Peak season is here and with Black Friday just around the corner, VAT compliance is probably the last thing on your mind.
However, whether you are short on time or think you have missed the opportunity to be compliant – there’s no choice. VAT compliance is compulsory. The best way to move forwards is to gather as much information as possible. A great starting point is to understand the basis of the EU – how it operates. The EU is made up of 27 Member States which are all independent nations in their own right.
450 million Consumers
Across European Member States, the Single Market has been lauded as one of the successes of the Bloc. 2023 marked the 30th anniversary of the Single Market to much fanfare. In its 30 years, the Single Market has brought massive employment to the region and other benefits. For US retailers, the Single Market brings the various markets of Europe together, offering access to a marketplace of 450 million potential consumers. (Source)
Collective Power
The EU, by agreement, empowers companies in Member States to trade and do business freely, by removing technical, legal and bureaucratic barriers. The goal is not only one of unity but to make the EU a more attractive place for investors. There are, however, some barriers within the Single Market which the EU is working hard to overcome. These include recognition of national, vocational qualifications, disparate energy and transport markets and then there is the one which will most likely affect your business – fragmented national tax systems and varied rules, standards and practices in eCommerce. (Source)
When negotiating with other parties (e.g. Non EU members such as China or Britain), EU members speak with one voice. This makes sense as the world’s largest single market area. Speaking as one single entity, the EU carries more weight during international trade negotiations than an individual member would. For example, imagine Ireland trying to negotiate with China on its own? According to the EU, from 1999 to 2010, EU foreign trade doubled and now accounts for over 30% of the EU’s gross domestic product (GDP). (Source) It’s not only collective agreements that benefit the Bloc. Collect GDP is only second to that of the States (according to 2021 IMF figures. (Source) GDP in the EU27 reached 13,279 behind that of the States with 18,327 and ahead of China which has a GDP of 12,890 (Billion Euro). France and Germany topped the table with 3,330 and 2,275 respectively.
Anti Competitive?
Far from being anti-competitive, the EU needs a global outlook in order to prosper.
As mentioned above, the EU is one of the most open economies in the world. It has to be. According to their Policy and Trade offices, the EU is heavily reliant on exports. EU exports support over 38 million jobs and on average, one in five jobs in the EU depends on exports. In terms of imports, the US is the second main trading partner after China. According to the US government, US goods and services trade with the European Union totaled an estimated $1.3 trillion in 2022. (Source) In fact, according to the same source, “U.S. goods exports to the European Union in 2022 were $350.8 billion, up 28.8 percent ($78.5 billion) from 2021 and up 66 percent from 2012”.
Collective Charges
When the original six members came together to form the European Union (originally called the European Community), the members charged a multitude of taxes at different points in the supply chain. It was complicated and made it virtually impossible to determine the actual amount of tax being levied on a particular product. This made the risk of unfair subsidies being accidentally or deliberately levied a lot greater. In order to ensure a transparent and efficient single market, the Value Added Tax system was introduced.
Generating Collective Revenue
Value Added Tax (VAT) is a consumption tax that is applied to nearly all goods and services that are bought and sold for use or consumption in the EU. While open for business, it’s fair to say that the tax and VAT requirements can be a strain on any business operating in the bloc from a compliance point of view. EU countries use different types of VAT rates: standard rate, reduced rate and special rates. It’s important to understand when to charge VAT, how to register with tax authorities, when you can deduct VAT and how to claim a VAT refund. “The EU has standard rules on VAT, but these rules may be applied differently in each EU country.
In most cases, you have to pay VAT on all goods and services at all stages of the supply chain including the sale to the final consumer. This includes from the beginning to the end of a production process, e.g. buying components, transport, assembly, provisions, packaging, insurance and shipping to the final consumer.” Although VAT is charged throughout the EU, each EU country is responsible for setting its own rates. It’s also important to note that these can vary as they are set at a Member State level.
Focus on Growth
Understanding the various VAT rates is imperative to the success of any eCommerce business. Knowledge of the various systems, registration (for VAT), accurate record keeping and correct invoicing are the only ways to ensure compliance.
We understand that VAT compliance can be a challenge for many eCommerce businesses. Even the most established brands can struggle to keep abreast of the ever changing and multi-varied VAT rates. Non-compliance carries heavy fines and legal repercussions. It’s important to register when required, monitor your sales correctly, maintain records and understand the relevant VAT thresholds.
We believe every ambitious retail organisation needs a partner who can manage all the compliance matters. These are often complicated, time consuming and plain well distracting. While you focus on growth, let us focus on the “other” things!
Taxmatic automates VAT calculations, filings, and payments for eCommerce retailers selling in EU and UK markets. It integrates seamlessly with eCommerce selling platforms to access sales order data in real time. The process includes secure payments wallet technology to complete sales tax remittance and manage refunds. Our customers have the peace of mind that comes from full regulatory compliance. Plus, the benefits of eliminating manual processes. Gaining more time to expand their online business in new international markets.
