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Imported from Asia to the EU, or selling cross-border? In this guide, we explain what importers, Amazon sellers, and cross-border e-commerce companies must know about the Value Added Tax (VAT) in the European Union.
We also collaborated with Alex Wyatt from SimplyVAT and Dr. Matthias Oldiges from KMLZ, two of Europes leading experts, to create this comprehensive VAT guide.
This is covered
- VAT calculations for European importers
- VAT rates in EU member states
- How and when to pay VAT
- VAT registration for EU companies
- VAT registration for non-EU companies
- VAT when dropshipping products
- VAT when selling products online within the EU
- VAT registration when selling from overseas to the EU
- VAT when selling on Amazon
What is Value Added Tax (VAT)?
The VAT is a consumption tax in the European Union. In B2C transactions, VAT is always included in the price. If you, for example, buy a product online from an EU based online store, the price you pay includes VAT.
The seller can then subtract the VAT paid on imports, from VAT added on top of the sales price.
Below follows an example:
- Sales: $10,000 (Including VAT, 20%)
- Expenses: $5,000 (Including VAT 20%)
This allows us to make the following calculation.
- Sales VAT: $2,000
- Paid VAT: $1,000
- Total: $2,000 – $1,000 = $1,000
Thus, I would need to pay a VAT of $1,000. If I’d spent more on VAT than I added on top of my sales, I would instead get money back from the state.
However, when importing goods from China, you can’t pay the VAT directly to the supplier. Simply because Chinese businesses belong to a different tax system, and are not VAT registered in the EU.
When importing products, the same principle applies. If you pay more VAT on your imports than you add on your sale price, you’ll get a refund.
What is the customs value?
As the VAT calculation is based on the customs value, you need to be familiar with this term to understand the examples provided in this article.
In the European Union, the Customs Value is the total sum of the products (including development costs paid to the supplier) and shipping to the border.
Below follows an overview:
Always included in the customs value
- Product cost (as paid to the supplier)
- Shipping cost to the Port of loading
Sometimes included in the Customs Value
- Tooling and molds
- Product samples
- Design services (and related development services) paid to the supplier in China
Not included in the Customs Value
- Transportation fees within the EU
- Fees and services paid in the Port of Loading
Do I need to pay VAT when importing from Asia to the EU?
Yes, importers must pay VAT on top of the total sum of the Customs Value and the Import Duty.
The VAT is paid to the state, in the country of entry and according to the local rate.
If I import goods to Spain, I pay VAT in Spain, according to Spanish VAT rates. If I am based in the UK, I pay the UK rate, to the HMRC, and so on.
How can I calculate the amount of VAT I must pay?
Yes. However, before you can do that you must know the following factors:
- Customs Value
- Import Duty Rate
- VAT Rate
Below follows an example:
- Customs Value: $10,000
- Import Duty: 5% ($500)
- Sum: $10,000 + $500 =$10,500
- VAT Rate: 20% (UK Rate)
- Total VAT: 20% x $10,500 = $2100
- Total Amount: $10,500 + $2100 = $12,600
How do I make sure I pay the right VAT amount?
As mentioned, the VAT is calculated as a percentage of the customs value. As such, you have to ensure that the correct customs value is declared on the bill of lading, packing list, commercial invoice, and other relevant documents.
Don’t assume that your supplier, or even forwarder, know how to calculate the customs value.
Is the freight cost subject to VAT?
Yes, in the European Union, the customs value includes the shipping costs up to the arrival in the port of destination.
However, any logistics costs that arise within the EU, such as unloading and customs clearance, shall not be included in the customs value.
That said, the forwarder will still add VAT on the invoice, but that is paid separately.
Can I pay VAT to the Chinese supplier?
No, you should not pay EU VAT to any non-EU entity, as they are not VAT registered in the European Union.
Neither shall you pay China VAT, as the supplier in China receives a VAT refund when exporting products.
What is the VAT rate in my country?
So far, each EU member state sets its own VAT rate. Each state can also set different VAT rates for different products or services – or even implement exemptions (0% VAT).
However, most products are taxed according to the standard VAT rate. You can find a full list here, or see the list below for a few EU states:
- United Kingdom: 20%
- Sweden: 25%
- Italy. 22%
- Germany: 19%
- Netherlands: 21%
- France: 20%
When importing from China, how and when do I pay the VAT?
There are two ways to pay VAT when importing goods from China:
a. Pay VAT upon arrival in the Port of Destination
Most Freight forwarders offer Customs clearance as a paid service. As such, they help you declare Customs duties and VAT to the local authorities.
The Freight forwarder invoice the buyer for the total amount (Import duties and VAT).
b. Declare the importation value on the quarterly or yearly VAT declaration form
All VAT registered companies in the European Union must fill in a quarterly or yearly (sometimes even monthly) VAT declaration.
In the VAT form, there are fields for declaring the total amount of Imported goods, from which the local tax authorities can calculate a VAT amount.
The benefit is that the importer can then offset this amount directly from the amount of “sales VAT”.
Do I need to get VAT registered before importing from China?
This depends on the regulations in your country, as each EU member state set their own VAT rates and VAT registration rules.
For example, in the United Kingdom, companies are only required to get VAT registered once they reach a certain yearly revenue (around GDP 80,000).
However, UK companies must still pay VAT on imports from outside the EU, regardless of their revenue.
Hence, we recommend that you get VAT registered in your country, and a third country in case you will import the goods to another EU member state.
Can I deduct the VAT we’ve paid?
Yes, the amount of VAT you pay on your imported goods can be subtracted to the amount of VAT you shall pay on top of your sales invoices.
Company A is based in the UK and imports products valued at $20,000 from a supplier in Hong Kong. During the first year, they only manage to sell goods valued at $15,000. This gives us the following:
- Sales VAT: $15,000 x 20% = $3,000
- Paid VAT: $20,000 x 20% = $4,000
- Balance: $3,000 – $4,000 = -$1,000
Given that they’ve already paid in more than the amount they are owed, Company A is eligible for a VAT refund. However, this may be reduced to zero in some cases.
Do I need to pay VAT when buying product samples?
Yes. There are two ways VAT can be paid when buying product samples:
a. Upon arrival in the EU member state
b. Declared as part of the Customs value of the first shipment
Are there any exemptions for importers?
Some EU member states set VAT thresholds between 10 euros to 22 euros. Hence, small sample orders may pass through without VAT being added.
Do the Customs authorities add VAT to every shipment?
No, it’s up to the importer to properly declare the value of the imported goods in the quarterly or yearly VAT declaration.
Do you have more questions about VAT when importing from China to Europe?
Write your questions in the comment form below, and we will add them to this article.
Is the VAT rate set based on the origin country?
Unlike duty rates, which can vary based on the country of origin, the EU VAT rate is fixed. As such, you’ll pay the same VAT on your imported products from China, as from Vietnam or the United States.
We are based in the EU, and dropship products from China back to customers in Europe. Who pays the VAT in this case?
Technically, the Importer shall pay the VAT. When you dropship products, your customer is the Importer, which therefore must pay VAT.
In reality, however, the customs authorities don’t have resources to add import duties and VAT on the tens of millions of e-packets coming into the EU, from Aliexpress, Wish and other dropshippers each year.
A likely scenario is that the tax authorities will go after dropshippers.
VAT for E-commerce and Amazon Sellers in the EU: By SimplyVAT
In the European Union, you must pay VAT on both the imported products and add VAT when selling to customers in various EU member states. Given that there are 28 EU member states, all with their own VAT rates and registration procedures, it can be mind-numbing to get a grip on how VAT actually works when importing products from Asia – and selling them in the EU.
So, why not just ask an expert, such as Alex Wyatt at SimplyVAT?
Said and done, we wrote a list of questions that cover all major VAT scenarios:
a. Importing to Country A and selling in Country A
b. Importing to Country A and selling in Country B
c. Company in Country A, importing to Country B and selling to Country C
d. Non-EU companies importing to, and selling in, an EU member state
Alex, please tell us a bit about what you do at SimplyVAT
After starting at SimplyVAT just over a year ago, I now lead the business development team in the UK and China.
SimplyVAT helps e-commerce sellers VAT register and comply in all 28 EU countries and Canada. We provide our clients with a proactive approach to their VAT needs to help their businesses grow internationally, and sustainably.
Say that I am based in the UK, and importing products to the UK. How and when do I pay VAT?
If your company is based in the UK, and you are importing stock and holding products within the UK, there are a few things to take note.
As a UK registered company, you do not have to VAT register until you have reached £85,000 turnover within a 12 month period. During this time, you do not charge VAT on your products nor can you reclaim import VAT. As a UK company, you will still be required to include corporation tax on profits in your margins.
You can also voluntarily VAT register before you have reached £85,000. Once VAT registered, there are two types of VAT you should be aware of:
- Sales VAT
- Import VAT
There are 3 different rates of VAT in the UK: standard rated, reduced rated, and zero-rated. It is important to look into your specific products to ensure you are charging the correct VAT rate on your products.
In the case that your products are standard rated, you will include 20% VAT in the price listed online. Within the EU, VAT is not included on check-out and should be included in your margins shown on the sale price.
Import VAT is paid on the cost value of the goods and is based on the country you are importing into in order for your goods to clear customs.
For example, in the UK, you would pay 20% import VAT and if you are VAT registered, you can reclaim the import VAT paid when filing your VAT return. This means that your import VAT is offset against the sales VAT on your VAT return. If you have greater import VAT than sales VAT, you will receive money back from the Tax Authorities.
If you have greater sales VAT than import VAT, your import VAT will be deducted from the money you’ve collected on sales VAT, meaning you only give the total of Sales VAT minus Import VAT.
What if I am based in the UK, but want to ship to (and distribute from) Germany. How do I pay VAT in this case?
In general across the EU, holding stock in an EU country triggers an automatic obligation to VAT register. This means if you are moving your stock into a German fulfilment centre, you must VAT register before moving your stock into Germany. The same applies in all 28 EU countries – holding your stock in an EU country creates a taxable supply and should be taxed under the local VAT rate.
All products sold from the German VAT number (whether it be standard or reduced rated) will be paid to the German Tax Authorities after the VAT return is filed monthly.
One company can have multiple VAT registrations across the EU. It does not matter if your company is based outside the EU or within the EU. It is important to understand that your company is liable to be VAT registered in each EU country where you hold your stock and/or where you surpass the distance selling thresholds.
Importing into Germany
There are many ways you can import into Germany and your VAT obligations come from the country where you are importing from.
For example, if you are importing your goods from outside the EU into Germany, you will pay import VAT – which you can claim back when you file your VAT return.
If you are importing your goods from another EU country, such as the UK, there are additional reporting obligations that must be filed to document the movement of the taxable supply from one EU country to another.
These are called EC Sales Lists and are filed in the outbound country. Additionally, once your Intracommunity movements and sales reach specific arrivals and dispatches thresholds, you will also be required to file monthly Intrastat reports.
Exporting From Germany
All EU countries are governed by the Distance Selling Rules. These are when you are holding stock in one EU country, and selling directly to private customers in another EU country.
You will charge the VAT rate where your products are being held until set thresholds are reached. Each country has its own threshold. For example, France, Italy, and Spain are all €35,000; Germany, the Netherlands, and Luxembourg are €100,000; and in the UK it is £70,000. Once you reach the threshold within a calendar year, you must VAT register in that specific country.
For example, if you are selling from Germany into Spain, you will include Germany’s VAT rate and pay the German tax authorities until you have reached €35,000 worth of sales in Spain within a calendar year.
Which VAT rate applies if I sell from my country to another EU country?
As stated above, you are governed by the distance selling rules until you have reached the inbound country’s specific threshold. Before reaching the threshold, you are applying the VAT rate in the outbound country (where the stock is being held).
After the threshold has been passed in a specific country, you must VAT register in that country, and begin applying the local VAT rate for your product.
Does this mean that I need to pay VAT in each and every country I sell to?
Yes, you do. Unfortunately, the VAT system is not centralised. You must declare your sales in each country where you are VAT registered. This differs if you are selling digital services so please make sure to ask this applies to you.
The difference with digital services is that these come under VAT MOSS where the VAT rate is dependent on where the customer is based. Only one VAT registration is required for the provider of the digital service and collects the VAT from where the customer is based. Once a return is filed, the VAT is paid to one tax authority to later be divided between the tax authorities.
What about overseas (non-EU) companies. Do they need to add VAT when selling to the EU, even if their stock is not there?
If you are not holding stock within the EU, you do not require a VAT registration. If you are importing directly to the customer, and the importer of record is listed as the customer, you will not be required to pay any VAT or be VAT registered.
In this case, the customer will have to pay any import duties in order to receive their product so it is best to be transparent about the added costs.
Otherwise, you are able to become the importer of record and voluntarily VAT register. Once you are VAT registered, all products must include VAT in the sales price unless they have been approved to be exempt by the specific tax authority.
What if an overseas (non-EU) company wants to sell on Amazon.de, using a local fulfillment center. Hence, they must import the products to the EU before selling. How do they pay VAT?
Before moving your products into the EU – and in this example, Germany – you must be VAT registered. Once you are VAT registered, you will apply the VAT rate in your sale price and collect the VAT on behalf of the government.
Then, a VAT return must be filed (in Germany it is monthly) where you declare your total sales and imports. Once the return if filed, you will pay the government the amount specified on the return.
When looking at import VAT, your freight forwarder should help you pay the import taxes in order to clear customs.
Can non-EU company import products and pay VAT without an EU entity or do I need to register a company?
Yes, you can!
As stated above, you can import and pay VAT without having an EU entity.
One thing to note is that as a non-EU company, specific EU countries require a Fiscal Representative in order to VAT register.
Fiscal Representatives are jointly and severally liable for the VAT owed by a non-EU company. Typically this will mean extra fees and bank guarantees when operating in countries such as France, Italy, Spain, Poland, and many more.
So, how do I find a Fiscal Representative in the European Union?
You can do your own research to find fiscal representatives in each country you require, or you can use a tax agency, such as ourselves, who has relationships with many local fiscal representatives and will keep all correspondence in one location.
Thank you Alex. How can our readers learn more about your services?
I hope this article has cleared up a bit of the mystery behind international VAT. SimplyVAT is always available to help answer questions and provide a fully managed VAT service including VAT registration, return filing, and an all-inclusive software. Visit www.simplyvat.com or email email@example.com to speak to one of the team members!
EU VAT Registration for American and Asian Importers: By KMLZ
Businesses in the US and Asia importing or selling products to the European Union must get their act together when it comes to Value Added Tax (VAT). Yet, understanding how to register and pay VAT, as a non-European company, is complicated.
As such, we decided to ask one of the Europes leading VAT experts, Dr. Matthias Oldiges – Managing Associate at KMLZ (Küffner, Maunz, Langer and Zugmaier) in Munich.
These topics are covered:
1. VAT when selling cross-border (B2C) to customers in the European Union as a non-EU company
2. VAT when importing into the European Union (i.e., Amazon FBA) as a non-EU company
3. VAT threshold in different EU states
4. How to get VAT registered as a non-EU company
5. How to pay VAT as a non-EU company
Matthias, how did you end up working for KMLZ?
You can know something about everything or know a lot about something. KMLZ decided on the latter and concentrated on VAT law, customs law and criminal law. I wrote my doctoral thesis on a VAT legal topic.
This ultimately led me to KMLZ, where I have now been working as a lawyer (Managing Associate) for almost six years. We advise our clients on VAT and customs law-related matters within Europe, as well as worldwide.
Our strong network of experienced and leading VAT experts, in all Member States of the European Union and beyond, enables us to provide our clients with international advice at the highest levels.
Let’s say that a US or Asian company want to sell cross-border (B2C) into the EU, do they need to get VAT registered?
This depends on the individual case. The answer to the question of who is liable for import VAT is decisive. The person who lodges a customs declaration is liable for import VAT. Therefore, it is very important that the seller and the customer agree on this question in the purchase agreement (e.g. [Website] Terms & Conditions).
The purchase agreement should cover the question of which party (seller or customer) is responsible to lodge the customs declaration in the EU Member State of importation. In this context, please see the following scenarios:
If the US or Asian company (or their respective agent) lodges the customs declaration in the EU, the US or Asian company (or their respective agent) is liable for import VAT in the relevant EU Member State.
The sale to the customer is deemed to be within the scope of VAT in the customer’s EU Member State.
In this case, the US or Asian company is required to register for VAT purposes in the customer’s EU Member State and to declare the sale in the VAT return of the Member State of importation.
However, the US or Asian company can avoid the need for VAT registration in the EU Member State of importation. This is the case if the parties agree that the customer is responsible to lodge the customs declaration in the EU Member State of importation.
In this case, the customer is liable for import VAT in the said EU Member State. Consequently, there is no seller’s obligation to register in the EU Member State for VAT purposes.
Now, let’s assume that I want to import goods into an EU country, and sell on Amazon.com. I guess this requires VAT registration?
Yes. Normally, you can import goods into an EU Member State and store them in an Amazon fulfillment center.
In order to be able to be placed in a customs procedure, the non-Union goods must be presented to customs. The presented goods are then declared for a customs procedure. A customs declaration must be submitted in order for this to take place.
This is regularly submitted electronically using the ATLAS system for electronic customs clearance, and will be until such time as a uniform IT system for the whole of the European Union is in place. Declaration formalities must be carried out by a company registered in the EU.
Submission of the customs declaration by a representative, such as a forwarding agent, is permitted. Companies from non-EU countries are allowed to submit a customs declaration only in very limited cases.
The importation is subject to import VAT in Europe. However, you can deduct the import VAT in your VAT return. Therefore, in general, the importation is neutral from a cash perspective.
The subsequent sale to the customer is within the scope of VAT in the EU and, therefore, requires a VAT registration in the EU. The subsequent sale to the customer is taxable with local VAT if it constitutes a local supply of goods in the customer’s Member State.
You have to invoice the customer with local VAT. Moreover, you must declare the sale in your VAT return and must pay the relevant VAT amount to the local tax authority.
Say that I import and store products in, for example, the Netherlands – but sell online EU wide from there. Is it enough to get VAT registered in the Netherlands only?
This depends on the individual case. If you only sell B2B, you do not need to register in any EU Member States other than [in this specific example] the Netherlands.
However, in the case of B2C, you need to register in the EU Member State of the customer if your sales exceed a specific [yearly] threshold.
Thresholds, between EUR 35.000–100.000, exist for every EU Member State.
If your sales to a particular EU Member State exceed the relevant threshold, you will need to register for VAT purposes in that EU Member State. Otherwise, if your sales do not exceed the threshold, it is sufficient to be registered in the Netherlands only.
Is it possible, as a non-EU company, to get VAT registered EU wide?
Unfortunately, this is not possible. You are required to apply for VAT registration in every single EU Member State. However, the application procedure is quite similar.
Once I know where to register, how do I actually get VAT registered as a non-EU company?
VAT registration is a very formalistic procedure. It usually includes the identification of the competent tax authority, preparation of the required documentation and responding to follow-up questions by the tax authority.
The company registering is required to complete a standard form provided by the tax office and, usually, an additional questionnaire.
The questions contained in the latter relate to the company’s business activities and its VAT treatment. In general, the tax authority provides all necessary information for foreign companies on their website.
Okay, so how long does it take to get VAT registered from overseas?
It very much depends on the individual tax office. The registration procedure can take up to 10 weeks. You can generally say that the registration procedure is probably faster when the application is managed by a contact person in the EU.
How do I pay VAT to so many different countries at a time?
Well, if the foreign company provides all necessary documentation and clarifies all follow-up questions, the tax authority will grant a tax number.
The registered company is obliged to file its VAT returns under its tax number. In general, the company has to file electronic VAT returns on a monthly basis. If the VAT return results in a liability to make a payment, this payment has to be made to the responsible tax office in every EU Member State.
There is no EU-wide VAT transfer between the EU Member States. However, German tax offices allow direct debit.
Do I need a bank account in the EU to pay VAT?
No, a non-EU bank account is sufficient.
Thank you. How can KMLZ help non-EU companies to solve this VAT riddle?
We offer coordination of VAT registration at the relevant tax office, as well as the filing of all relevant VAT returns in Germany and all other EU Member States, from a single source.
Due to our existing contacts and good relations with the tax authorities, we can guarantee the fastest possible registration and compliance with VAT declaration obligations in Germany and all other EU Member States.
Especially in Germany, operators of electronic marketplaces, such as Amazon and eBay, are increasingly becoming the focus of the tax authorities. Operators of electronic marketplaces must provide the tax authorities with proof of their Chinese traders’ VAT registration.
Otherwise, the Chinese traders will be excluded from trading on the electronic marketplaces in Germany as from 1 January 2019, at the latest.
Therefore, all relevant traders, who are not yet registered for VAT, must apply for their registration as soon as possible.
A Chinese company doing business in Germany must obtain registration in Berlin-Neukölln. Due to our existing contacts and good relations with the tax office in Berlin-Neukölln, we can guarantee a fast registration process and compliance with VAT declaration obligations.
We are very happy to and in a unique position to assist in this regard! Please find this link for more information about our services.
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