VAT compliance for marketplaces

Online platforms and marketplaces play a crucial role in the way people buy and sell digital products and services. They act as the middleman between the customer and the seller.

They make it easy for businesses to sell their products and services to a global audience by providing all the necessary technology and infrastructure. As a result, it is common for these marketplaces to see frequently new companies joining and using their services to expand their reach and sell internationally.

More and more online stores are using platforms to run their businesses, making it a crucial part of their operations. And as a result, these platforms play an important role in making sure that these online stores are following all the necessary regulations and laws.

The EU VAT reform

On July 1, 2021, the laws about Value Added Tax (VAT) for online shopping changed in the European Union. These laws hadn't been updated for a long time, and were originally made for companies that sell things through mail order catalogs. The change will affect how online stores and marketplaces do business across the EU.

But EU member states realized a few years ago that EU VAT law was no longer on track with the developments taking place in the e-commerce ecosystem.

If online retailers and marketplaces don't follow these new laws, they may end up not
paying the proper amount of VAT for thousands of transactions.

These new laws have caused some trouble for online marketplaces like Amazon, particularly because a significant proportion of the businesses that sell on their platform are from outside the EU. For example, in Germany, about half to 60% of the sellers on Amazon are third-party merchants, and more than half of these merchants are from China.

The VAT laws not being followed by non-EU merchants led to a huge quantity of tax money being lost in the past. Because these merchants, especially those from China, were not paying the VAT that they were supposed to, it gave them an unfair advantage over merchants based in the EU. The EU has now changed the laws and put more responsibility on the marketplaces to make sure everyone is following them.

The EU has new laws for online shopping, called the VAT e-commerce package, that can make online sellers and marketplaces responsible for paying taxes. This can be difficult and risky for them.

Since July 2021, it's very important for online marketplaces to make sure that they pay the right amount of VAT for each transaction. This means they need to have systems in place to figure out the right VAT rate, create invoices, file paperwork, and report to the government. This applies to marketplaces when they are responsible for paying taxes on transactions made by sellers who are not based in the EU or for sales made to customers who are not in the EU.

Online marketplaces have to be careful about new tax rules to avoid big problems with taxes and money. If they don't follow the new rules, they might have to pay a lot of taxes and interest for sales made on their platform, even if it was a long time ago. In Germany, this would mean paying 19% of the sales amount, plus fines and extra interest. In some other countries like Italy, the extra charges can be as high as 240%.

VAT rates vary widely across the EU!

Online merchants and marketplaces both have to make sure they know the right VAT rate for their products and services. And in some cases, the marketplaces have to make sure that the right VAT rate is applied in every country of the EU.

Overall, any business or organization that needs to accurately track and report VAT can benefit from using an online API that allows VAT rates and invoice line items calculation. By automating this process, businesses can reduce the risk of errors, save time, and improve the accuracy of their tax reporting.

Check our documentation on how to use our API to check VAT IDs.

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