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E-commerce and VAT

Expand a business to Europe has proven successful for many e-commerce businesses from outside the EU.

First they start sending individual parcels via international parcel services. This, however, is rather costly, since every package has to be cleared by customs, leading to extra costs for the buyer when the parcel is delivered to his or her doorstep.

The next step is to bundle the European logistic flow. It is, of course, much cheaper to transport a whole pallet of parcels in one shipment. After the customs clearance, the goods can be distributed within Europe by an European parcel service. The related customs clearance of the goods is also be simpler, because it is sufficient to make one import declaration for the whole pallet.

To make the clearing process more efficient and flexible, the e-commerce company can best register for VAT in the European country of importation.

The European VAT system makes it possible just to register for VAT purposes and not get involved in any other tax registration.

The customs import declaration for goods destined for different private individuals in different European member states, can be made using the VAT number in the Netherlands. A customs broker can take care of this. After the formal import declaration, the goods can be transported to the private customers in the EU without any further government or tax interference.

In Europe, the VAT is levied by the country where the package is delivered to the consumer. Every member state has a threshold, varying between €35,000 and €100,000, above which these rules apply. For example: if an e-commerce company sells goods in Germany for more than €100,000 per calender year, it should issue an invoice with German VAT and VAT must be paid to the German VAT authorities (this, of course, requires a German VAT registration number).

So, as a start, for an e-commerce company from outside the EU that starts selling to private individuals in the EU, and the goods enter the EU through the Netherlands, it is sufficient to have a VAT registration in the Netherlands and to invoice Dutch VAT.

Only if the turnover exceeds a national VAT-threshold, the company has to register in that specific country for VAT and its customers must then be charged the national VAT. The administrative transfer of the goods and thus the VAT from the Dutch VAT number to the corresponding national VAT number, is done monthly via a corresponding “administrative intra-Community transaction.” It is therefore important to have a good administrative and invoice organization.

The VAT that was paid in the Netherlands on the goods that are sold to Germany, will be refunded by the Dutch VAT authorities. So in the end, the consumer pays VAT in the country where he or she lives, while the seller only collects the VAT and pays it to the proper tax authorities.

The Netherlands offers the possibility to transfer and postpone the payment of import VAT. For this, a general fiscal representative (GFR), with a Dutch legal entity, has to be appointed. This is usually a customs broker, who will require a a bank guarantee based on the expected monthly turnover.