Is Amazon responsible for your VAT collection?
New marketplace facilitator obligations were imposed as part of the 2021 Ecommerce VAT package.
Now, the platforms may be in charge of collecting and submitting VAT on your behalf. You don’t need to do anything in these cases. VAT will be added at the checkout for buyers, and Amazon will collect and manage it for you.
Filing your own VAT returns
No VAT rules stipulate that you must work with an accountant to file VAT returns. If you have the time, it is relatively simple to handle your VAT returns in-house if you only sell in one marketplace.
This can be accomplished by visiting your country’s tax department’s online portal, using the new OSS or IOSS systems, submitting a manual form, or sending the information directly from your cloud accounting system.
OSS and IOSS
The 2021 Ecommerce VAT package added new ways to file your VAT.
The Import One-Stop Shop (IOSS) and One-Stop Shop (OSS) systems are intended for sellers with a presence in more than one EU country to file and remit their VAT in a single location.
OSS refers to sales within the EU, while IOSS refers to sales into the EU. Sellers only need to file one return, and the systems will handle the rest.
There are some restrictions on IOSS consignment values and which countries can use it, so research the countries you have a connection with and their specific circumstances.
Pros of self-filing VAT returns:
- It’s free – you save the money you would have spent on hiring an accountant or bookkeeping firm to do it for you.
- Simple to automate – using software such as Quaderno and HelloTax, you can reduce the time it takes to file VAT returns and make them much easier to manage.
- Gives you more data to work with – by doing your own VAT returns, you will gain a better understanding of your company’s finances and cashflows.
Cons of self-filing VAT returns:
- It can be time-consuming – dealing with tax returns on your own diverts your attention away from other areas of the business that could generate more revenue.
- Errors are possible because tax laws are constantly changing, and the rules vary by country. Working with a professional service provider allows you to rest assured that you will be on the right side of the law.
- You may pay more tax – companies that handle VAT returns on a regular basis usually have a thorough understanding of how to pay less tax and can assist you in staying on top of payments and obligations.
Working with VAT experts
Tax agencies can easily handle the VAT compliance side of your business on your behalf. There has been many Amazon sellers who opt for working with the experts because it simplifies their job and gives them the space to focus on growth rather than management.
Pros of working with VAT experts:
- It saves you time – after all, who enjoys filling out VAT returns? By delegating your tax responsibilities to a professional, you will be able to devote more time to other aspects of your business.
- Ensures accuracy – As previously stated, tax laws are constantly changing, and each country has its own set of regulations. Working with the experts ensures that your returns are completed in accordance with the most recent rules.
- There are no language barriers – VAT returns must generally be completed in the country’s native language. As you expand into new EU territories, you will need to file tax returns in a different language.
Cons of working with VAT experts:
- It costs money – just like any professional service, getting your work done has a cost, and accountants are considered one of the more expensive groups of VAT experts.
Amazon’s VAT Calculation Service (VCS)
The Amazon VAT Calculation Service (VCS) calculates VAT on products sold on Amazon’s European/EU marketplaces for the 28 European Union (EU) the Member States. The VAT calculations are based on the Seller’s tax settings and any other related Seller information that was set up during configuration. Amazon’s VAT Calculation Services do not calculate VAT in countries other than the EU.
Amazon’s VCS can provide you with additional information that will aid in your accounting and tax reporting.
This includes the following:
- Transactions involving business-to-business and export sales.
- Tax jurisdiction is determined by the transaction.
- Distinguishing zero-rated products from standard-rated products.
- Amazon’s offering allows you to register for VAT in each country for free and then file regular returns with a few clicks. Filing returns for Amazon transactions costs €400 per year, plus an additional €100 if you have sales from other sources to include in the returns.
How does Amazon determine tax jurisdiction?
When you have more than one EU VAT registration, you must determine the tax jurisdiction on all sales. This is to ensure that you know which country this VAT is due to be paid in and that your account for it correctly in your books.
Amazon calculates the tax jurisdiction by combining the information from each transaction with the information you’ve already provided in Seller Central (such as VAT numbers).
Pros of using VCS:
- Keep everything in one place – by using Amazon’s VAT services, you can handle your taxes without having to consult with accounting firms.
- It’s scalable – as your business grows, you’ll want to expand into new markets, which means more VAT compliance. With Amazon’s solution, it doesn’t take much more effort to file a larger volume of sales in the same return.
Cons of using VCS:
- It is expensive – to use Amazon’s services, you must spend at least €400 per year for each marketplace in which you sell.
- Sharing confidential information – some sellers are hesitant to give Amazon their sales data from other channels. After all, it’s not uncommon for Amazon to use its massive amounts of data to determine which products to sell and with whom to compete.
- The VCS is dependent on you, the seller, correctly entering information when you set up your VAT settings and also when you create a new listing.
How often should you file your VAT returns?
The frequency with which you must file VAT returns varies by country. However, in general, it is:
- Depending on your turnover, either monthly, quarterly, bi-annually, or annually.
- The standard filing frequency in the United Kingdom, for example, is quarterly. If your VAT liability surpasses £2.3 million, you must submit monthly returns. In contrast, if your taxable turnover is much less than £1.35 million, you can request to file returns on an annual basis.