Guidance warning. Please note that the following guidelines do not constitute tax, legal, or other professional advice and must not be used as such. It is the sole responsibility of all Papello clients to comply with all legal and sales tax requirements for issuing sales tax or VAT invoices in respect to your sales transactions. If you are unsure as to what the contents of an invoice you issue to your customers should be, we suggest that you contact your tax advisor.
Papello cannot assist you with any legal or tax advice as we’re not accountants or legal experts, and we stress that none of the following may be taken as professional advice.
How will sales taxes and/or VAT be applied to our invoices?
All cost prices shown in our platform exclude tax. Your order with us may then be subject to local sales tax rates, depending on the following conditions:
- where your business is based;
- where the item is shipped; and
- and in the case of VAT, whether your business is VAT-registered.
Sales taxes for each of your orders is automatically determined by our platform when each order is placed.
How does VAT work in the EU?
To help reduce the administrative burden on companies there are national VAT registration thresholds set by each individual country in the European Union.
The basic rules are as follows:
- Retailers may sell to private individuals in other EU States under their local VAT number, charging their home VAT rate. For Papello, this means adding UK at 20% to our invoices.
- Once retailers pass each respective EU country’s distance selling annual VAT threshold, they must register as a non-resident VAT trader in that country.
- They then can continue to sell, but must charge the local VAT rate if trading in that country.
If a non-EU based company is selling below these thresholds, it does not need to register for VAT.
Once over these limits within the same calendar year, it must apply for a VAT number. Each member country of the EU is free to set its own distance selling registration threshold.
The following table outlines the 2023 limits for each country.
| Austria (AT)EUR 35,000Belgium (BE)EUR 25,000Czech Republic (CZ)EUR 37,800 (CZK 2,000,000)Denmark (DK)EUR 6,708 (DKK 50,000)Estonia (EE)EUR 40,000Finland (FI)EUR 15,000France (FR)EUR 34,400Germany (DE)EUR 22,000Greece (GR)None (EUR 10,000 for distance sales)Hungary (HU)EUR 34,164 (HUF 12,000,000)Ireland (IE)EUR 37,500Italy (IT)None (EUR 10,000 for distance sales)Latvia (LV)EUR 40,000Lithuania (LT)EUR 45,000Luxembourg (LU)EUR 35,000Netherlands (NL)EUR 25,000Norway (NO)EUR 4,500 (NOK 50,000)Poland (PL)EUR 43,800 (PLN 200,000)Portugal (PT)EUR 25,000 (one-time taxable events)Slovak Republic (SK)EUR 49,790Slovenia (SI)EUR 50,000Spain (ES)None (EUR 10,000 for distance sales)Sweden (SE)EUR 7,500 (SEK 80,000)Switzerland (CH)EUR 97,000 (CHF 100,000)United Kingdom (GB)EUR 104,795 (GBP 90,000) | |
| Once VAT registered in a new country, there will be EU VAT compliance regulations to follow. These will include ensuring invoices are issued according to the local laws. Regular VAT returns will also have to be submitted to the respective countries. In addition to VAT returns, retailers may also be required to complete separate Intrastat filings (detailing the movement dispatched goods from their home state to the state of their customer) once the value of the goods goes over a certain threshold. The Intrastat thresholds by country are as follows: |
| Country | ||||
|---|---|---|---|---|
| Austria | €750,000 | €12 million | €750,000 | €12 million |
| Belgium | €1 million | €25 million | €1.5 million | €25 million |
| Bulgaria | BGN 280,000 | BGN 11.7 million | BGN 460,000 | BGN 5.6 million |
| Croatia | – | HRK 1.2 million | – | HRK 2.2 million |
| Cyprus | €55,000 | €5.8million | €160,000 | €1.85 million |
| Czech Republic | CZK 12 million | – | CZK 12 million | – |
| Denmark | DKK 5 million | – | DKK 6.7 million | – |
| Estonia | €130,000 | €6 million | €230,000 | €5.5 million |
| Finland | €600,000 | – | €600,000 | – |
| France | – | €460,000 | – | €460,000 |
| Germany | €500,000 | €46 million | €800,000 | €38 million |
| Greece | €90,000 | – | €150,000 | – |
| Hungary | HUF 100 million | HUF 14 billion | HUF 170 million | HUF 5 billion |
| Ireland | €635,000 | – | €500,000 | – |
| Italy | – | – | – | – |
| Latvia | €100,000 | €4 million | €200,000 | €2.5 million |
| Lithuania | €170,000 | €6 million | €280,000 | €3 million |
| Malta | – | €700 | – | €700 |
| Netherlands | €1 million | – | €800,000 | – |
| Poland | PLN 2 million | PLN 93 million | PLN 4 million | PLN 50 million |
| Portugal | €250,000 | €6.5 million | €350,000 | €5 million |
| Romania | RON 900,000 | RON 20 million | RON 900,000 | RON 10 million |
| Slovak Republic | – | €400,000 | – | €200,000 |
| Slovenia | €200,000 | €9 million | €120,000 | €4 million |
| Spain | – | €400,000 | – | €400,000 |
| Sweden | SEK4.5 million | – | SEK9 million | – |
| United Kingdom | £250,000 | £24 million | £1.5 million | £24 million |
What are the annual EU distance selling thresholds for VAT?
Each member country of the EU is free to set its own distance selling registration threshold.
The following table outlines these limits for each country:
| Germany | EUR | 800 000 € | 500 000 € |
| Austria | EUR | 1 100 000 € | 1 100 000 € |
| Belgium | EUR | 1 500 000 € | 1 000 000 € |
| Bulgaria | BGN | 1 650 000 ЛВ | 1 900 000 ЛВ |
| Cyprus | EUR | 270 000 € | 75 000 € |
| Croatia | EUR | 400 000 € | 200 000 € |
| Denmark | DKK | 22 000 000 KR | 11 000 000 KR |
| Spain | EUR | 400 000 € | 400 000 € |
| Estonia | EUR | 700 000 € | 350 000 € |
| Finland | EUR | 800 000 € | 800 000 € |
| France | EUR | 460 000 € | 460 000€ |
| Greece | EUR | 150 000 € | 90 000 € |
| Hungary | HUF | 250 000 000 FT | 140 000 000 FT |
| Ireland | EUR | 500 000 € | 635 000 € |
| Italy | EUR | 350 000 € | 0€ |
| Latvia | EUR | 330 000 € | 200 000 € |
| Lithuania | EUR | 550 000 € | 400 000 € |
| Luxembourg | EUR | 250 000 € | 200 000 € |
| Malta | EUR | 700€ | 700€ |
| Netherlands | EUR | 5 000 000 € | 1 000 000 € |
| Poland | PLN | 6 200 000 ZŁ | 2 800 000 ZŁ |
| Portugal | EUR | 400 000 € | 400 000 € |
| République Tchèque | CZK | 12 000 000 KČ | 12 000 000 KČ |
| Romania | RON | 1 000 000 L | 1 000 000 L |
| United Kingdom (England, Scotland, Wales)* | GBP | N/A | N/A |
| United Kingdom (Northern Ireland) | GBP | 500 000 £ | 250 000 £ |
| Slovakia | EUR | 1 000 000 € | 1 000 000 € |
| Slovenia | EUR | 200 000 € | 270 000 € |
| Sweden | SEK | 15 000 000 KR | 4 500 000 KR |
What is sales tax nexus?
Sales tax nexus applies to companies trading in the US.
Sales tax nexus is the connection between a seller and a US state that requires the seller to register, collect, and remit tax on sales made in that state.
The term is used when a retailer has a physical presence in a particular state but also applies to online retailers when they have:
- Employees or salespeople in a State.
- Store inventory or stock in a State.
- Pass an individual State’s economic threshold for total revenue or number of transactions in that state.
The sales thresholds vary from $10,000 to $500,000 in sales, and some States don’t have a transaction threshold at all.
It is the responsibility of all Papello’s clients to ensure they pay any applicable sales taxes to the countries they are transacting in.
What are the sales tax implications for dropshipping in the US?
A drop shipment is a sale where a retailer accepts an order from an end-consumer and then places the order with a third party (e.g. a print on demand manufacturer) and instructs the third party to produce and then deliver the item to the customer.
When it comes to sales taxes, the drop shipping fulfilment model is made particularly complex due to issues of nexus, product sourcing, customer location, and the location of manufacturing.
Simplified, our drop shipment sales tax model involves:
- Retailer (You) takes the end-customer order and charging appropriate sales taxes;
- Retailer (You) placing the order with the drop ship platform (Papello);
- Drop shipping platform (Papello) charges Retailer (You) with the appropriate sales taxes for that specific order (Papello determines these automatically based on each order’s specific delivery criteria);
- Platform (Papello) manufacures the order, and applies the correct local sales taxes for the order;
- Drop shipping platform (Papello) contracts with a courier partner to deliver the product to the customer.
- Courier company invoices ‘Platform’ (Papello) for shipping service and applies correct local sales taxes to shipment invoice.
If the Retailer (You) have nexus in the State where the sale occurs, the Retailer (You) collects sales tax from the end-customer, even if the retailer engages a third-party drop shipping platform or manufacture and deliver the product.
Papello will not be responcible for any customs disputes or requests from end-customers or Retailers (You).
What is IOSS?
On the 1st of July 2021, the European Union – as part of its wider VAT reform – launched the Import One-Stop Shop (IOSS) platform to simplify the declaration and payment of VAT for B2C imports from outside of the EU up to a value of €150.
This optional platform requires you to register with a single EU Member State to manage your sales VAT throughout the EU, removing the need to register for VAT in every country you’re selling goods to.
When selling goods to consumers in the EU, registering with the IOSS means you can collect accurate VAT for the purchase from the consumer at the point of sale, which can then be declared and paid in a periodic VAT return. Shipments containing a valid IOSS number with an intrinsic value of less than €150 (NB this is only a scheme for small value goods) will therefore not be subject to import VAT — since VAT will be taken based on the transaction’s origin — potentially helping products move through customs quicker.
Registering for the IOSS platform isn’t obligatory, and you can continue to declare and pay VAT on EU imports as you do today.
Where can I register for an IOSS number?
If registering for the scheme from outside the EU then Ireland is viewed as the preferred option for many businesses. The Netherlands is a good alternative — although it should be noted that many member states don’t appear to have the software systems currently set up required to actually implement this programme efficiently at this time.
How is OSS different from IOSS?
The One-Stop Shop (OSS) platform is similar to IOSS with the purpose still being to simplify the declaration and the payment of VAT for B2C sales up to a value of €150. However, the OSS platform is specifically designed for merchants based in the EU selling goods to customers who are also within the EU.
Depending on your location, you may need to use either an IOSS or OSS number.
How do I use my IOSS/OSS numbers for orders?
You can inform us of your IOSS or OSS numbers by updating your company details in your Papello account. These details will then be used for all applicable orders automatically.
Does Papello charge US sales tax?
All Papello shipments are sent from the UK.
Exports to the US are treated as zero-rated, depending on the product, for UK based sellers.
However, this does not mean the end-customer is not required to pay sales tax or the Retailer (You) are not required to collect and pay sales tax. This would depend on your business location, nexus status and you’re selling via a marketplace, that may be collecting sales tax on your behalf.
You should seek professional guidance if you are unsure.
Will VAT be applied to my order?
If your order is being delivered to the UK, you’ll be charged VAT (sales tax) on the fulfilment costs at the applicable UK sales tax rate, currently 20%.
How do I collect the correct VAT if I don’t have an EU VAT / IOSS / OSS number?
You should consult with your tax advisor to determine whether you should be registered for VAT and how much VAT to charge your customers.
Do I need to have a VAT / IOSS / OSS number to be able to place orders with Papello?
No. We supply products to both retail and wholesale customers, some of whom are not VAT registered. If you’re unsure as to whether or not you should have one, you should consult with your tax advisor.
Is VAT charged on both products and shipping?
Where chargeable, VAT is charged on both products and shipping.
Whose responsibility is it to ensure that any applicable import tax / customs fees are paid?
It’s the responsibility of the end customer to pay for these fees.
Is Papello responsible for charging VAT on all orders and declaring them, or will the end customers be required to do this themselves?
Papello is responsible for charging the applicable VAT to the merchant (You).
Should I register for sales tax in the US?
You should consult with your tax advisor to determine whether you should be registered for sales tax in the US and how much sales tax to charge your customers.
How much sales tax will be applied to my orders in the US?
This varies by state. This blog post provides more details on the sales tax requirements for each state.
I’m being charged sales tax on all of my US orders, however, nearly all of these orders are processed on Etsy, which automatically charges US sales tax to my customers. How do I notify you of these sales?
If submitting orders manually through the Papello dashboard, you can select the option to confirm that US sales tax has been charged on the order.
Can I pay any applicable import tax / customs fees upfront so that my customers don’t have to pay them?
It’s necessary to charge your customers the correct VAT, sales tax and / or customs fees. These taxes must also be charged by Papello to its merchants where applicable.
Can you put a lower value on the order?
No. Unfortunately, this isn’t possible.