VAT and Amazon and You – Part 3. VAT for Importers.

You’ve done it. You’ve found your product. Found suppliers. Got a sample. Picked a manufacturer. Placed your order, and arranged shipping.  Your products are en route to an FBA shipping center in (GERMANY, ENGLAND, FRANCE, OTHER)… but wait.

...collaborate and listen.
…collaborate and listen.

Now someone wants an IMPORT DUTY (VAT) from you.

Let’s say you bought 1000 sofas from China for $10 each. I’m not sure why you want 1,000 sofas. I’m not sure why they only cost $10. Both of those things sound like absolute nonsense, but I’m not here to judge you, your buying habits, or your excessive need for cheap sofas. I’m here to help you understand VAT.

When FedEx delivers these Sofas (sure) from China into the EU, you’re going to have to pay an IMPORT DUTY based on the price of the Sofas.

Your IMPORT DUTY(VAT) rate will vary based on the country, and the product, but for sake of simplicity we’ll say it’s 20%.

The price you pay, upon importing those Sofas is $2,000.   (10% times 1000 sofas times $10/sofa).

“But …why? Why?”

Because if you’re going to conduct business out of the country, the government wants/needs to collect taxes from you, both to stop the death flotillas, but also to give local businesses (who paid taxes) a shot and also  so that the economy doesn’t hemorrhage money.

“But…why am I paying a tax, on something I’m going to sell? I thought the WHOLE POINT of a VAT, Value Added Tax, is that I get taxed when I add value. Not just when I show up with all my glorious sofas!”

The thing is… t’s basically your word against the government’s that you’re going to sell those sofas.   What if you don’t? What if you just give them out? Or what if you stack them? Or what if you use a new sofa every week, throw away the old ones, and then have essentially bought yourself (1000/52) 19 years worth of sofas?  You have to be taxed on that sort of wasteful stupidity.

Or you have to sell them.

Then when you sell them for $20, you tack on the country’s 20% VAT ($20 sales price, $4 VAT, total price $24) and at this point you have sold 1000 sofas for $20 and charged ($4 VAT times 1000 sofas) $4,000 in VAT.

YOU: Hey government. I really sold those Sofas.  Look here’s the receipts.
GOVERNMENT: My bad bro. We thought you were a stacker.  Here’s your $2,000 back.
YOU: Oh. Thanks!

And that is the basics of how VAT works for importers.  You pay a VAT on import, and then tack on a VAT when you sell, and get reimbursed for that initial VAT import duty.

Now, there’s one last wrinkle of complexity, and that has to do with how much stuff you have to sell before the government swoops in to take a bite, and where your goods are stored and how that affects your VAT liability, but lets save that for the 4th and final post.

VAT and Amazon and You – Part 2. What is VALUE ADDED TAX ?

You can probably guess from the name:

VALUE ADDED TAX(VAT) is a tax on the value added to an item.

Content Marketing is EASY!
Content Marketing is EASY!

But just in case that’s not entirely clear, lets revisit our Salt and Pepper shakers from yesterday.  Actually, no lets try a new product, I’m sure we can find one that’s been done to death in one of the “Amazon Review Groups.”

Screen Shot 2016-09-01 at 7.56.51 AM

Pour over coffee maker? Yikes.  This is a bit saturated, but okay.  Here’s how VALUE ADDED TAX works in the world of product sales.

Unlike SALES (Consumption) TAX which is applied at the last stage of a product (Right before it gets thrown in the trash), VALUE ADDED TAX (or VAT) gets added (surprise) each time value is added to the product.

Let’s assume the VAT for this country is 10%, just because that’s easier mathetmatically.

So… assuming this is made out of metal, a… it’s rare that you get to use a word for the first time in your life, but I’m pretty confident this is that time for me.  Here it comes… a metallurgist (maybe?) takes a bunch of metal and using something that is probably not super safe or easy to use bangs this into shape and sells the raw pieces to the manufacturer.

METALLURGIST: I’m not putting this together, but you can CLEARLY see that if you did, it’d be a pour over coffee maker.
MANUFACTURER: Yeah I can put that together, no big deal, how much?
METALLURGIST: Crap. Yes. I did.
METALLURGIST: Wait why again? Oh right. Death squads. Here. Take it.


Now the manufacturer has his employees assemble the pieces for this pour over coffee maker, slap a box on it, and a label, and then sells it to YOU, the RETAILER.

RETAILER: I’d like to buy ONE pour over coffee thinggy, just to see if I can sell it on Amazon.
MANUFACTURER: Sounds good that’ll be $1.50.
RETAILER: Damn that’s cheap. I can probably sell this for like $15.
MANUFACTURER: Okay, fine $1.75.
RETAILER: I desperately need an inner monologue.
MANUFACTURER:  I meant $2.00.
RETAILER: Sigh. I’ll take it.
RETAILER: That makes 2 of us.
MANUFACTURER: Shh. Death squads. That’s a real thing. Show some respect.
GOVERNMENT: 10% please.
MANUFACTURER: Of $2? Fine. This costs $2.20, I’ll give you your twenty cents if that’s what it costs to NOT have death squads.

Screen Shot 2016-09-01 at 8.26.15 AM
GOVERNMENT: No, not TWENTY cents. Just TEN.
GOVERNMENT: Paying TWENTY cents would mean the TOTAL VAT for this would be 30 cents, 10 cents from before, and 20 cents now. I don’t need you to pay for the value THE METALLURGIST added. Just the value that YOU added. Which was $1. So, 10% of $1 please.


It’s probably worth restating.  In a VAT system the government doesn’t tax for the price of the item. The government only taxes for the *additional* value of the item, at each step.  The value added. So if you make something for $10, and sell it for $20, you’ve added $10 of value, and will be taxed on those $10.

If the person who bought it from you for $20, then sells it for $25, they’ve only added $5 of value to it, so they get taxed on that $5.

If that person then sells it for $200, after purchasing it for $25, they’ve added $175 of value, and will be taxed on *that*.
With me?

So, to re-state. Value Added Tax is applied to a product on the value that is added to it at each step of the chain.


We’re not done yet, but we’re close.  There are TWO more aspects to Value Added Taxes, and once you’ve learned that, you’ll have learned as much as you realistically need to know.

Those two things are IMPORT VAT, and THRESHOLDS.   But we’ll save those for later posts.