Without a doubt, Amazon has revolutionized the way people shop, and the platform has opened up a world of opportunities for small businesses to reach a bigger audience. However, selling on Amazon in the EU also comes with its fair share of challenges, especially when it comes to VAT compliance. As an Amazon seller, it is essential to understand your VAT obligations in the EU and avoid the following three most common VAT compliance mistakes.

Understanding the different VAT rates in each country where Amazon sellers sell their products is crucial to ensuring VAT compliance and avoiding costly mistakes

Mistake number 1: failing to register for VAT in all relevant EU countries

The most common mistake is failing to register in the country (often countries) where sellers keep and dispatch their goods. That mistake is common because Amazon promotes programs like Pan-European FBA, which triggers VAT registration and compliance obligations in all enrolled countries. These obligations are often misinterpreted or not clear enough to the sellers tackling the Amazon world for the first time.

Sellers often select all available countries where they want to sell and simultaneously set the same countries to store their goods without fully understanding the responsibilities of such choices.

Lack of understanding leads to additional costs down the road where sellers have to obtain their VAT numbers in a short period, or they risk their account being blocked.

Each Amazon seller selling in the EU has to register for VAT in every EU country where they store and dispatch goods. This is a legal requirement, and failure to do so can result in hefty penalties. Registering for VAT can be a lengthy process, so it is essential to plan accordingly, start early and have correct information beforehand.

Mistake number 2: lack of understanding of the different VAT rates in each EU country

Understanding the different VAT rates in each country where Amazon sellers sell their products is crucial to ensuring VAT compliance and avoiding costly mistakes. Each EU country has its own VAT rate, which may vary depending on the type of product being sold. In addition, some products may be subject to a reduced VAT rate, zero rate or even be exempt from VAT altogether in some countries. For example, the same children's clothing product will be taxed with a standard VAT rate in Germany, super reduced VAT rate in Luxembourg and a zero VAT rate in Ireland.

Failing to apply the correct VAT rate can lead to significant financial and legal consequences. Underpayment of VAT can result in penalties, interest charges, and even legal disputes with tax authorities. Overpayment of VAT can also result in a loss of revenue for the seller's business.

Therefore, Amazon sellers should take the time to understand the VAT rates in each country where they sell their products. Working with a VAT expert can be particularly useful in this regard. They can help sellers understand the VAT rates and exemptions applicable to their products, provide advice on how to apply the correct setup in the Amazon Seller Central, and structure sales to minimize VAT costs.

It's also essential for sellers to keep abreast of any changes to VAT rates or exemptions in each country where they sell their products. These rates can change frequently, and it's vital to update systems and processes accordingly to ensure that the correct VAT rate is being applied.

Mistake number 3: lack of accurate VAT records

Another common mistake that Amazon sellers make is failing to keep accurate VAT records. This can result in difficulties reconciling VAT returns, leading to penalties or even an audit. Keeping accurate VAT records ensures sellers can easily track their VAT transactions and comply with VAT regulations.

Amazon sellers should also know the minimum retention periods for VAT records in each EU country where they sell their products. These retention periods vary from country to country, but in general, businesses must retain VAT records for ten years. Failure to retain VAT records for the required period can result in penalties or even legal disputes with tax authorities.