Importance of European VAT for Indian e-commerce Sellers
Indian’s are exploring the e-commerce option of selling outside their country. Many have been successfully doing business in North America. As more avenues open sellers need to take care of every country’s regulation and tax laws.
In this post we are going to discuss the importance of UK VAT registration.
Using e-commerce platforms like Amazon, CDiscount and others one can sell online in European countries. Amazon offers sales across entire Europe through their PAN European program. Indian sellers can sell their products in Europe either using MFN (Merchant Fulfilled Network) or FBA (Fulfilment by Amazon).
Selling through MFN does not involve any tax obligation up to 15 pounds in UK. Any amount over that one has to pay taxes to UK customs.
In case of FBA since the product is physically stored in UK, it’s mandatory to have a VAT. In case of Pan Europe, where Amazon stores products across Europe, you need to get VAT of other European countries.
Why VAT ?
Many sellers have stated that since US is not strict on sales tax payment the same can be for UK. Unlike USA, UK enforces VAT and holds sellers and Marketplace operators equally responsible for tax evasion. The penalty in UK is 100% fine on the unpaid taxes.
HRMC (HM Revenue and Customs) has conducted raids across different warehouses across Europe and found sellers evading tax. These sellers were fined and barred from sending products to Europe.
VAT tax Slabs.
The products sold in UK fall under 20 percent VAT. Yes it’s on the higher side compared to India where most of the product under GST is 18 percent.
They have 3 slabs.
- Standard 20%: Most goods and Services
- Reduced 5%: Some goods and Services
- Zero rated: Food and few other products
For all goods below 135 pound no duties are charged. Between 135 to 630 it’s 2.5 percent of the value. Above 630 pound the calculation is based on the product sent.
Import duties start from 5-9% and go as high as 85%. A total of 14000 classification has been provided.
Excise: It’s only applicable if you send in alcohol or Tobacco goods.
VAT calculation and payments
As a seller when you send goods to UK make sure you calculate the following
- Excise (if applicable)
Once the product reaches UK customs you will be charged duties and VAT.
The VAT is available as an Input and you can claim it at the time of filing.
You can choose to file monthly, quarterly, bi-yearly and yearly.
Let’s take an example. If you have sent 60 products worth 15 pounds to UK. Then the total amount is 900 pounds.
Assuming the duty charged is 12 percent.
You will need to pay a VAT of 20 percent which is 180 pounds and 108 pounds as Duty.
If you sell these products for 25 pounds each the total sales value will be 1500 and VAT amount 300.
At the time of filing you need to pay 300 – 180 pound which is 120 pounds.
Reducing tax liabilities.
Europe offers certain privileges to developing countries like India. If your product is completely “Made in India” you can avoid paying duties.
Various VAT options
Indian seller selling in UK can get any of the following VAT
- European VAT
- Non European VAT
European VAT requires a physical presence of one’s company in European country. You need to have an establishment there. There are many agencies that provide these facilities with a virtual office and local bank account. Currently Amazon is providing these services for 400 Euros/year per country of Europe.
Having a local office has the following benefits.
- No VAT liability for sales up to 80000 pounds/year
- For exports or Pan European sales no tax liability up to 35000 pounds/year
Taking an European VAT makes sense if your sales is more than 80000 pounds a year. Remember even though your tax liability is zero till 80K pounds you will have to pay VAT while importing.
Non European VAT is an option which not many talk about. If your sales figure are much lower than 80000 pounds it makes no sense in maintaining a European VAT. Such sellers can go for Non European VAT. This option does not come with benefits mentioned in European VAT but if you like to explore the market this is a better option.
You can apply for Non European VAT from India and make your payments from here.
How to apply for VAT and Pan European countries
For application and details you can drop a mail on firstname.lastname@example.org. They charge as low as Rs 5000 for Non European VAT per country. Also they will guide you on an end to end process of application, filing and pan Europe selling.
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