Fulfillment by Amazon (FBA) is a service many retailers on Amazon Marketplace cannot do without. FBA means Amazon takes care of all logistics, including the handling of returns. While this is convenient, it also carries a high financial risk.

One of the biggest challenges that Amazon FBA brings to a retailer is what is known as value-added tax compliance. This term refers to the fulfillment of all obligations that VAT law imposes on entrepreneurs.

Value Added Tax Obligations for FBA Traders in Home Country:
In your home location or “country of residence” you have to comply with certain tax obligations because as soon as you sell your goods through Amazon as an Amazon FBA seller, you are a VAT trader. The following points go hand in hand with this:

• Registration with the tax office as an entrepreneur for the purposes of turnover tax;

• Regular submission of advance payments for VAT;

• Annual submission of annual VAT returns

• For B2B sales to other EU countries: Submission of summary information;

• The deadline for submitting VAT advances is usually a quarter. However, there is one exception to this rule: if the VAT on sales in the previous calendar year exceeded € 7,500, you are required to submit advance declarations even monthly. Special rules apply to startups.

If your movements exceed certain value limits, you must additionally and regularly send a so-called intra-trade statistics (Intrastat). These statistics record your goods movements within the EU for statistical purposes. This obligation also applies in most other EU countries. The Federal Statistical Office offers a collection of frequently asked questions on this website.

These home tax procedures should be well known to already active traders among you.

However, if you use the FBA, most likely you will have tax liabilities abroad. Why?

The lowest fees for the FBA program are offered by Amazon only if your products and deliveries are served by foreign warehouses – currently mainly in Poland and the Czech Republic. This cross-border use of storage is a major problem for many FBA vendors today.

Storing FBA Overseas 1: Need Foreign Tax Numbers
As soon as you use an Amazon overseas warehouse as an Amazon-FBA seller to store and ship your goods, you are required to register for VAT in that country.

For example, if you are using Amazon’s Central Europe Expansion (CEE) program, which allows you to store goods in Germany, Poland and the Czech Republic, you must also register for VAT in these countries

If you transport your goods between different Amazon warehouses, or if Amazon does so without your intervention, the following reporting obligations arise from a VAT point of view:

• Tax-free intra-community transfer in the country of departure of the goods;

• Intra-Community acquisition in the country of destination of the goods;

• These are the so-called “sham supplies” from a VAT point of view. However, there is a high risk for you as an online entrepreneur if you fail to meet your VAT obligations in relation to these transfers of goods, as from January 1, 2020 these bogus transactions are automatically taxed.

This would mean that you would have to pay VAT on shipments of goods for which money is never received, as these are so-called “fictitious sales” for VAT purposes.

This means that before the first movement of goods you need to do the following:

• You need a local tax advisor who can file declarations and documents with your local tax office.

• In order to register, you need to fill in various forms (e.g. registration form) and submit various documents to the tax authorities, such as an excerpt from the commercial register, original company certificate. These must be sent to a tax advisor in order to be submitted to the local tax authorities.

• Only after submitting documents to the local tax authorities and receiving a valid tax identification number in a given country, you can transfer your goods from Germany to a foreign Amazon warehouse without tax risk.

• After receiving your VAT registration in your country, you are required to submit VAT returns on a regular basis.

This requires setting up an appropriate value added tax compliance process to avoid potential penalties such as late application penalties.

Keeping FBA Overseas 2: You need to report regularly and issue pro forma invoices
Whenever the trader permanently transports the item to another EU country – or has it shipped via Amazon – this is a delivery made by the trader to himself. This delivery is tax free.

The entrepreneur must, however, declare this delivery in the initial VAT declaration and in a special declaration, the so-called summary statement (ZM) for your country (e.g. Germany).

He is also obliged to issue an invoice for this transfer. As he issues this invoice himself and there is no “real” transaction with third parties, it is called a pro forma invoice.

Additionally, the entrepreneur in the country of the warehouse (e.g. Poland) must declare receipt of the goods as intra-community acquisition in your advance VAT return. This acquisition is generally subject to VAT.

At the same time, however, the entrepreneur can obtain a VAT refund on this purchase (input tax deduction). This procedure results in a balance of value added tax and input tax of zero – therefore the actual payment is not required.

However, the tax administration in Poland knows thanks to this procedure that the entrepreneur brought the goods to Poland in order to sell them from there.

Note: Using Amazon’s overseas warehouses and the VAT reform that will take effect on 07/01/2021 will increase the complexity of your goods and services tax obligations. 

Selling Amazon FBA overseas results in value-added tax obligations: registrations, VAT IDs, notifications,
If you ship your goods from Germany to private customers in other EU countries, you have to comply with various VAT laws. Due to the major reform of VAT on 01/07/2021, a distinction needs to be made between the VAT provisions, which are in force until and including 30/06/2021, and the sales provisions from 01/07/2021 and beyond.

Sales to other EU countries until June 30, 2021
For the sale of goods from Poland to private customers in other EU countries, the so-called dispatch regulation, which aims to avoid the need to register small and medium-sized enterprises as a VAT payer in the country of receipt of the first euro for trade

Therefore, delivery thresholds were introduced under the shipping regulation. Until these delivery thresholds are met, online entrepreneurs can still pay tax on cross-border EU deliveries in their home country.

This means, for example, that even in the case of sales to a French customer, the invoice will show Polish VAT, and the sale will be reported in the Polish VAT advance declaration, if the delivery threshold for France has not been exceeded. As a result, the application for a French VAT number could be avoided.

However, if your overseas sales are so good that the local delivery thresholds are exceeded by June 30, 2021, all transactions in the recipient country from sales that resulted in the exceeding of the delivery threshold are taxed.

Conversely, it also means that you must apply for a VAT identification number in the country of receipt of the goods in order to be able to fulfill your tax obligations.

These VAT obligations include, but are not limited to:

• Calculation of value added tax for the country of VAT registration;

• Regular submission of sales tax returns (e.g. withholding tax);

• Annual VAT returns where applicable;

• Until 30/06/2021, the need to have a foreign VAT identification number for FBA sales throughout the EU largely depends on whether the local delivery threshold is exceeded in the recipient country.

Sales to other EU countries from 01/07/2021
From 01/07/2021, the current regulation of mail order sales for private customers in other EU countries will change significantly. The new VAT regulations, which will come into force on 01/07/2021, provide for the abolition of all national delivery thresholds.

The local delivery thresholds will be replaced by a uniform EU-wide delivery threshold of EUR 10,000 net. The vast majority of FBA buyers with foreign shipments will quickly exceed this threshold. As a result of the elimination of local delivery thresholds, you will have to regularly pay sales tax in the country where the final consumer is located.

B2B sales abroad via Amazon FBA
As an Amazon FBA seller, you can also sell your products to other entrepreneurs (B2B) in other EU countries. In this case, the above rules do not apply.

If you sell goods to foreign traders, those sales are usually taxed in the country of dispatch of the goods (i.e. where you’re shipping from), meaning you don’t have to worry about overseas registration in such cases.

Audit by tax offices
But is it even noticeable if you are just (still) in full taxing your Amazon sales in Poland? Even not registering is no longer a petty offense in all EU Member States. Most states demand high fines and late payment interest in such cases, which in themselves often exceed the amount of the value-added tax originally owed.

In addition, the discovery potential is growing. The following examples show how creative the tax authorities are in this regard:

German tax authorities use an internet robot called Xpider to search for traders who are not paying VAT correctly.
The highest German tax court, the Federal Tax Court, decided in 2013 that tax offices can also obtain aggregate information from platforms such as Amazon such as eBay. In the case to be settled, the tax office asked for a list of all traders who turn over more than EUR 17,500 / calendar year and are therefore liable to pay VAT.
In Austria, it is even regulated by law (§ 27 (6a) öUStG) that tax offices may obtain information from courier service providers to filter which foreign traders ship goods to Austria and thus presumably exceed the delivery threshold.
The Danish tax authorities analyze credit card transactions for this purpose.
Criminal fiscal proceedings are often initiated when the tax authorities find that the tax on goods and services has not been properly paid. In this case, it is no longer possible to submit a voluntary release declaration. You also cannot indicate that you did not know foreign VAT law. As an entrepreneur, you are always required to inform yourself in advance of your tax obligations.

Tick solution: Automate VAT compliance
Value added tax compliance for entrepreneurs is either time consuming (if you want to track everything yourself) or expensive (if all activities are taken over manually by a tax advisor).

Bo.tick.com.pl automatyzuje wymagane procesy VAT w ramach Amazon FBA.

Bo.tick.com.pl can automatically read raw data from the marketplace (e.g. Amazon), ERP systems and store systems (e.g. Shopify) and

create accounting exports, control the VAT rate in a given country, control the Internet sales threshold. Call us and make an appointment and we will help you with VAT registration in the country where you need to be registered.