Amazon recently launched their new Pan-European FBA program, aimed at serious international sellers who want to create a better fulfillment experience for their European customers. However, in traditional Amazon fashion, there’s a serious catch that they neglected to mention.
Basically, the Pan-European FBA program is an “improvement” over traditional European FBA. Before, your inventory would be held in a single fulfillment center in one country, then shipped to other EU countries as needed — all originating from that central location. Now, with Pan-European FBA, Amazon will let you ship all your inventory to a single fulfillment center, but they will then allocate your inventory across different fulfillment centers in other European countries based on demand — at no cost to you (or so they say).
Here’s their basic description of the program:
Now, this sounds like a great idea, right? All your European customers get faster shipping, Amazon allocates your inventory to different fulfillment centers at no cost to you, and you have to pay fewer fees!
Here’s the problem: this system is a massive tax trap.
Before you begin using Pan-European FBA, you need to be completely aware of the VAT responsibilities you will undertake as a result.
The Ultimate Tax Trap
European VAT has always been a complicated subject, if you want to read a more in-depth explanation of how VAT relates to Amazon selling through normal FBA, check out our “How VAT Works” post.
To explain how Pan-European FBA creates a tax trap, I’m going to compare how VAT registration works through traditional European FBA and Pan-European FBA.
VAT Registration under Traditional FBA
As you may recall, when you’re using so-called “normal” FBA for European selling, VAT registration is relatively simple — if anything tax-related can be called “simple,” that is.
First, you have to send your inventory to one European country, to be stored in a fulfillment center. As an example, let’s say the center is in the UK.
Now, as a foreign seller, the presence of inventory stored in the UK means that you must immediately register for VAT in the UK, at or before the time that your inventory arrives in the country. There are no sales thresholds for the country where your inventory is stored — the presence of your goods in a country immediately creates a need to register for VAT in that country.
However, that UK VAT registration is the only necessary one at first. Amazon will ship orders placed in other EU countries from that UK fulfillment center, as a part of the FBA program. However, you only need to register for VAT in those other countries once you cross certain distance selling thresholds. These sales thresholds range from €35,000/year by default to €100,000/year in countries like Germany.
Overall, this means that your paperwork is fairly simple: as long as you remain under those sales thresholds, you charge UK VAT on every order and submit one quarterly report to HMRC. As your business grows, you’ll need to become VAT registered in other countries and follow their requirements in turn, but this should happen at a manageable pace.
VAT Registration under Pan-European FBA
As you may have predicted, VAT registration gets a whole lot more complicated under Pan-European FBA.
Here’s the key line: As soon as your inventory lands in a country, you must immediately register for VAT in that country.
Before, you were distance selling to other European countries from a UK fulfillment center, but your inventory was never stored in those countries. Because of that, there was no need to register in each country until you exceeded their threshold.
However, with Pan-European FBA, Amazon will ship your inventory to fulfillment centers across every supported European country. This means that you'd need to register for VAT in every country where Amazons stores your inventory.
At the moment, Pan-European FBA ships to fulfillment centers in 7 European countries. This means you’ll have to register in 7 different countries, charge 7 different VAT rates, submit 7 different VAT reports at different times of the year, and have to answer to up to 7 countries’ revenue departments if you violate any of their individual VAT policies.
Sound like a logistical nightmare? It does to us, too. It’s certainly doable, but it requires a serious commitment in man-hours just to deal with the accounting. Plus, every country has its own quirks that make the process even more complicated. For example, French VAT policy requires a local agent, physically situated in France, to handle VAT liaisons and communicate with the Paris revenue office in person.
Is it worth it? Ultimately, that’s up to you. The bottom line is this, though — it will take a lot of work on your part just to get started with Pan-European FBA and fully comply with every country’s requirements.
If you’re very serious about selling across Europe, you fully understand all the responsibilities you’ll be taking on, and you’re prepared to set up the infrastructure, Pan-European FBA just might work for you. However, it absolutely isn’t a program you should jump into just to reduce your European FBA fees a bit — those savings will be eaten up many times over by the work required to comply with VAT regulations in all 7 countries.
Of course, there’s no mention of these responsibilities from Amazon. They are known to lay these tax traps for unassuming sellers — take Amazon’s promises with a grain of salt when it comes to “easy” European selling.