As the world of e-commerce continues to grow and develop at a ferocious pace, tax authorities across the EU are introducing rules and regulations aimed at ensuring that tax revenue due from traders in the sector is not lost.
Take for example the UK tax authority, HMRC, who in 2016 announced that new legislation would be passed which meant that online e-commerce platforms could be held jointly liable for VAT due on sales made by non-EU traders in the UK. Coupled with that, the new legislation gives HMRC the power to direct business to appoint a UK based VAT agent. From these actions, it is clear to see that VAT compliance is a key consideration if an e-commerce business is to be successful.
With these measures introduced across the EU, there is now more pressure on non-EU traders to create EU entities in order to comply. However, for many businesses, particularly the smaller online traders, the creation of such entities is commercially impractical, and is not an idea that would be viable. Whilst the cost of creating the entity in the initial stage may be reasonable, there are a raft of direct tax implications to consider. As well as that there may be issues around double taxation, transfer pricing, customs valuation, and meeting ongoing regulatory requirements, which would cause unwanted financial, as well as administrative burdens.
Perhaps a more practical option for a large number of businesses would be to appoint an EU established fiscal representative to assist in the process. The fiscal representative will possess vast local knowledge, and will also carry joint and several liability for the output tax owed by the business. The representative will also assist with filing all submissions required under local VAT legislation. With this in mind the business can be assured that all VAT obligations will be met in a highly compliant manner. Indeed there are a number of specialist VAT agents who also offer the facility of fiscal representation to non-EU businesses. VATGlobal are able to act as fiscal representative for non-EU businesses across the Amazon FBA countries, meaning that all of a business’s obligations can be dealt with by a sole provider.
Of course, if a fiscal representative is appointed, rather than having an EU established entity created, this will mean that the business will not have to contend with often bureaucratic processes, and multiple, often complex, regulatory requirements. This will also mean that the number of submissions to be filed per year are kept to a minimum, freeing up valuable time in order to develop the business further.
Furthermore, it is a common misconception that when trading within the EU, it is an obligatory requirement to open a bank account within the EU. Creating this account can be extremely difficult for non-EU businesses in a number of jurisdictions, and can bring about additional expense. Instead, businesses may make use of global payment applications which allow payments to be made in multiple currencies, ensuring that the differing currency requirements within the EU are met. VATGlobal has an existing partnership with such a provider and can assist with providing a seamless approach to ensuring payment of VAT liabilities.
In summary, many EU countries are taking a much deeper interest in the e-commerce activities of non-EU traders and looking to ensure VAT revenues are not lost. This has led to the requirement to either create a local entity or appoint a fiscal representative in order to be VAT compliant. For many smaller traders, the creation of a locally entity would represent a huge cost which would not be viable. However the appointment of a fiscal representative may provide a more cost-effective solution, whilst continuing to provide access to the lucrative EU market.
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