Episode Six : A Guide to VAT as you Expand your Business and Sell Overseas
VAT and tax can often feel like overwhelming concepts when it comes to selling products and assigning the right price to your goods – particularly when you expand overseas into a market you may be unfamiliar with.
VAT is also known as sales tax. When you import goods for selling, you pay a tax to the government. However, this can then be recovered by adding that tax to the purchase price for your end consumer – offsetting the payment you had to make and allowing you to claim it back.
One of the standout differences between UK and EU retailers, and those in the United States, is that in the UK and the EU the VAT cost is simply factored into the retail price of a product, whereas in the US prices tend to be listed without VAT – which is then added at checkout. This identifies the number one most important thing you need to know when working with VAT in the UK and European market – adding VAT to the price of your products happens well before checkout.
How does VAT work?
The process of VAT is simple once it is laid out clearly in a timeline.
As a seller, you need to source the products you are going to sell, and you need to get them over to the countries that you’re selling in. This importation process is subject to tax, which you will have to pay to the relevant authority.
As part of the end process, the consumer or customer pays their own tax on your goods, which you add to the value of the product to offset your own tax.
This means that tax is only being paid on the value added during the transaction.
VAT rates are determined by the local government authority, and so it is important that you don’t just register a separate tax and VAT return for each region you sell in – you must also be prepared for different tax rates based on the local ruling.
Keeping on top of your seller activity
With VAT and tax returns requiring information on how much you’ve sold and how many units you’ve sold in any given period across each region, you will soon find yourself relying on the VAT number that relates to your business once you’ve registered as a seller.
This number will enable you to track your activity – what you’ve purchased, how much import tax you’ve paid, what you’ve sold, and how much tax has been paid on any given sale.
Feeling overwhelmed? Don’t worry – this is where GEE can help.
Invest in the right support for managing your VAT and tax requirements
When you work with GEE, we use your VAT number to calculate what is owed and to ensure that the paperwork is up to scratch for the local government authority.
By appointing a local agency representative in each region that you want to operate in – or one agency that understands the tax requirements in each location you’re selling in – you can ensure that the correct VAT is being calculated during import and passed on to the sale price of your goods.
An agency like GEE can also help you to maximise your use of localised information for your own benefit as a seller – for example the tax deferment schemes which are active in the UK and the Netherlands and which save you from having to pay tax until you have actually sold the product. This is especially attractive for those importing a large number of goods, because you can await the final purchase price from the buyer before having to pay the tax on it.
Another concept that an agency like GEE will help you navigate is the one-stop shop solution available in Europe, which allows you to group together and pay all of your European VAT and tax requirements in a single location. While this may sound like an infinitely easier way of managing your VAT payments, there are conditions. Amazon sellers, for example, often find that this arrangement doesn’t work for them as you can only pay VAT from one location if all your goods are stored in one place. If you sell on your own behalf, through a B2C business model, then this concept tends to work well – however those selling on Amazon and making use of the global FBA warehousing infrastructure will find that they are ineligible for such services. Of course, Amazon counteract this by offering their own VAT support – however this is not open to all sellers and is only a free service for your first year.
The support you need, when you need it
Offering an all-round solution to VAT and tax management, the right kind of support will not only make you aware of the loopholes and advantages you can follow as a seller but can help you to grab hold of them and put them to full use for your business – or else find other ways of managing your payments.
Here at GEE, we offer a monthly and an annual VAT compliance service which ensures you are ticking the compliance boxes of the countries that you choose to sell in – whilst also making the most of any added benefits and local conditions that could be available to you. Best of all, we can step in and offer advice and support no matter what stage of the process you are at – with our team well versed in everything from start-ups to near completion business plans.
For more information on this please visit our website – and be sure to look out for next week’s webinar write up!