Dec 8, 2023

Intro to Amazon FBA and Value Added Tax (VAT)

So you are an Amazon FBA seller, growing your FBA business, and making money without a worry in the world. (Yeah, right!)

But you’ve heard about Value Added Tax, or VAT, and how it might start to affect you as you grow your business in the United Kingdom, Germany, France, Spain, Italy, or other countries.

What is VAT for FBA Amazon sellers and how will it affect your sales and profits? Here are some answers to help you along!

Impact of VAT on Your Amazon FBA Profit

As an Amazon FBA seller (or even more generally as an e-commerce retailer selling via FBM) if you have sales in European and other marketplaces, it is important that you understand what VAT, or Value-Added Tax, is and how it impacts your profits.

VAT is a consumer tax, and as an Amazon FBA seller, you may be responsible for charging your buyers that VAT, collecting it on behalf of the tax authorities, and then remitting it to the tax authorities. However, with the proper planning and processes in place, your Amazon FBA business’s profits should not be impacted by this VAT.

Here is how VAT works in practice: When your customers buy from you, you charge an additional percentage of tax as a surcharge. The VAT amount will depend on your FBA sales price, the Amazon customer’s location, your threshold limits, and the relevant VAT percentage. This VAT is not part of your FBA revenue or your FBA costs. The tax charged is paid to you by consumers as a surcharge. All you, the Amazon FBA Seller, must do is forward it to the respective local government on behalf of whom you are collecting. Again, you, the FBA seller are only playing the role of a government agent. The VAT you collect passes through you to the tax authorities you remit to. VAT does not impact your FBA profit.

A similar concept applies to you as an FBA Amazon seller making purchases for your e-commerce business, although accounting is a bit more involved.

If you make a purchase and are charged VAT, the extra VAT fees you incur will then be deductible from the VAT you’ve collected on behalf of your consumers. So the extra expenses you have incurred by paying VAT will be offset, or neutralized, by the corresponding amount of VAT collected from your FBA buyers that you, as an Amazon seller, can now keep instead of remitting to the authorities on behalf of your consumers.