As the e-commerce industry continues to evolve, new opportunities for optimizing various aspects of business emerge. One such opportunity is the e-commerce fulfillment method, which involves outsourcing some or all logistics processes to an external entity. Opting for e-commerce fulfillment not only allows businesses to operate in e-commerce without the need for their own warehouse, thereby shortening delivery times, but also relieves entrepreneurs of responsibilities related to returns, shipments, and storage.
However, when a company decides to use e-commerce fulfillment, they often choose to store their goods abroad. In such cases, the company must adhere to certain VAT-related conditions to comply with EU laws.
Our long-time partners at Taxology helped us create a definitive guide of VAT-related problems and solutions. They are a consulting company specializing in VAT compliance and taxation across UE and UK. We help e-commerce companies make settlements for cross-border sales efficiently and by applicable regulations. We advise on any doubts and solve tax problems. With Taxology the company gets full VAT support, expertise and tools to develop e-commerce abroad.
We have also held a webinar that you can watch at the end of the article to gain even more in-depth knowledge!
VAT-related conditions when storing goods abroad
The first step: Local VAT registration
The first step is to obtain the status of a domestic VAT taxpayer. To do this, one must register for VAT in their country of residence. It's crucial to note that while VAT matters are harmonized at the EU level, national authorities still have room to enact their own laws and procedures regarding aspects such as VAT rates, VAT return deadlines, or VAT registration processes, as long as they comply with the EU guidelines.
As a result, the VAT registration process may vary in each member state. In some, it can be conducted online, while in others, traditional correspondence may be required. However, once domestic VAT registration is complete, one can proceed to the second step, which is obtaining the EU VAT number.
The second step: Obtaining the EU VAT number
The EU VAT number, also known as the European Tax Identification Number, is a requirement for all active VAT-registered individuals and entities engaged in, or intending to engage in, intra-Community transactions. These transactions include:
- Intra-Community acquisition of goods,
- Intra-Community supply of goods,
- Provision of services from EU countries subject to taxation in the purchaser's country.
It's important to note that the EU VAT number is also mandatory for entities and individuals eligible for VAT exemptions. Furthermore, obtaining a foreign VAT number is the final crucial step in preparing for the implementation of e-commerce fulfillment services and storing goods abroad.
The third step: registering for VAT in a country of storage
Obtaining a foreign VAT Number is mandatory in the following situations:
- Storing Goods Abroad: When a company stores goods abroad, they are obligated to declare warehouse movements and pay VAT for this purpose.
- Conducting Intra-Community Transactions and Exceeding the €10,000 EU Mail Order Limit: If a company engages in intra-Community transactions and surpasses the €10,000 threshold for EU mail order sales, they must take certain actions. This includes submitting VAT returns in each country where they offer goods and services or registering for the VAT OSS (One-Stop-Shop) procedure. It's important to note that VAT OSS is applicable only to B2C (business-to-consumer) transactions and does not address the storage of goods abroad.
To obtain a VAT number in a foreign country, one must go through a foreign VAT registration process. The specific procedures may vary depending on the country and its local laws. However, there are some common documents required, such as:
- A completed application form.
- An original or notarially certified copy of the entry in the commercial register, accompanied by a sworn translation if necessary.
- Confirmation of VAT registration in the country of residence, also with a sworn translation when needed.
- A copy of the applicant's identity document.
- A power of attorney, if a tax representative is involved in the registration process.
Please note that the exact requirements and documentation may differ from one country to another. Therefore, it's essential to consult the specific regulations and guidelines of the country where you intend to register for a foreign VAT Number.
In order to ensure that everything complies with the law, it’s recommended to consult each case with a specialist, such as Taxology, which specializes in VAT Compliance matters – registrations, settlements, returns, VAT OSS or VAT EU. In case you need assistance with any of the above, you can contact them under this link.
How to be VAT-ready for a foreign e-commerce fulfillment – summary
E-commerce fulfillment undeniably offers substantial advantages to many companies. It not only reduces overall logistics costs but also significantly shortens delivery times, a critical factor for satisfying customers. However, it's essential to remember that storing goods in a foreign country requires thorough preparation to comply with VAT-related regulatory requirements.
To achieve this, one must follow a series of steps, including becoming a registered local VAT taxpayer, obtaining an EU VAT number, and registering for VAT in the country where the goods will be stored. Importantly, these steps should be completed before placing goods in a foreign warehouse, whether it's the company's own or a fulfillment service's. Doing so ensures that entrepreneurs can avoid unnecessary sanctions and fines.
Furthermore, as local regulations and VAT registration procedures vary in each country, it's advisable to seek assistance from specialists in VAT registration and e-commerce matters. This ensures full compliance and minimizes the risk of facing repercussions due to failure to meet obligations.
If you are looking for even more in-depth answers, check out our webinar where we go into the details of VAT rules and regulations in Europe: