Important notice: Sellers' profits have shrunk by 20%! Amazon will pay all European VAT on their behalf

In January this year , Amazon began to collect and pay VAT on the UK site. The 20% tax rate made many sellers feel painful and worried that other European sites would follow suit. The latest news is that Amazon has sent an email to sellers notifying them that starting from July 1, 27 EU countries/regions will implement the new VAT regulations, and Amazon will collect and pay on their behalf.

27 EU countries will implement new regulations, Amazon will collect and pay VAT on behalf of others

Last night, some Amazon sellers received an email titled "Notice on Changes to EU E-Commerce VAT from July 1, 2021". Amazon said in the email that from July 1, 2021, 27 EU countries will implement new VAT rules for e-commerce sales, which will affect sellers selling goods to EU consumers through online malls such as Amazon.

The important changes mentioned in the email include: from July 1, 2021:

1. In the following situations, Amazon needs to collect and remit VAT on the B2C product sales of sellers on the platform : 1) The goods are shipped from an EU address to an EU buyer, but your (the selling partner's) company's registered address is not in the EU; 2) The goods are shipped directly from a non-EU address to an EU buyer, and the value of the shipment does not exceed €150. These shipments are subject to specific customs declaration and labeling requirements.

2. Small imported parcels with a value of no more than €22 are no longer exempt from VAT. From July 1, 2021, all imported e-commerce parcels will be subject to VAT regardless of their value.

3. The existing threshold for distance sales within the EU will be abandoned, and the new threshold will be €10,000, applicable throughout the EU. This does not apply to sales outside the country/region where your company’s registered address is located, nor does it apply to sales that Amazon needs to collect and remit VAT on behalf of.

4. The EU will launch an optional VAT declaration procedure called "Union One Stop Shop" ("Union-OSS"). With this simplified declaration procedure, sales partners whose registered addresses are in the EU can declare VAT uniformly for their distance sales throughout the EU in their member states.

Sellers should note that these changes will not affect sales or deliveries to B2B buyers in the EU , where current VAT reporting requirements in the EU will continue to apply. Sellers will still need to comply with VAT registration requirements in the EU countries where they hold inventory .

The EU has started to collect VAT on behalf of sellers, and most sellers on European sites are facing a direct cost increase of about 20%, which is very stressful.

The EU tax rate is generally 20%. How much should sellers adjust their prices?

The 27 EU countries include:

France, Germany, Italy, Spain, Austria, Belgium, Croatia, Luxembourg, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, Greece, Hungary, Iceland, Latvia, Lithuania, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Sweden.

Among them, France, Germany, Italy, Spain and the Netherlands are all markets where Amazon sites are located, and they are also the heavy bases for European sellers. The standard tax rates in Germany, France, Italy and Spain are 19%, 20%, 22% and 21% respectively , and the Netherlands applies a standard VAT rate of 21% .

When notifying sellers to pay VAT on the UK site , Amazon reminded sellers to raise prices and include VAT in the product price. Many sellers previously declared 0% or used a low tax rate of 6.5%-7.5%. After Amazon withholds VAT, these sellers have to raise prices by about 10%-16% to keep up with their previous profits.

Now that the European site is paying taxes on behalf of sellers, sellers are also faced with the choice of adjusting prices. However, just like the UK site, most sellers will choose not to adjust prices and resist, while sellers who boldly adjust prices will have their sales affected and can only adjust back to the original price and absorb the extra taxes themselves.

The number of new sellers has surpassed that of Amazon.com, and the price of local European accounts has risen sharply

Affected by this incident, the prices of European local accounts may usher in a round of price increases.

After receiving an email from Amazon yesterday asking them to pay EU VAT on their behalf, some sellers said that a wave of local European accounts was about to be born.

It is understood that companies in the EU do not have to pay or withhold VAT. If a seller sets up a company in an EU country and then registers and operates an account, he or she can earn about 20% more profit.

Under the heavy pressure of VAT, some sellers may use European local accounts to protect their profits, and the prices of local accounts will surely rise.

A seller in the industry inquired about the price. The cost of a European local account is not small. The registration cost of a German company is about 200,000 RMB, and that of a French company is 50,000 RMB. This cost is prohibitive for most small and medium-sized sellers.

After registering an account, you will face some postcard audits, KYC audits, etc. Many domestic sellers do not want to register local accounts, but their strength does not allow it. However, European local accounts will inevitably become popular.

Without a local European account, most domestic sellers will inevitably be impacted by the agency payment. In addition to the US site, Amazon Europe is an important destination for Chinese sellers to make money. Local e-commerce penetration is high and sales growth is stable, such as the top sellers SHEIN and Anker. Last year, nearly 60% of Aosen's revenue came from Europe, and more than 70% of the revenue of the big seller Li Deming came from the four sites of the UK, Germany, France and Italy.

Marketplace Puls data shows that so far this year, 331,000 new sellers have joined the Amazon marketplace , equivalent to 3,491 per day , 145 per hour , and 2 per minute . At the current rate, 1.3 million new sellers will join Amazon by the end of this year.

Among all the new sellers who joined Amazon this year , about 35% of them joined several important European sites such as the UK, Germany, France, and the Netherlands . The proportion of new sellers in these European countries has exceeded that of Amazon's US site.

The European market has gradually become active. Following Amazon's UK, German, French, Italian, Spanish and Dutch sites, Amazon has also set up a Polish site in Europe to further attract consumers and invite more sellers to settle in.

According to data from Finbold in late March , Amazon Europe has attracted about 115,000 new sellers this year. Most of these new sellers have joined Amazon's markets in the UK, Netherlands and Germany. If this trend continues, the European market will welcome more than 500,000 sellers by the end of this year .

With such a large number of sellers on the European site, Amazon's payment of VAT for the 27 EU countries will have a greater impact on European sellers.

eBay has previously issued a notice on the collection and payment of VAT on behalf of the EU

In addition, eBay has also issued a notice on the collection and payment of VAT by the European Union.

eBay has informed sellers that from July 1, 2021, the EU will make major changes to the way VAT is collected on goods imported into the EU, sales by non-EU sellers within the EU, and cross-border sales of goods within the EU by EU sellers.

The changes include the following:

The EU will abolish the VAT exemption currently enjoyed by all low-value goods imported into the EU with a value of no more than 22 euros.

For goods imported into the EU and sold to EU consumers with a value not exceeding 150 euros, eBay will collect and remit VAT on the goods in accordance with the requirements of the relevant EU tax authorities.

For sellers who are not EU companies, whose goods have been pre-stored in the EU and sold to consumers in the EU or sold from one EU country to another EU country, eBay will collect and pay VAT on their behalf according to the requirements of the relevant EU tax authorities.

All sellers will be required to provide a tax-inclusive price for their listings and provide a separate VAT rate so that eBay can determine the correct amount of VAT to collect.

When selling on any platform, EU compliance is imperative!

EU, VAT, Amazon