What should I know before starting to sell physical goods?
Before initiating the sale of physical goods, it is essential to consider several compliance factors that significantly influence the sales process from the accounting side.
- The dispatch country of the goods
- The location of the customer
- The warehouse or dropshipping method
- Tax compliance
- Legal obligations
These elements must be thoroughly considered as they may impose additional reporting or compliance obligations.
What additional reporting is required while selling physical goods?
Accounting related to the sale of physical goods is a complex and detailed process that requires submitting and collecting more information compared to the sale of services or digital products.
When engaging in physical goods sales, the following reports are relevant for accounting purposes:
- INVENTORY REPORT
- SALES REPORTS
- FOREIGN VAT RETURNS
- CUSTOMS AND IMPORT VAT
- PACKAGE REPORTING
Do I need to charge VAT from my customers if I sell physical goods?
Determining whether to charge Value Added Tax (VAT) on physical goods sold to customers depends on several factors. These factors include the location of your customers, whether they are private (B2C) or business (B2B) consumers, and whether the goods are sold within the European Union (EU) or exported outside of it.
What are the main options for selling physical goods with Xolo?
There are five main e-commerce models for selling physical goods supported by Xolo:
1) Own e-shop
2) Dropshipping
3) Amazon non-EU (FBA)
4) Amazon EU (FBA)
5) Print-on-Demand (PoD)
Xolo does not facilitate the operation of a physical store for the sale of goods.
What is dropshipping?
Dropshipping is a business model that allows you to sell products without maintaining any inventory. Instead, upon making a sale, you purchase the item from a third-party supplier and have it shipped directly to the customer. This model has specific VAT implications, depending on where you, your supplier, and your customers are located.
Dropshipping involves navigating complex VAT rules that differ based on the locations of you, your suppliers, and your customers. Key aspects to consider include VAT registration, import VAT, employing schemes like OSS and IOSS for simplification, and adhering to marketplace facilitator rules. Staying informed about the specific VAT regulations in each country involved in your dropshipping operations and maintaining accurate records is vital for ensuring compliance.
What are the rules for selling physical goods on Amazon?
Complying with VAT rules when selling on Amazon requires a thorough understanding of where VAT registration is necessary, how to calculate and collect VAT correctly, and adhering to reporting and compliance requirements. While Amazon's VAT services can simplify certain aspects of this process, it is essential to be well-informed about the VAT regulations applicable in each country where you intend to sell.
In some jurisdictions, Amazon is responsible for collecting and remitting VAT on behalf of sellers for sales made through their platform, particularly for sales outside of the EU. This arrangement simplifies VAT and sales tax compliance for sellers in those countries. However, sellers are still required to report and reconcile these transactions accurately.
What are the rules for selling goods outside the European Union (incl. UK)?
When selling goods from an Estonian company to customers outside the European Union (EU) the VAT rules can be straightforward but must be carefully followed to ensure compliance.
It is important to determine from where the goods are shipped (from the EU or outside the EU).
What are the rules for selling goods from a warehouse in the European Union?
When an Estonian company sells goods from a warehouse located in another European Union (EU) member state, it must comply with VAT rules applicable to intra-EU transactions. These rules can vary depending on whether the sales are classified as B2B (business-to-business) or B2C (business-to-consumer).
To be noted, that Xolo does not facilitate the operation of a physical store for the sale of goods.
It is important to maintain detailed records of all transactions, invoices, and proof of transport for a minimum of seven years, as required by Estonian and EU law.
What is OSS and when do I need to register for it?
OSS, also known as the One Stop Shop, is a VAT (Value Added Tax) scheme implemented by the European Union. Its purpose is to simplify VAT obligations for businesses engaging in cross-border sales of goods and services within the EU.
The implementation of OSS provides several advantages, such as:
- Simplified VAT registration: Instead of having to register for VAT in each EU country where you conduct sales, you can register in one member state and report all your EU sales there.
- Quarterly reporting: A quarterly VAT report is submitted to the Estonian Tax Authority, covering all eligible cross-border sales within the EU.
- Quarterly VAT payments: A consolidated VAT payment to the Estonian Tax Authority is made for all EU sales, this payment is subsequently distributed to the respective member states.
What is IOSS and when do I need to register for it?
IOSS, also known as the Import One Stop Shop, is a VAT (Value Added Tax) scheme introduced by the European Union to simplify the declaration and payment of VAT for distance sales of goods imported into the EU.
IOSS registration must be completed before making the first sale.
The IOSS scheme is applicable when selling imported goods from outside the EU to consumers within the EU, as long as the value of each shipment does not exceed €150.
IOSS does not apply to goods over €150 or excise goods (e.g. alcohol, tobacco). In these cases, it is necessary to register the VAT number in each country where the end customer is located.
The implementation of IOSS provides several advantages, such as:
- Simplified VAT collection: VAT is collected at the point of sale, allowing the consumers to understand what they will pay and avoiding unexpected charges upon delivery.
- Streamlined import process: Goods imported using IOSS can be delivered faster since VAT is prepaid at the point of sale and import VAT on goods is not required.
- Monthly VAT Reporting: A monthly consolidated VAT payment to the Estonian Tax Authority is made for all EU sales, this payment is subsequently distributed to the respective member states.
For businesses, it is essential to determine whether they meet the criteria for IOSS registration and to follow the necessary steps to register and comply with the IOSS requirements.