The strengths and weaknesses of the VCS are well known. The question that is currently exciting is: (How) does the Value Added Tax calculation service work since the major VAT reform on 1 July 2021 and in connection with the use of the One Stop Shop?
In advance and in summary, the following can be said.
Those who do not choose the right tax settings for the VCS and do not make it clear to Amazon that they are guaranteed to pay their Value Added Tax when making cross-border sales in the EU to private individuals – so-called distance sales – risk having their foreign deliveries blocked and thus losing considerable turnover.
Below you can see this case, which is currently being repeated very frequently: Amazon blocks the cross-border sale of traders due to the lack of a foreign VAT ID or proof of OSS participation.
The reasons for this are manifold. We therefore take a look at the most common stumbling blocks and start with the problem that currently occurs most frequently in the interaction between VCS and OSS.
First of all, let’s remember how you used to make sure that the Value Added Tax calculation service always calculated the correct Value Added Tax . In part, this still has an effect today.
VAT-IDs and the VCS
Before 1 July 2021, the world and the VCS were simple. If you were liable to pay tax in a certain EU state, e.g. because you had exceeded the national delivery thresholds that ceased to apply on 1 July, you had to submit your VAT ID for this state.
If you had forgotten this or if countries like Spain refused to issue you with a VAT ID, the VCS would continue to calculate the Value Added Tax of the country of origin and you would have a serious or double problem.
Excursus: Whenever you – or the VCS – show a certain VAT rate or amount in an invoice, although you owe the Value Added Tax in another country, § 14c para. 1 UStG leads to the fact that you owe the Value Added Tax twice: 1. the Value Added Tax shown on the invoice & 2. the Value Added Tax you owe in the other country anyway.
Important: This basic rule still applies and represents one of the greatest financial risks in online trade.
But that would mean that you would need VAT IDs for almost all EU countries due to the new VAT rules from 1 July 2021! (Is anyone else wondering at this point: Why is that? If so, this will help).
Theoretically and practically, this is the case. But there is a way to avoid having to register locally in all EU countries if you want to use the VCS.
VAT-IDs and OSS
With the One Stop Shop, as of 1 July 2021, there will be another possibility to pay one’s Value Added Tax abroad in the EU.
In this respect, you can also signal to Amazon that you are tax-honest and that you actually want to pay the Value Added Tax for your sales on Amazon .
This means you have two options so that Amazon does not block you for certain foreign markets.
- You continue to deposit a foreign and valid VAT ID for the EU states in which you are liable to pay tax, or
- You deposit that you are registered for the OSS.
Below you can see an excerpt from the current documentation for the VCS.
But there is also a third possibility – a combination of both.
Many of you may receive the following message at regular intervals.
The VCS requires 6 VAT IDs! Why?
What is behind the following notice that many of you receive regularly, even if you have confirmed your participation in the OSS to Amazon ?
If you participate in the Amazon Pan EU programme and have your invoices issued via the VCS, you also make local deliveries in the following EU countries – e.g. from a Amazon warehouse to a consumer in France.
- (Sweden is not yet automatically part of the Pan EU programme)
Unfortunately, local deliveries in other EU countries cannot be reported via the OSS.
Therefore, you still need a local registration and a corresponding VAT ID in these EU countries.
Finally, we discuss another problem that many beginners face on Amazon before giving you the most important things to remember in the final conclusion.
Amazon VCS and small businesses and other businesses that do not pay Value Added Tax
We would also like to mention two constellations that regularly cause problems in the context of the VCS.
- Starting situation 1: You are a small entrepreneur and therefore do not have to pay Value Added Tax until you exceed the turnover limit of 22,000 euros (gross) per calendar year.
- Solution: It is possible to store the small entrepreneur attribute in the VCS. However, this only makes sense if you have deactivated cross-border shipping, as the small business regulation only applies domestically.
- Starting situation 2: You make sales that are not taxable because, for example, you operate a charitable foundation.
- Solution: analogous to the small business regulation
At this point it can be stated that national exemption regulations cannot really be processed securely on Amazon or via the Value Added Tax calculation service.
Amazon’s VCS Value Added Tax calculation service can make your life easier in some cases. However, it is essential that you know how to adjust the settings. Otherwise you risk being blocked at Amazon or, in the worst case, owe Value Added Tax twice.
If you need a benchmark with which you can uncover and iron out errors in the VCS, get in touch with us – even in person.
Taxdoo: We iron out the mistakes of the VCS – and more
At some point you will come to the point where you realise that besides growth, legally compliant Value Added Tax and financial accounting processes are also part of building a sustainable business. Then Taxdoo will be at your side.
We have been helping companies such as SNOCKS, air up, LittleLunch or Beiersdorf with Value Added Tax compliance and financial accounting for many years – via a unique API-based platform backed by an ever-growing team of leading technology and tax experts.