New sellers on cross-border e-commerce platforms often encounter a key question: What is a VAT registration certificate? This question is crucial because if sellers do not understand its importance, they may face a series of serious consequences such as store closure. Therefore, sellers must have a deep understanding of the relevant knowledge of the VAT registration certificate.
1. What is a VAT registration certificate?
First, let’s understand the basic concept of the VAT registration certificate. VAT is the abbreviation of Value Added Tax, which is a sales tax widely used in EU countries. It is a tax levied on the profit portion of the selling price of goods. According to EU regulations, when goods enter the UK, import taxes need to be paid; and when the goods are sold, the merchant can refund the import VAT (IMPORT VAT) and then pay the corresponding sales tax (SALES VAT) according to the sales volume.
2. Understand the European Distance Selling Law.
To have a deep understanding of the VAT registration certificate, you also need to understand the provisions of the European Distance Selling Law. According to this regulation, sellers may not need to register for VAT tax locally if their sales do not reach certain standards in a specific year, such as no more than 100,000 euros in Germany, and no more than 35,000 euros in France, Spain, and Italy. However, in the case of the UK, registration and tax returns must be made.
3. Who needs a VAT registration certificate?
Now, let’s take a look at which sellers need a VAT registration certificate. Sellers selling in EU member states need to register for VAT as long as their annual sales exceed 83,000 euros (based on the 2016/2017 fiscal year). For sellers in non-EU member states, as long as the last leg of their goods is sent from an EU country, they need to register for VAT. This means that even sellers from China need to register for VAT if they use EU warehouses to distribute goods.
4. VAT rate.
The VAT rate varies from country to country. For example, the VAT rate in the UK is 20%, in Germany it is 19%, in France it is 20%, in Spain it is 21%, and in Italy it is 22%. In addition, the calculation method of IMPORT VAT (import value-added tax) is based on the declared value of goods, first-leg freight and tariffs, and the tax rate is 20%. The calculation method of sales tax VAT (sales value-added tax) is based on 1/6 of the market price.
5. The importance of EORI number.
In addition to the VAT registration certificate, the EORI number (Economic Operator Registration and Identification) is also very important. This number is an identification number that individuals and companies engaged in economic activities, especially import and export business, in EU countries must register. Regardless of whether they have a VAT number, sellers need to provide an EORI number when importing goods into the UK and declaring import tax (IMPORT VAT). The usual format of the UK’s EORI number is GB+VAT number+000.
6. Different FBA logistics modes.
When operating cross-border e-commerce, sellers can choose different FBA logistics modes, each of which has its own characteristics. The following are some common FBA logistics models:
Pan-European model: allows Amazon to distribute the seller’s inventory to the entire European market, but the tax cost is high and it is necessary to register VAT in 7 countries.
EFN model: the seller stores the inventory locally and distributes/delivers it to various parts of the European market. The logistics costs are high, but the tax costs are low, and only the UK VAT needs to be registered.
MCI model: the seller chooses a warehouse in a designated country to store the inventory, the comprehensive cost is moderate, and the logistics and tax costs depend on the selected sales site.
Sellers should choose the tax strategy that best suits them based on their specific circumstances and business needs, and keep an eye on changes in tax regulations to ensure compliance and avoid unnecessary tax risks. Regardless of which method you choose, it is very important to have an in-depth understanding of the relevant knowledge of the VAT registration certificate, which will help sellers better manage their cross-border e-commerce business. I hope the information in this article will be helpful to sellers.