Do I need to charge VAT in my circumstance?

[ellastewart]

Hi,

I am a UK startup dropshipping my products to the EU (France and Germany). I’ve done my research on the EU VAT 2021 regulations and I just wanted to confirm if I could continue as so. The regulations state that import VAT is now applicable to goods valued under 150EUR, which is what I am selling. The regulations also state that if I am generating less than 10,000EUR in revenue then I use my domestic tax rates. Given that I am based in the UK, that would be 20%.

However, the UK VAT regulations also state that if one does not generate sales above the £85,000 threshold, then they are not required to register for VAT and do not have to charge VAT on their sales.

Therefore, do I just continue selling as normal without having to consider VAT until my sales exceed 10,000EUR? Just looking for some confirmation.

I am aware that you cannot provide professional tax advice, however just some clarity on whether I can continue as so this would be greatly appreciated.

Thanks!

[Rostislav]

HI 

You are mixing up things a bit here.  VAT is always a local tax and rules are applied on country level (in EU , of course , there are rules that are applied to cross border transactions and general approach to VAT and I am simplifying here).  

10000 EUR thereshold , when local VAT is to be applied is only for the use of EU established microbusinesses . You left us 😞 and you are not in EU any more.... So this rule is not applicable to you. 

You are not registered for VAT in the UK , since you have not reach mandatory registration turnover threshold (85 000 GBP) but this is your internal UK situation and it has no relation to the EU. All sales to EU are subject to VAT (below 150 and over 150 EUR). For sales below 150 EUR you there is a special scheme that simplifies the process - IOSS special VAT scheme. You need to register for it via a fiscal representative.  Sales over 150 EUR are subject to customs duties and VAT on normal basis. 

We can register you for IOSS , Our frees are transactional - so no sales no fees 🙂 

Do check us here www.easproject.com 

[ellastewart]

Hi! 

Thank you so much for your response, I greatly appreciate you taking the time to help me. 

From your response, I realised that I mistook the 10,000EUR threshold as being applicable to me, however, I now realise it is only for EU businesses. From my understanding, I need to instead apply for VAT in each EU country that I am selling in, which is France and Germany. The VAT threshold for these countries is 35,000EUR and 22,000EUR, respectively. Thus, as a start-up foreign company selling below these thresholds, it is my understanding that I do not need to register for VAT until I exceed these yearly revenue figures in each market. Or are these thresholds not applicable to me?Could you confirm this for me, please? Apologies, I find taxes confusing😅

I also haven’t left Shopify, I just deactivated one of my stores. I am still subscribed to Shopify via the remaining store that I am due to launch.

You kindly mentioned your IOSS service that simplifies the VAT process. I visited your website and I saw that you take a fee of 1,25EUR per transaction. Since I’ve got a relatively low sales value per item, this transaction fee would have quite an adverse effect on my margins. Therefore, is it possible to register for VAT without a fiscal representative to reduce the cost of this process? And, just a question about your service, do you take the transaction fee only once a business is earning above the VAT threshold for the country they are selling in? 

Thank you so much once again for your help. Further guidance would be greatly appreciated! 

🙂

[Rostislav]

Hi ,

Country specific VAT thresholds for VAT registrations in EU (35 000 , 22000 etc.)   were removed in 2021. A single threshold of 10000 EUR (yes, that one) was installed for sales to all countries. And it is only applicable to EU companies 😞 

All sales from abroad , delivered to EU are subject to VAT . IOSS scheme is not mandatory (at least till 2025) , so technically you can send your items without collecting VAT , but the consequences will be dire for your customers - they pay VAT and handling fee (for customs clearence) . Handling fee varies from 2.9 EUR in Finland to  12 EUR in Greece , depending on the courier /postal operator. 

You cannot register without fiscal representative for IOSS . fiscal representative is co-responsible with you  for your VAT and it is a must in your case .

Fiscal representative  also prepares and files the IOSS report.

And as long as thresholds are not applicable (as explained above) you have to charge VAT on all your sales to EU. 

You can talk to our sales about fees , arrange a video meet at our site and we will see what we can do in your case. 

[ellastewart]

Hi,

Thank you for getting back to me.

Thanks for clarifying the details surrounding the thresholds, I now understand they do not apply to me.

Does your company provide a fiscal representative for IOSS? 

I also would like to enquire about VAT rules elsewhere, incase I expand to other markets outside of the EU. Do I have to charge VAT when targeting the US and Canada from the UK (where I am based)? Are there thresholds for those markets that would be applicable to me?

Thanks so much once again!

[Rostislav]

Hi again,

WE do provide full IOSS service on transaction fee -  we will register you , collect data , file reports and transfer payments to the tax authorities. And of course,  we would act as fiscal representative.  

Canada  has its own VAT system but it is rather hard to be registered and there is little sense to do so.  Australia and NZ are easy and have respective GST registration systems. 

US has a very high customs duty import threshold (800 USD) and you do not really need to register there (and that is up to 50 states to get registered) . Everything there is based on economic nexus concept (your fiscal presence in a particular state) . The nexus rules are different and normally are based on sales volume (100 000 USD ) or a number of sales. There are quite a few solutions for US to automate sales there , but with small volumes you do not really need that. US customers are accustomed to use tax (it is when they pay sales tax themselves) so quite naturally just sell there and they will handle it locally.   

If you want to register with us for IOSS , do come to www.easproject.com  and get enrolled. 

[ellastewart]

Hi!

I’m interested in your service, however I just want to clarify some of the points you made. Firstly, you noted that you will register me, collect data, file reports and transfer payments to the tax authorities and act as fiscal representative. Would this service be the 1,25EUR collected per transaction, or is this a more sophisticated service where a higher price per transaction is required to pay?

I’m keen to target the EU and US. You mentioned that US customers are accustomed to use tax, so they will handle it there locally. I’m assuming this means that this will not affect my price, as I plan to pass the cost of sales tax/VAT onto consumers, but if they usually pay sales tax themselves (I’m assuming they do this separately from making an order from me eg monthly) then nothing will change for me essentially? I can keep my price the same and not factor in sales tax in my prices?

Say that this isn’t the case, is there a way to include the tax in my price by passing on the cost of this tax to the consumer, rather than have it show up as an additional separate cost at the checkout?

I noted the US also has some thresholds. Say if I don’t surpass the Sales Threshold or Transaction Threshold for each state within a calendar year, does that mean I am not required to collect and remit sales tax in that state and apply for a sales tax permit? And vice versa? 

From what I understand, a customer buying in the US pays their local tax sales rate depending on their state. This is then calculated additionally with the state sales tax to give a combined sales tax. Given that it is likely that sales will be scattered from all over the country, is there a systematic way that, from my website, the correct sales tax figure will be applied considering all these factors across different states and localities? Does Shopify automate this?

You mentioned that there is little sense to register in Canada for VAT. I did some research and found that I would need to register for a GST/HST account with the Canada Revenue Agency (CRA) if my worldwide taxable supplies exceed CAD $30,000 over a 12-month period. Thus, according to this, could I just sell there as usual until my revenues exceed that figure? Please correct me if I’m wrong.

Do you provide any services for the US and Canada?

Apologies for the long message. I really do appreciate the time you’ve taken to help me in our exchange. Thank you so much.

[Rostislav]

HI , 

1.25 EUR per transaction is a packaged deal - it includes everything : collecting data , making  and filing reports etc. We will also charge 6 EUR invoicing fee if your invoice is over 30 EUR .  

US. 

In the US all is about the concept of economic nexus, thresholds  for the nexus are rather high (in most states 100 000 USD per annum) , unless your business grows exponentially you may never have nexus  in any of the states. Some of the states consider that you have a nexus in case you go over certain number of sales (if I remember correctly starting as low as 200 sales per year).As such I would not consider this as an issue for you.  And the customs duties threshold is 800 USD so  usually it covers all e-commerce sales to USA.   Theer are many solutions in Shopify environment that work the US. Technically there are over 14 000 tax jurisdiction in the US since the tax includes state, county and local taxes.  But again , no need to bother for the time being. US customers will pay use tax , they are ok with that.

You  are right about Canada , so until you reach the threshold you do not need  to bother. It is a sizable country with close to 40 mil population, but they are more conservative and buy mostly from US and Canada.  

We unfortunately , do not provide services for the US , Canada is next on our list. There are good and Robust services for the US (TaxJar , Zonos)  

[ellastewart]

Apologies, I also forgot to ask to clarify if I do not need to worry about custom duties and tariffs when importing from China to the US since my product item value is less than 800USD? Is there something similar for the EU or would I have to pay fees when my product arrives at the border?

[Rostislav]

See about the US in the previous message. 

IOSS scheme is made for EU to ensure simplified customs process. If the order is below 150 EUR then simplified customs procedure is applied and no customs duties are levied. For orders over 150 EUR you have 2 choices :

- DDP (you collect VAT +customs duties and pay them via courier to the EU customs;

 - DDU , all payments are done by the end customer on arrival