you're an EU business, you will want to be registering for IOS in your home country. And if you're a non EU business you're going to have to use an EU based intermediary to report these um sales and pay the V. A. T. Um for you. So keep that in mind if you want to use the IOS scheme. Um So yeah, lots of simplifications coming into play, but hopefully it's going to be there to help businesses trade cross border a lot easier.
[0:05:40] George Reid: What are some of the key benefits of that import
[0:05:45] Alex Wyatt: off?
[0:05:45] George Reid: Obviously, um if your EU seller and your Selling it happens that a lot of your products are likely going to be below the в‚¬150 mark. So what are the benefits to that now? From what what currently is happening? Yeah.
[0:06:00] Alex Wyatt: So the for the this low value consignment um less than 100 and в‚¬50 when you're importing goods directly to private customers. Um really, you have a few kind of benefits here, your goods are going to be cleared through customs really easily, um and you only have to report these goods on a single um you know, return rather than having to V. A. T. Register in every single country, you want to be the importer of record for additionally, customers will um will be paying V. A. T. At the point of sale. So there's transparency for customers rather than at the point of importation. So it's going to be a lot clearer, more transparent and easier to get your goods into the eu. Now I'm going to throw a big caveat here. Um So the overall scheme is going to be really really beneficial for people selling on their own website. Now, if you're selling through just amazon or any marketplace, for example, marketplaces are going to have the responsibility to collect V. A. T. On these low value consignments. Um So what that means is that if you're holding your stock in the U. K. For example, sending in these low value goods into a customer across the EU. You still need to list the gross price on amazon. Um So that amazon can charge V. A. T. At the point of sale, then you're going to use amazon's IOS number to clear your goods through customs. So amazon will give you transparency or any marketplace will give you transparency on their IOS number. You are going to use their IOS number, put it on your commercial invoices to clear through customs and your goods will be able to go through um super easily and go to the final customer. From your point of view, there is no additional responsibility to get registered or to do anything else because the marketplace is actually going to be liable to collect the V. A. T. On these transactions. So the aisle scheme is going to be super beneficial if you're selling through your own website directly to customers in the EU. Whereas the overall scheme is also going to be used by marketplaces and the marketplace is actually um going to be liable for any consignment going into EU customers through their marketplace um with a value of less than в‚¬150. So make sure that you're using the marketplaces. Ohio's number two. Clear through customs.
[0:08:26] George Reid: Yeah, you would apply that. I ask them below. If you're shipping from your own fulfillment center, you would have the opportunity to add that on the right. Whereas if you're using something like fulfillment by amazon, it's already in the amazon fulfillment center. You know how that works. In that scenario, the amazon just apply themselves.
[0:08:47] Alex Wyatt: Yeah, amazon should apply it themselves if they're allowing those cross border transactions. Um, so we have seen post transition period that they have been shipping some goods cross border um private individuals in the EU. Um, so in that case they would apply their own IOS number. Um, but if you're using a three Pl or your own warehouse, um, you would need to make sure that they are applying the correct IOS number for your, those specific transactions. So, if it's sold on the marketplace, you want to make sure the marketplaces IOS number is on the uh, on those specific transactions are those goods And then anything going through your own website. If you're using the IOS scheme, then you would want to use your own IOS number on those parcels. So it is a bit of a change for three pls and um, and fulfillment centers that are shipping goods across border. 100%.
[0:09:39] George Reid: Just thinking about me. There's one downside which will come into in a moment but one challenge of three PL may have is they just forget to put the amazon ions number on and they use yours. What what's going to be the repercussions of that? Will it get held up or will slow down or
[0:09:57] Alex Wyatt: essentially um what might happen is that you are going to get charged me 80 twice because amazon would collect the V. A. T. On your um goods. And then also what happens is if you're using your IOS number on those imports um the customs authorities are recording which parcels are coming through and then there will be um kind of reconciling the parcels that have come through under your IOS number versus the parcel what you're declaring on your IOS return. So you want to make sure that you know, you you or your fulfillment center is using the right I also number otherwise, um you could get audited and you know, essentially be um having to pay V A t twice on specific transactions on those transactions.
[0:10:44] George Reid: Um and then 11 thing we discussed the forwards, this not an effect of with amazon charging you with amazon taking the V A T with it being different in each marketplace. So let's say the german v A T is different to France. Italy spain and with people jumping on from different countries within europe and buying on different amazon marketplaces, you're going to be there. They should be paid from confused that
[0:11:14] Alex Wyatt: um
[0:11:16] George Reid: the words right? But essentially the V. A. T rates going to be different.
[0:11:19] Alex Wyatt: Yeah, exactly. That's I think the most simple way of saying um
[0:11:24] George Reid: by the way, for anyone looking.
[0:11:25] Alex Wyatt: Um So the V. A. T. Rates range across the EU from 17% to 27%. So that's quite a wide range of that rates there. So um what is essentially happening with the whole EU that reform is that V. A. T. Is no longer gonna be due at the sale departure country up until those distant selling thresholds are met. However, it's now going to be charged based on the sale um arrival country or the country of consumption of the goods. Um And what that means is that any website or marketplace will have to have the facility to charge the correct rate of V. A. T. Where the end customer is. And what that means for you as a seller is that you need to make sure that the prices that you list um on a marketplace are at the gross price because the marketplace is going to be deducting the V A. T from the gross price. So amazon has stated that they're going to be taking the v A T off of the price that you set, which means that if even if you're selling on amazon dot D. E and you've accounted for 19% V A T. On your prices that you've listed. But somebody from Austria, for example, buys off of your website. Um and Austria's V A. T rates is 21% You could be losing out on that 2% there. And the more kind of scary figure is maybe somebody we talked about it before, George is somebody from Hungary, for example where it's, the heart rate is 27% or Sweden where it's 25% and they buy off of amazon dot D. E and you've only accounted for um 19% V A. T. You could be losing anywhere between uh 7 to 9% V. Like in your margins which can be a huge amount. So you'd want to make sure that the prices that you're setting on these marketplaces can account for the fluctuations and V. A. T. Depending on where your customers are buying from because you don't ultimately have that decision. Um Because the customer can purchase from any Eu country on any um amazon market, they don't necessarily just have to be in Germany buying on amazon dot de. So um it's something to consider. Maybe do a price review on all of your products or some of your products that you might have small margins or um where you might not be able to take the hit on the the fluctuations of the
[0:13:43] George Reid: Yeah, I think there's so many sellers now is things like amazon advertising becomes more expensive, margins are getting squeeze and the last thing you want, because it's probably a something you don't see immediately, these things build up and then you quickly go, why, why are we missing so much? Something doesn't add up in today's excel sheets at the end of the month. So being aware of that is incredibly important. It's difficult to know what your strategy should be there because I guess you can be granular to appoint and go for each of the Seven or eight, whatever number we've got in Europe now marketplaces, I can create a different price, which is great. But then when you've got someone from, let's say Hungary where there isn't a marketplace, you don't know where they're jumping onto, so it's 27% and they're jumping onto the German one and you've accounted for 19%. You could be getting stung there with 8%. Hungary Germany, you know, it could be a feasible option for them to jump onto onto um amazon dot de. So I guess the safe that hair is to go larger than smaller um and always give yourself a buffer. Right?
[0:14:52] Alex Wyatt: Yeah. Absolutely. And I would say find a middle ground uh if you look at your transactional data and see where your customers are buying from our the majority coming from a higher vat rate country. And if so then maybe increasing your prices um to in that to find that middle ground really to to make sure that you can account for you know, maybe a little bit of a loss for some of the higher V. A. T. Rate countries. But also maybe a little bit of a gain from the lower V. A. T. Rate country. So maybe if you set your standard matt rate at 21% for example, you'll be gaining on your sales in Germany but losing on them in Sweden. So you just kinda have to find that middle ground what works for you. Um And yeah, maybe even analyzing your data to make sure that that um wherever your customers are your kind of accounting for those different V. A. T rates. Um or you know, raising if the certain products are doing really well in a nordic country where the vat rates are higher. Um So you can make sure that you won't be losing out on those.
[0:15:53] George Reid: And you mentioned the distance selling thresholds, there's been some changes there at the moment as well, the last kind of few months I believe. Right or approach.
[0:16:01] Alex Wyatt: Yeah. So, well, there was definitely changes after post Brexit, after the transition period because the distance selling thresholds no longer applied between the UK and the EU. And for those of you who don't know what distance selling thresholds are, they're wearing, You're holding your stock in an EU country, selling cross border to a private individual. Um And you have up until the set thresholds per calendar year, you'd be charging the local rate of the 80 and the sale departure country up until the set thresholds are met within that calendar year, at which point you have to register and the sale arrival country and then start declaring the local rate of the 80 where um the end customer is essentially. So these were, these thresholds were really great for businesses selling cross border, especially using the E. F. N. Network from the U. K. Um holding their stock and selling cross border. But at the end of the transition period, the U. K. Was no longer part of the Eu and therefore didn't have the um the access to the distance selling thresholds any longer. So that was the first kind of hit for a lot of businesses. Um And now going into the Eu that reform um from the first of july there actually abolishing the distant selling rules completely. So what they're going to be doing is um charging the general rule will be that you charge V. A. T. Um based on where the country of of consumption is. So where the end customer is and um that means that uh you would be then using the off scheme the Union Off scheme to actually declare these sales these cross border sales to um every single country. The alternative to using the off scheme is actually V. A. T. Registering and every single country where your customers are based. So the Union Off scheme is really that simplification method to record all your cross border distant sale of sales of goods to these individual countries. And then what happens is your reporting it on this one Union off scheme to one tax authority and then the tax authorities split the V. A. T amongst themselves, so they're kind of um you know dishing out the payments to each other and that really simplifies it for you. Instead of having to that register in Um six different countries where you crossed over the distant selling threshold, you not only have to um that register and our about us register on this one scheme and then paid to one tax authority, one single payment and then they're going to split it amongst themselves. And I'm going to throw another caveat in here because you know, they don't these are simplification methods but they don't make it that simple. Um It's actually, marketplaces are going to be taking on the responsibility and specific transactions, so he's going to spell it out quickly if that's okay.
[0:18:48] George Reid: Yeah, I'm keeping with you there, but let's just go back a bit. So we're using the off scheme almost as a replacement to becoming V-8 registered, because the benefit of this is you just pay one payment and you don't need to go register then why would someone still be registered in each locale just so they can get quicker delivery times and prime in those locales, are there any other benefits or?
[0:19:14] Alex Wyatt: Um Okay, that's a really good question. So where in whichever country you're holding your stock and inventory, So if you're using the Pan Eu scheme or you are maybe just using multi country inventory and holding your stock in France, for example, you still have to have a local V. A. T. Registration um where you're holding your inventory, they're they're still that rule. Um The this scheme really um just helps those distant sales of goods going to private customers um And why people would use it is just because you wouldn't have to register in each country, why you might want to register in each country. Maybe you are um uh maybe drop shipping or maybe you're making specific beach be transactions um Like call off stock for example, I there's specific, maybe some country companies might want to. Uh
[0:20:09] George Reid: It
[0:20:10] Alex Wyatt: just doesn't, I don't know why
[0:20:12] George Reid: it obviously allows you to, so if you're able to store stock in Germany that allows you to be close to that german customers so your delivery speed is going to be faster. Um and that prime badge is gonna help you drive sales. So there's there's merit in doing it because you're you're offering is better. But obviously the headache that comes with it, which includes getting the 80 registered. What what's the latest you've heard has ever heard this for a while on the costs behind Getting via registered in, what is it like eight locales? Now if amazon still nothing in place to support sellers with that or not?
[0:20:54] Alex Wyatt: So it's um right now they only have fulfillment centers I think in six countries at the moment, even though they have marketplaces and Netherlands and Sweden, they don't actually have fulfillment centers there as of yet, they probably will introduce them soon. So it would still be six EU countries um for the vat registrations. Um I know amazon does have a specific service um that's all automated um that would be able to help you. Um However, the alternative is using someone like our service to help them get that registers as well, and I think the main difference between the two is really if you want to do it by yourself um through amazon then absolutely. Um you can do you can go through that way. If you want support with the V a T and you don't really want to think about it, then you would come through a service like ourselves. So that that would be the core difference between the two.
[0:21:46] George Reid: Note to self, if you want to find out more about that is obviously simply that dot com in order to go right, because there's there's so many benefits in doing it, but I think it's more reserved for those sellers who are looking to attack EU with with a bit more aggression and go full Hamlet. It's not necessarily recommend if you're still dipping your toe and you think it's something sparkly and new, which is going to change your world. It's not the going under the off scheme. Um, and doing the distance selling, even though it's not called distance selling threshold, like selling from a distance essentially is preferential for those small to medium and in my opinion, um, when you come a bit bigger, you want to get close to the customer, offer them a better delivery experience is gonna help you ranking and stuff as well. And that's what you get in touch of Alex, You're about to then go break down something else before rudely.
[0:22:39] Alex Wyatt: Um,
[0:22:39] George Reid: I think, yeah,
[0:22:40] Alex Wyatt: it was about marketplaces and where they're going to take on the responsibility for these distant sales and I think this one is a really important one as well. So like I mentioned, you're still going to need those local V A. T registrations in whichever countries are holding your inventory in. So keep that in mind. However, now the marketplace is actually going to take on the responsibility of the 80 collection and remitting that to the specific tax authority in specific circumstances. So if you are an Eu company, the marketplace will not be taking on the responsibility for you. So EU companies, you still have to remit this all on your own. So you would want to get registered for the Union All scheme and you're going to declare, you know, all of these distant sales under these, uh, under the Union off scheme and then all of your domestic sales go on the local V A T return any B two B transactions. They're all going on the local V A. T returns, um, and so on. So EU companies, apologies, but you still have to continue on as normal now for the non EU companies, the marketplace is actually going to be taking on these transactions for you. So any of these cross border sales, um or even domestic sales on made on their marketplace. The marketplace is going to be liable to collect the V A. T. On your behalf. So if the goods are already in the EU and they're sold to an EU customer, private individuals in the marketplace will take this on for you. So you have to keep that in mind um that that that's not going to be the marketplaces or through the marketplace is going to be responsible and you don't have to collect and remit it. You do have to um stay on your local V. A. T. Return. Um The sales made to marketplaces and they're going to be exempted V. A. T. So you still have to declare the sales made to the market place. But as if it was a B two B transaction for example, um you're also going to be responsible to uh to uh to declare any of your beats be transactions on your local V. A. T. Return. And you're also going to want to reclaim any import V. A. T. On your local V. A. T. Returns. So it's still important to keep those local V. A. T returns um where you're holding your stock. But as a non EU business, the marketplace is going to be responsible to collect the debt from private individuals. Does that make sense?
[0:25:03] George Reid: It does, it does. And just kind of one follow up question to tie all and probably reiterating what we discussed already. But just to keep it super simple in my simple mind, you're a UK based seller at this point in time, you're, if you're small to medium as recommended, you're probably not looking to register eight local just yet. So you would probably be looking at that union off scheme. Um, and amazon will be collecting it, would that be correct?
[0:25:33] Alex Wyatt: So actually, if you were a U. K business, we would look at where you're holding your stock. So if you're holding your stock in an EU country maybe. Yeah, if you just chose Germany, for example, to hold your stock, you'd local locally vat register in Germany and that's it. And then amazon would be then declaring all of your sales like sales v A T. So you wouldn't have to actually worry about the Union Office and the Union Office would only be relevant to you as a UK based business if you were selling on your own website as well. Um
[0:26:08] George Reid: Yes, what if you decided that you were going to use kind of the eF essentially and UK based, but I'm just going to send into an amazon fulfillment center all stored in the UK and selling into europe from there. Would that become the union off situation? No,
[0:26:25] Alex Wyatt: not even then. So in that case that case as a UK based business, shipping low value goods under 100 and в‚¬50 the marketplace again would be liable to collect the V. A. T. So it's looking pretty sweet for UK businesses. Um for the most part, you you don't have to really that register under these new simplification schemes unless you're selling on your own website as well. Um now if you are selling high value consignments, so consignments above в‚¬150 then you may have to get the 80 registered. Um if you want to be the importer of record for your goods otherwise you can make your customer the importer of record um So delivering say D. A. P. And um the customer would then be liable to pay the import duties and taxes as the goods clear through customs. So it's up to you which way you'd like to go. But keep that in mind because it may mean that you need an additional Viotti registration
[0:27:21] George Reid: and follow the question is something a small one and you may not have the answer because it's not fully implemented. Do you think there's gonna be any delays with regard to processing shipments going into europe with just systems? Getting up to speed of? Okay amazon's the important record we've got that their IOS on it. Is that going to slow things down? Have you heard anything about that which may cause any disruption or?
[0:27:50] Alex Wyatt: So the whole reason for it is for um fast clearance of the goods through customs. However um yeah you know i there may be delays because a lot of the tax authorities are still getting up to speed. Um A lot of them have said that when they're not going to be ready for the first of july um which is slightly concerning but you know they're still rolling forward with that day. Um So I you know, there may be some delays as the tax authorities start to implement all of these new rules and you know cross check the IOS numbers and make sure the systems are up to speed etcetera. So I think we might see some delays as we get going but as it becomes business as usual um the whole point of this this simplification scheme, the aisle scheme is for the goods to clear through um as fast as possible because the V. A. T. Is going to be paid on that monthly V A. T returns. So um hopefully we will see, you know, we will see everything start to speed up in time
[0:28:49] George Reid: I think, yeah, I guess the advisor may offer, there would be if those are fulfilling it themselves and you've made a delivery promise to your amazon customers and they're expecting it, let's say three days to begin with. You may look to give yourself a bit more leeway there for the first month of this change because there may be a slow kind of grinding process throughout july, so if you go it's going to be three days, but actually it's a bit of a grinding process. Amazon will then look to penalize you for that delay in the delivery and that can create some performance issues. It's not going to be an issue if it's an amazon fulfilled package because they take responsibility for any delay. This is something to be aware of, that. If you're selling a lot and you're selling volume into europe, fulfilling yourself, which many people do do now, um perhaps look to tweak some of those delivery expectations because like Alex has kindly said that there could be a little bit of uh teething period, let's say,
[0:29:50] Alex Wyatt: Yeah, and it's always better forget to arrive quicker than you say too. So if it does go through a quick then that's great on
[0:29:59] George Reid: the promise over the liver, Alex, it's been it's been wonderful. Um taking furious notes as I listen to you, They're a lovely podcast and loads of beneficial tips. I'm sure I'm gonna have to listen to it four times over to really take everything in. But thank you for your type.
[0:30:16] Alex Wyatt: Yeah, Thanks so much for having me, a pleasure to be here.
[0:30:19] George Reid: No, look at that. Hey guys, just a quick one. If you are enjoying the podcast, I either have some actionable next steps or new ideas. I'd really appreciate if you could one subscribe to the show and leave us a review. These are really, really important to us, as you probably know being in the amazon world and two. If you're looking for additional support with your brand, head over to the website, it's always day one dot co dot UK where we've got links to other resources as often our guys speak soon.