Reaching millions of new customers across Europe with Amazon can allow you the opportunity to grow your sales significantly. A basic understanding of VAT, the European equivalent of US sales tax, is critical for your market entry strategy.

How VAT differs from US sales tax

1. VAT is payable upon import: When sending goods to a US fulfilment centre, you don’t have to pay sales tax in the US. However, as soon as you ship inventory to Europe (for example to a fulfilment centre when using Fulfilment by Amazon, or FBA), you must pay that country’s import VAT.
    
2.  VAT is included in the sale price: Unlike in the US, where sales tax is added to the list price, VAT is included in the list price in the EU. Let’s say that you sell a product on Amazon.com for $100. To sell it for the equivalent price in the UK, you would list it on Amazon.co.uk for $120 (assuming 20% VAT). This is important to remember when analyzing competitive pricing on Amazon’s European marketplaces.
   “Sellers sometimes assume that VAT is collected and paid to the tax authorities by the customer or online marketplace” says Melanie Shabangu of AVASK, one of the VAT service providers on Amazon’s Service Provider Network. “This means that when a VAT quarter is due, they have not collected and saved the VAT liability themselves and the payment has to be made purely out of profits. This can easily be avoided by marking up your products in such a way that VAT is included in the retail value, knowing the VAT rate you should be charging.”

Where to register for VAT

If you store inventory in Europe you are required to have a registered VAT where your goods are stored. Many selling partners start their EU journey by storing goods and registering for VAT in Germany and UK. Here’s why:

• Germany and the UK are Europe’s largest opportunities for ecommerce meaning that inventory within the country is important to reach more customers with faster shipping options. Check out Amazon Europe’s fulfilment options to find the one that works best for you.
• Mitigates the risk disruption with logistics due to Brexit.
• The information required for UK and Germany VAT are simpler than other European countries.

When the business grows and expands, further registrations for VAT might be needed. The time it takes to become VAT registered can vary. To avoid delays, start the process as soon as you register your EU seller account.

Four steps for handling VAT

1. Get expert guidance to understand VAT obligations early on: Given the complexity of VAT, and how different it is from US sales tax, most sellers hire a European tax expert. Many of these VAT experts provide a free first consultation.
   “VAT isn’t something I would trust to your local US accountant,” says Elena Castañeda of Bling Jewelry, who expanded from the US to the UK in 2010. “We found a great VAT firm, AVASK, through Amazon’s Service Provider Network, who guided us through the entire process, from planning to ongoing filing.”
2. Strategize and prepare to launch: “As soon as you’ve started thinking about selling in Europe, make sure you do your research on VAT & have an expert work with you from the start. VAT will impact your strategy from the beginning, including pricing and fulfilment,” says Lavina Hasija of Amazon’s European Marketplace team.
   Pricing Applicable VAT rates vary by country and product category, among other factors. Confirm with your VAT advisor what rate you must apply to your display price.
   “Our pricing varies by country and is based on an algorithm that builds in VAT for each country,” says one seller. “We generally try to match what our net in the US would be, taking into consideration extra shipping costs, VAT, currency exchange rates, etc.
3. Launch and adapt as you grow: As your sales grow over time, other fulfilment options might make more sense for your business. Through Pan-European FBA, Amazon moves your inventory among seven European countries based on customer demand. This means the seller must be VAT registered in all seven countries. Transitioning to Pan-European FBA can provide benefits of quicker & cheaper shipping times, later it also increases the overall sales.
4. Outsource the filing of your taxes: As you launch and grow your Amazon Europe business, tax filing will be required monthly or quarterly, depending on the country. Rather than manage the reporting yourself, outsource it to a European VAT service. A good VAT service should be monitoring your European sales and guiding you regarding any changes in your VAT obligations as your business grows.

Common mistakes to avoid

• Trying to figure out VAT by yourself: Unless you’re a tax expert, don’t try to handle this on your own. As soon as you know you’re interested in selling in Europe, hire a European tax specialist. “VAT is complex. You can waste countless hours and end up just as confused trying to figure it all out just reading information online. For something this complex, hire someone who is passionate about VAT and will ensure your European taxes are well managed.
• Asking your US accountant about VAT: Most US accountants are not VAT experts. Even asking them for general advice about VAT is not recommended. A lot of our sellers say their US accountant scared them off selling in Europe because of VAT. Talk to a European tax specialist. They’ll be able to give you better advice in understanding your requirements and options.
• Hiring a VAT expert who doesn't understand Amazon in particular: Not all VAT experts understand the specific requirements of Amazon Europe sellers. Previously, we hired a VAT specialist service that seemed to have less knowledge of Amazon in particular,” says the seller whose European sales top $900,000 annually. “That ended up hurting us in the long run. We had to spend more time gathering tax data for them and they made more errors. Find a specialist who has done VAT for Amazon-specific companies, as it is a fairly unique business model that most VAT experts may not understand completely.”
• Ignoring or delaying your VAT registrations: Doing so can lead to your account being suspended. Given the potentially long processing time, begin VAT registration as soon as you know that it’s required. Sellers might accidently send their inventory to the UK without the required VAT registration, which can get your account suspended.” says Lavina of the European Marketplace team. “Make sure you’re VAT registered before you send any inventory.”

Courtesy: Source - https://sell.amazon.com/global-selling/case-studies/eu-vat.html?ref_=sdus_gs_stories_euvat_i