The VAT Digital Package – What You Need to Pay Attention To
Since July 1, 2021, new requirements and regulations have been in place for cross-border trade. The EU reform, also known as the VAT Digital Package, affects all online sellers who sell products to consumers in other EU member states. Tax and customs processes have become even more complex due to the reform, presenting sellers with new challenges.
Originally intended as a relief, Amazon sellers, particularly those using the Amazon structures FBA, Pan-EU, or CEE, now face significant legal changes that are challenging to navigate. What exactly has changed? What do they need to consider when using an Amazon warehouse? And how should they respond now? We shed light on the situation.
Delivery Threshold, OSS, and Tax Rates
In terms of Amazon sales, one of the most significant changes brought about by the EU reform is the reduction of the delivery threshold. Since July 1, a delivery threshold of only 10,000 euros applies to all EU cross-border sales to end consumers. Once this amount is exceeded, the seller is liable for VAT in the respective country. Sellers must register in the corresponding country, apply the currently valid and correct tax rates there, and pay the VAT to the local authorities. The associated bureaucratic effort is intended to be minimized by the newly introduced One-Stop-Shop (OSS).
The OSS is provided across Europe by the respective tax authorities. In Germany, the OSS procedure is offered by the Federal Central Tax Office (BZSt). This point of contact allows sellers to declare and pay all sales within the European Union centrally in just one EU member state (and not in 27!). This single declaration includes all goods sales, broken down by individual member states, along with the VAT incurred on those sales made in the EU member states. The payment of the resulting VAT liability is also made centrally to this single point of contact.
OSS Special Cases
When using the Amazon FBA program, special cases can arise, as goods may be stored outside the seller’s country of establishment. We will take a closer look at three of them:
1. Warehouse and Customer are in the Same Country, the Seller is in Another
The German seller Meiser, based in Cologne, sells wristwatches through Amazon. A customer from Poland orders a watch from his German online shop. Since he uses the FBA program, part of his inventory is also stored in a warehouse in Poland, from which the shipment is now being sent. The delivery is therefore local, and the OSS procedure does not need to be applied in this case.
2. Shop and Customer are in the Same Country, the Warehouse is in Another
Once again, a wristwatch is ordered from Meiser by a customer from Dresden. Here, too, Amazon always uses the shortest shipping route and ships the goods not from Germany, but from a warehouse in Poland, near the German border. Although the seller and the customer are in Germany, the OSS procedure applies because the delivery of the goods is made from Poland.
3. Transfer Between Two Warehouses in Different Countries
Amazon has determined that many watches from Meiser are ordered from France. To save on individual shipping costs and delivery time, part of Meiser’s inventory is stored in France. This involves a transfer from a German warehouse to a French warehouse. In this case, the OSS does not apply, as it is merely an intra-community transfer without a sales process.
Summary
It is clear that Amazon sellers who want to use Amazon warehouses as well as the OSS face a significant additional effort, as they not only have to continue registering locally and submitting a local VAT return, but also need to consider a number of special cases. Unfortunately, the touted minimization of bureaucratic overhead does not apply to all sellers.
It is important for all deliveries to correctly tax the goods according to the destination country. For this, the application of the correct tax rates is essential. However, with the multitude of special regulations and exceptions, this is hardly achievable. The database of VAT rates for the EU-27 published by the European Commission, which is supposed to provide relief, is sometimes incomplete, erroneous, and not up to date. This poses a competitive disadvantage for Amazon sellers, which can lead to tax returns being incomplete or even incorrect.
Caution When Using Amazon’s VCS VAT Calculation Service
Here only the gross price of the product is displayed on invoices when there is no VAT ID in the respective country to which the delivery is made. From the pure transaction data, it is very difficult for sellers and tax advisors to determine afterwards which tax rate should have been applied.
Solutions
It becomes clear that sellers must engage intensively with tax policy and its adjustments to remain competitive in the market. But what exactly can or must they change to act correctly in the future? The first and most important step is for sellers to clarify which regulations apply to them from now on and how to implement the tax regulations correctly. Amazon sellers must particularly keep track of this.
Since individual sellers can understandably feel overwhelmed by this, it is worthwhile to seek support on this complex topic. A first sensible step is to have a conversation with a tax advisor. They can take stock and demonstrate to what extent the seller’s Amazon business is affected by the new regulations of the EU reform. Based on this, considerations should then be made regarding how to handle the resulting reporting obligations and which registrations are now necessary.
In addition to the assessment, technical solutions can provide relief. As the amount of information and data increases due to the new processes, automation options are a good choice for optimizing processes in the long term. For example, the correct tax rates and exemptions can be automatically assigned to individual items and continuously updated. An example of this is the temporary reduction of the German VAT from 19% to 16%, which could be automatically and correctly assigned through technical solutions.
eClear offers solutions for both OSS usage and the Europe-wide application of the correct VAT rates. The full-service solution OSS+ is the comprehensive connection to the One-Stop-Shop for sellers. OSS+ cloud-based handles the extraction and preparation of VAT-relevant data from an unlimited number of marketplaces and shops, and automatically takes care of the declaration to the One-Stop-Shop at the relevant authority. Additionally, the end-to-end solution ensures the tax-compliant application of the applicable VAT rates for all cross-border B2C transactions in the EU-27.
eClear VATRules is a database of VAT rates for products in all 27 EU countries. The database contains 1 million tax codes with over 300,000 exceptions. The tax rates and rules are clearly assigned to the respective products and product groups. Using a 14-digit code, all applicable exceptions, reductions, and VAT regulations in the EU are recorded. The continuously updated tax rates are automatically provided on demand, embedded in order processes, and applied accordingly.
Challenge as an Opportunity
Even though the topics of “tax” and “tax policy” may seem to present many pitfalls at first glance, it is worthwhile to invest in this area in the long term. In addition to the benefits that arise from tax reporting, optimized processes also positively impact margin and pricing strategies. Furthermore, technical support for tax-related processes and the assignment of correct tax rates simplifies expansion into additional countries. The time that sellers invest now in optimizing these processes will ultimately pay off.
Image credits in the order of the images: ©maslakhatul – stock.adobe.com / © eClear / ©Irina Strelnikova – stock.adobe.com
