Value Added Tax (VAT) is a tax that businesses have to pay in most countries of the world. E-commerce opportunities allow merchandises and services to cross physical borders more freely year into year, and entrepreneurs have to be aware of international-level regulations applicable to their activities. ‘Do I have to pay VAT and include the tax in the costs of my products?’ – that is a common question often asked by sellers of goods and services on global marketplaces such as Amazon.
The answer in your specific case is subject to a number of factors. To work this out, it is important to understand the basics of the tax first.
The Nature of VAT
Value Added Tax, commonly referred to as VAT, is a surplus value added to the price of each and every commodity or service in most countries, which makes it actually a consumption tax. While the name may vary by country, the general principle is universal.
Every government applies its own VAT rates, which can be different for each goods category. Typically, the surplus is 18% to 25%. Depending on specific state policies, certain groups of goods, like medicines, energy-saving home appliances or baby products, are subject to lower rates or even VAT exemption.
VAT and Amazon
Most items you can find on Amazon are everyday products. Therefore, a normal VAT rate valid in a seller’s country of residence should be applied to them. Check your local regulations to find out when special rates are in effect. For example, in the UK, you may expect tax liabilities as low as 5%, if you sell children’s car seats, solar panels, gas/oil fired boilers, etc.
Also, your business activities might be totally VAT exempt (i.e. 0% VAT rate is applied), if you offer printed books, charity goods, equipment for disabled individuals, personal safety gear, etc. Some services like betting, gaming and lotteries are VAT exempt too.
For a seller, VAT tax liabilities arise as soon as an online trade is made. For accounting purposes, a company or an individual entrepreneur is required to register with a respective public authority, obtain their personal VAT number and file tax reports on a regular basis (typically, monthly or quarterly). The idea behind this routine is that a seller must transfer the total amount of VAT collected from end consumers to the state.
On the other hand, a seller may claim the deduction of VAT amounts they’ve paid to their suppliers and contractors for goods/services directly related to running the business. In the case of e-commerce, this mechanism helps compensate for a part of online fees too.
When it comes to selling on Amazon or another online marketplace, you should know that general local regulations are in effect when it comes to VAT obligations, just like with a brick-and-mortar store. Still, there is a beneficial nuance to remember. Many of those who offer their products and services on the Internet cannot actually be considered by law as businesses. This is because they do not pursue the activity on a regular basis and/or their income from this business is too low to charge the tax in question. Again, consult your local tax authorities to find out the threshold values. For example, a business is VAT exempt in the UK, if sales over the previous 12 months do not exceed £90,000. In this case, no VAT registration and filing VAT reports are required.
The above is a general outline of VAT-related procedures and considerations that you will be better off knowing about. Based on the provided information, you, as a potential or current Amazon seller, can realize what category your business might fall into in terms of VAT requirements. To gain the accountant-level insight into your specific situation, please consult your local tax body. Small businesses need to be wary of taxation and must consider this price-affecting factor prior to launching their e-commerce venture.