U.S. Online Sellers: Are You Subject to VAT?
More and more U.S. sellers of goods (both consumer hard goods and software items) are used to selling in the U.S. and having to figure out whether they are subject to the various U.S. jurisdictions that charge sale and use taxes. But as online sales increase and attract more customers outside the U.S., these U.S. sellers have to consider a different animal: Value Added Tax (VAT).
Unlike sales and use tax that may be exempt under various exemptions (e.g. sales for resale or products used in manufacturing) there are not the same exemptions possible under VAT rules. Plus, inventory now being stored for quick sale to customers in the UK and Europe that are exempt from income taxes under a treaty do not have the same protection for VAT purposes. Recent tax guidance by Her Majesty’s Revenue and Customs (HMRC) states that the VAT liability applies to the sellers, consumers, representatives and marketplaces allowing sales by those sellers.
UK tax agency tackles online VAT evasion
HMRC warned in a tax guidance that overseas online retailers must pay VAT on items sold in the UK.
The tax agency said VAT liability applies to overseas sellers supplying goods already in the UK at the point of sale to consumers through an online marketplace. It also applies to:
- UK VAT representatives for overseas sellers, and
- Online marketplaces allowing sales by overseas sellers.
This ruling reportedly applies to such mega-online retailers as Amazon and eBay. They would be responsible for VAT fraud committed by sellers using their websites. According to the Guardian, a UK newspaper, Amazon already “has been conducting a review of seller VAT compliance in the UK.”
An overseas online retailer will, according to HMRC, be established in the country where the functions of its business’s central administration take place. In working this out, the retailer must take account of where:
- Essential management decisions are made,
- Its registered office is located, and
- Management meetings take place.
HMRC says that, if an entity isn’t sure it’s an overseas seller after considering these factors, the deciding factor is where essential management decisions take place.
An online marketplace is a website, or any other means by which information is made available over the Internet, through which those other than the operator are able to offer goods for sale, whether or not the operator also does so. It doesn’t matter if the online marketplace isn’t established in the UK or selling its own goods over the Internet.
Overseas sellers making their supplies as a business activity in the UK must register for VAT in the UK. Once registered, they must charge VAT on UK sales and account for and pay that tax to HMRC.
HMRC warns that operators failing to meet the requirements can be held “jointly and severally liable” for the tax from the date of any liability notice. UK VAT representatives of an overseas seller failing to meet the tax requirements can also be held jointly and severally liable from the date they became a representative.
Moore Stephens has a network of offices that deal specifically with these type of VAT issues. If there is a particular country where you might have questions, Moore Stephens Doeren Mayhew can coordinate a VAT review of your sales operations.
Victor (Sandy) Jose, CPA
For more than 35 years, Victor (Sandy) Jose has assisted clients with their inbound and outbound investments, Foreign Account Tax Compliance Act (FATCA) compliance, Offshore Voluntary Disclosure Program projects, as well as other withholding and reporting projects. Sandy has extensive and broad based global experience in the automotive and manufacturing industries. Contact Sandy at firstname.lastname@example.org or (248) 244-3082.