How VAT Really Works When You Sell in Europe 

A guide for non EU based sellers by Minefield Navigator

This article is a deep dive into Value Added Tax (VAT) in the EU. The internet is full of content by companies that provide VAT services in Europe. But the instructions usually end where it starts to get tricky. This makes VAT hard to understand. Let's delve into the details of how VAT really works in Europe, so that you understand it and sell with a peace of mind.

We assume you are already familiar with the basics of VAT in the EU. If not, take a look as Amazon’s summary. Secondly, we assume you are interested in how VAT works in detail, which is quite hard to find on the internet. 

The scheme above shows how a US seller brings his goods to the EU. Let's suppose the US seller wants to sell in Germany (DE), which is the second biggest Amazon market in the world. The revenue of Amazon.de reached $37.6 billion in 2023 with 500 million visitors.

As a seller, you probably prefer to use Fulfillment by Amazon (FBA), which means you can get worry-free quick delivery and, most importantly, the Prime Badge. 

Amazon likes to serve its German customers not just from warehouses in Germany, but also from warehouses in neighboring Czechia (CZ) and Poland (PL) to optimize delivery. That’s why, if you allow storage in these three countries, you get a discount on fulfillment fees of some 0.26 EUR per shipment ($0.28).

Here comes the important part: storing goods in an EU country triggers VAT obligations there.  And as you will soon see, it will get even more tricky.

What you are now going to read might sound like a lot of red tape and well, it is. Our goal is to explain how it works and help you deal with it. 

We kindly remind you that this article concerns only sellers based outside the EU, e.g. in the US.

1. Registration with VAT Authorities

First, if you want to use Amazon fulfillment, you need to have a VAT number in the countries where the warehouses are located (and also the EU state of import). That is, you need a registration with the local tax office for that. 

In the basic scenario this means you:

You will need an EORI number and a bunch of documents for the registration (each country has different rules): 

On top of that, you need a fiscal representative in Poland, if you are not based in the EU, that is an attorney or a registered tax advisor in Poland. Since the registrations are cumbersome and lengthy, sellers usually hire experts for it.

Once you have the VAT numbers in the countries, you type them to your Amazon account.

We at Minefield Navigator specialize in making sure that you can have a good sleep and don’t have to worry about the regulatory mines and traps. We combine experience of selling over Amazon with knowledge of law. We would be happy to help you with the registration.

2. Main Principles of VAT

Firstly, let’s state again the basic principles of VAT: 

1. The first general principle behind VAT is that it’s a tax on the final consumer, not on businesses. The VAT collected is the income of the state where the goods are consumed. 

We remind you that both consumers and businesses can be your customers on Amazon. 

2. The second principle is, that as the value of the goods accumulate in the supply chain, each business only pays the tax for the value added. That is usually on sale we charge the full price VAT, and in our tax return deduct the VAT on inputs, effectively paying only the tax for value added. 

Beware that when the goods just move on Amazon and you still own them, they have the same manufacturing price, so before the sale, there is actually no real value added and no increment to tax. 

3. The third principle is the taxable event, which is an event or transaction, which triggers the obligation to account for, or charge, and remit VAT (even if for certain situations that might be zero). Usually it is the event that brings "new value" to the market or is relevant for tax purposes. The taxable events for goods are: 

So to understand correctly, we have to divide each chain of trade into the right links of taxable supplies.

3. Basic Scenario: Import of Goods from the US to the EU, Transfer and Sale

Now let’s explain the basic scenario of Germany FBA and how it works if the warehouses around are used.

Our basic scenario has the following basic steps:

Each of the cases has a different VAT effect. So let’s go through the scenario cases one by one. At the end of the article there is a nice cheat sheet that sums it up. 

4. Importing Goods From the US to the EU

We start with imports from the US to the EU, for example, to Czechia. When the goods pass through customs, you, as the seller, are usually responsible for handling customs as the 'Importer of Record.' 

You are the one legally responsible for ensuring that all customs formalities are followed, and the goods are brought into the domestic market of Czechia and the EU.

As a businessperson, you don’t necessarily pay VAT immediately, but in some cases as soon as you have the cash and the goods effectively move to a different business or to the consumer. The goal is to tax the entire value when reaching the end consumer, but collect it in steps so that businesses make sure their input producers charge the taxes they could deduct.

When moving goods across borders, it is a taxable event, and the VAT needs to be accounted for. Thanks to that there is less space for frauds and we also have the “starting value” (of the future supply chain), which is VAT included. So that our business partner, who would be the next, will be able to deduct the VAT on input in a standard way. 

But at the same time some countries don’t want the VAT to be actually paid right on import, since businesses can’t afford to leave 19-22% of the money idle as a tax security “just in case”, before they actually sell. This could be harmful to business. 

Each EU country has its own specific rules whether this works or the VAT has to be paid. In Czechia, for example, to postpone VAT on imports, you need to be registered for VAT and use the goods for business purposes within Czechia. The VAT is calculated based on the customs value of the goods, but because you deduct it immediately in your VAT return, there's no net cost to you at the time of import. You will account for it at sale.

This is the case of a more general principle of reverse charge, an exception to the general rule that the businesses are charged VAT in the supply chain. Reverse charge means that the business buyer, not the business seller, is liable for VAT collection. 

For German imports, the situation is, however, different and specific, so it is really important you check the local import regulations.

5. Selling to Domestic Customers Without Amazon Marketplace

Let’s suppose that we managed to sell the goods from the Czech warehouse directly to the end customers in Czechia or to a Czech business, not using the Fulfillment by Amazon program. For example, we used our own e-shop on Shopify, and used Amazon for the delivery only. This sale is another taxable event. This might sound as a purely hypothetical situation for you, but you will use this model for B2B domestic transactions in the end.

In this case we are entirely in the domestic market of one EU state and there are no special rules for Amazon as the marketplace facilitator we will talk about later. We have to follow the elementary domestic VAT rules of the state and all the transactions are to be reported on the domestic tax return. 

This is important, since we have to account for the VAT ourselves. So the basic rules apply:

The situation is, however, different, when Amazon acts as a marketplace, not only as a “better postal service”.

6. Amazon as Deemed Reseller

What does it mean that Amazon is a marketplace, or more precisely a marketplace facilitator according to the EU VAT directive 2021? 

A marketplace facilitator operates an online platform where third-party sellers can list and sell their products to consumers. The marketplace facilitator plays a significant role in the transaction process, often including aspects such as payment processing, order fulfillment, and customer service. 

The VAT Directive in principle says that in such a case, Amazon is deemed to be the buyer from you and a reseller of the goods to the customer. So the transaction is to be by law seen as two separate taxable events:

IMPORTANT NOTE:

This applies if you as a seller are based outside the EU and supply the goods inside the EU is B2C. Amazon is NOT a deemed reseller for B2B transactions.

From the VAT point of view, the sale to a consumer, which would otherwise be one taxable event, is to be viewed as two transactions:

if we handed the goods from the warehouse to Amazon without any transport, 

Amazon then on its own responsibility delivered the goods to the consumer as a distant sale. 

The rules for deemed supplier (reseller) have one important effect that Amazon has responsibility for collecting and remitting VAT on sales made by US based businesses through its platform to consumers in the EU. 

So let’s suppose that I am a US seller and sell the goods over Amazon marketplace to Czech customers from a Czech warehouse. 

Please note that you may be asked to fill in the sales due to the deemed reseller regime on your VAT return - to distinguish it from other B2B sales.

7. Intra-community Transfer of Goods

Let’s say that our goods are already in Europe in a warehouse in Czechia and Amazon decides to move them to a warehouse in Germany so they are closer to the customer. The goods leave the Czech market and enter the German market. This is called intra-community transfer of goods. 

We don’t charge Czech 21 % VAT on the transfer of goods in Czechia, since intra-community supply of goods is VAT exempt (the expected consumer is outside of the country). 

In Germany, we are only required to report it - the same principle we saw with the imports. We account for the extra 19 % VAT for intra-community acquisition of the goods, but at the same time deduct the same amount at input. The reason to account for it is to “set it up” for the next buyer so he could make standard deductions. And the reason for postponement, again, is to pay the tax at the right time we have cash.

8. Selling to a German Businesswoman

Now let’s say we sell the goods from a Czechia warehouse over Amazon B2B to a German businesswoman, no other warehouse between. B2B is outside the scope of the deemed supplier rules. 

The transaction in CZ is VAT exempt, since the tax belongs to the country where the consumer is. As we discussed earlier, this is intra-community supply which is exempt from VAT in the EU states. 

In Germany, however, the businesswoman brings the goods to the German market, supposedly for end sale to German customers, and she needs to start accounting for the German VAT, since it is an acquisition of goods for business purposes. She may deduct the tax at the same time (reverse charge). 

A different situation arises if the German businesswoman were not registered in Germany for VAT. For instance her business was too small, under the sales threshold for VAT registration. In that case we have to sell to her with CZ VAT, and she can later register and reclaim this from the Czech tax authority.

9. Domestic Sale in Germany

If we have the goods in the German warehouse (after the intra-community transfer) and sell them to the consumers or business customers in Germany. Same as above, deemed reseller rules may apply: 

Since we are also VAT registered in Germany, as we have the warehouse there, both of these business transactions will be shown on our German domestic VAT returns.

10. Classic DTC and the EU One Stop Shop (UOSS)

Now let’s discuss a different case, which may be useful for some sellers only: Selling on our own DTC store on Shopify and only using Amazon MCF (multi-channel fulfillment) for sending parcels, not as a marketplace.

Please note that this condition might not be likely, since the majority of US sellers usually use just Amazon marketplace and are therefore in the regime of deemed supplier explained above.

To be specific, let’s assume we:

The sale is a taxable event and since we are not based in the EU, we cannot use the EU threshold for that and we would have to register in all the different countries where the consumers live and pay VAT there. As this is cumbersome, for this purpose the EU has a simpler way called EU One Stop Shop (Union One Stop Shop or UOSS). The EU OSS can be used if I sell goods at the time I already have the goods stored in my EU warehouse. 

I can use the OSS to sell the goods to consumers anywhere in the EU except my domestic country. The domestic country (officially called the “state of identification”) can be any EU country where I have a warehouse. In the domestic country I charge the standard VAT as described in previous sections.

So the OSS is a wonderful idea if I also sell to the consumers over my e-shop. If I use both Amazon, and Shopify, I can use the EU one stop shop for B2C at Shopify, and account for everything else including Amazon marketplace sales on the VAT returns in the EU states of registration. 

Once I choose my country of identification, I report the B2C sales in all the EU states (except domestic) to consumers to this one tax authority, let’s say in Czechia where I have the goods in a warehouse. The VAT will be charged according to the respective tax rates in the EU states of the consumer and the domestic tax authority will make sure the tax money is delivered to all the other EU states. 

Note to be clear: 

Please mind that Amazon FBA where the goods are in warehouses in the EU is a different trade model than dropshipping. In dropshipping, the package would be sent after the order from the US directly to the customer and the VAT regime is also different. For dropshipping, the deemed reseller rules apply for the package value < 150 euro when there is market facilitator and you may register for IMPORT OSS (IOSS). The deemed reseller applies to “imported goods” from third countries - but in Amazon FBA we already have the goods in the EU and they are not considered “sent from a third country” any more. Just so that you will not have these mixed up.

11. Selling from Germany to Poland

We continue with the example we have goods in the German warehouse and sell to Poland over Amazon FBA. The VAT rate applicable will be the Polish VAT rate, which is 23% for most goods. 

Using the deemed reseller rules, we are deemed to sell B2B to Amazon and Amazon is deemed to sell B2C to Polish consumers. If we sell from a German warehouse to a Polish business, it is an intra-community supply in Germany which is tax exempt, and on the Polish side the business applies Polish VAT reverse charge.

12. Export Outside of the EU and VAT area

One last thing we have to deal with is export. That is either taking the goods out of the space of the European Union, e.g. to Switzerland or UK, or just taking the goods out of the EU VAT area. There are several territories in the EU where they do not have EU VAT, such as the German island Helgoland, hard to access Italian town of Livigno in the Alps or Spanish Canary Islands (the latter have their own consumption tax). 

Since when we export the goods from the German VAT area to Helgoland, they are not likely to be sold again in mainland Germany and that’s the reason the export is tax exempt. You have to account for such cases when you sell at large scale on Amazon, since there will also be customers from these territories.

We at Minefield Navigator offer service for VAT registration and returns designed directly by Amazon sellers without any extra fees on promotion. Our software has been developed by the sellers to solve their own pain and we cooperate with local attorneys and tax advisors to follow the law. We know first-hand what it takes to sell in Europe. Look at our offer.

13. Cheat Sheet to Sum Up

Here is the VAT cheat sheet to sum it up together with a map:

VAT cheat sheet

14. Navigating VAT in the EU 

Understanding the complexities of VAT in the EU is quite a challenge, but it might be a journey worth taking if you want to grow in the EU. By mastering the cross-border compliance, you position your business for success and ensure a smooth path to growth across the continent. 

We at Minefield Navigator will be always happy to help you.


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