Amazon FBA and taxation

Amazon FBA, or Fulfillment by Amazon, is a business model that might seem attractive. Basically, if you decide to sell a certain product through Amazon, the deal is that you send your product to Amazon for storage and distribution, properly packaged. From then on it is your job to promote your business and find new clients, while Amazon does the practical things like handling orders and sending the products. There are, of course, fees for this service, as well as fees for storage.

But you should bear in mind that going into this line of business may bring some purely bureaucratic setback to you.  There are Amazon’s strict rules to consider, there are sales tax and VAT regulations in different EU and non-EU countries, and there is personal responsibility for faulty or dangerous products.

The residence issue

First of all, bear in mind that if you will be trying to optimize your taxes by setting up another company for FBA purposes and for certain markets, you might get you seller account blocked by Amazon, or at least lose you positive feedback. So, moving you Seller Account to another company is not advisable.

It you opt for both new company and new seller account, there comes the residence decision.  Taxation regulations are different depending on your residence. Usually, in states where taxes are high there are also CFC rules, which ensure that companies set up for tax evasion purposes are not allowed to operate as they intended.

So, if you are a UK resident and you set up a shell company in, say, Malta, eventually that will lead to detection. Authorities will sooner or later treat you as a UK resident, for taxation purposes. And do not imagine that you can get away with not distributing profits. At home or abroad, you will have to do it and it will be taxable.

But if your new company is not just a “shell company”, this will change things and could even turn out to be a good solution.

Substance – what is this?

Substance is the fact that a company exists, that it is managed and operated by real people, it has its physical office in a certain place and this office functions as a place to sign deals, plan campaigns, handle orders etc. If you make sure that your new FBA company has an office in the country you selected, and there is at least one employee there, local or not, your company will have substance, and will not be suspected of tax evading. You could be offered “nominee directors” or other evasive schemes by company registration agencies, but the risk of being detected is high. Also, the nominee director has no right to work for another company and should be amply paid. So, if you set up an office for real, and pay a salary to an employee to do some work, say, in packaging before shipment to Amazon FBA, that could help you a lot. In countries like Bulgaria, young and capable people with excellent knowledge of English are easy to find, and salaries there are lower.

The above solutions apply if you are, say, a UK resident trying to set up a new company to sell through Amazon FBA. But it will be much easier for you if you are not a UK resident at all. If your personal residence is in Bulgaria, Malta, Costa Rica, Paraguay, then scrutiny will not be so strict, and you will find it easy to establish “shell companies”.

The issue of company ownership

With Amazon FBA product liability applies, so you are responsible for any injuries your products cause. This can turn out to be expensive, so it is better if you have many companies instead of one. Then, you could structure their ownership as a holding. The holding  is the parent company which you own, and the others are owned by the holding and not by you. But there is a better possibility – you own nothing, you just control the company. So you either have the company created by a trust,  foundation or association, or sell it to them at some early point. The legislations of Panama, the Bahamas and Switzerland make this very practicable.

Where to register a company for Amazon FBA?

To begin with, the choices are not unlimited due to Amazon’s restrictions. Your target market is also relevant here. But on the whole, it is better to register several  companies for different target markets, because one choice is never suitable enough for all scenarios, and because, as we mentioned, this minimizes risks.

The USA are generally easier. There is no VAT, there are ways to evade sales tax, and “shell” companies are not as strictly prosecuted. The EU is more difficult with its VAT and customs. Also, don’t forget that when you register a company, you need local telephone numbers and familiarity with bank account restrictions.

Here are some suitable countries: Singapore, Bulgaria, Mauritius, Hong Kong, Canada, The USA.

Outside the EU, there are problems. You need a VAT number, and you don’t get one until your establishment is permanent, but that makes you subject to local taxation legislation.

One place that seems to avoid this is The Isle of Man. There, a British VAT number cat easily be obtained, and there is no corporation tax. Large, expensive deals and purchases are often carried out through the Isle of Man. But with Brexit coming, this status is more and more uncertain.

The concepts of ”small business“ and “delivery threshold”

Different countries have different thresholds of turnover to qualify a company as a small business or not.  The ones with the highest thresholds are, of course, the most preferable. The UK, Romania and Ireland set the boundary at 65 000 – 85 000 EUR. Small businesses are exempt from certain taxation.

Still, a successful Amazon FBA venture will hardly stay below these thresholds. But at least some amounts can be saved from taxation at the beginning.

There are also the delivery thresholds, which cancel the small business regulations and sales taxes are deducted if you exceed them.

Is Eastern Europe a tax haven?

Officially no, Eastern European countries are not suspected of facilitating tax evasion, but nevertheless they have opportunities to save on taxes. Bulgaria, Hungary and Romania are especially beneficial. These are preferred if a business is obliged to prove that it has substance.

In Romania, for example, you are a micro company if your turnover is less than 1.000,000 EUR. So, you will be taxed 3% on sales, which drops to 1% if you hire a Romanian employee. This is a double advantage – the substance requirement is fulfilled at a very low cost, and a competent helper has been employed. In Bulgaria, it is easy to obtain an EU VAT number. Both Bulgaria and Romania have young and capable people who know English really well and are ready to work for a very reasonable salary.

When it comes to the flat profit taxation of 10 % in Bulgaria, there are costs which you can deduct and transferring funds to offshore companies is also possible.

Limited Partnerships

In this type of structure, the so-called general partners are the ones personally liable. The limited partners are not, and they have no management authority. Limited partnerships pay income tax only on profits earned within the country of registry, and for those made outside the country, income tax is paid in the country of residence. But if the country of residence does not impose tax on foreign earnings – as it is in Panama – then you are income-tax free.  There is only one setback here – obtaining a VAT number. This requires that you sell in the country where your headquarters are.

So, on the whole, for a successful Amazon FBA business, changing you company’s headquarters or even your personal residence open up many possibilities as to saving on taxes.

Asset protection through Bulgarian private foundation

Is it the end of financial privacy thanks to Common Reporting Standard (CRS), FATCA and other new laws? Can a Bulgarian foundation help you?

Back in the day, financial privacy was considered a basic human right but, with the rise of cross-border terrorism, tax evasion and money laundering, the major governments of the world are fighting to bring transparency to international financial transactions. This is a noble cause and we all support it. But due to this issue, the law-abiding citizens are at the risk of their privacy being invaded. The never-ending leaks from major banks are a new challenge and do not seem to stop.

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VAT on intra-EU services

These are the general rules for the Vat taxation of intra-EU services in accordance to the Bulgarian Value Added Tax Act (VATA).

The intra-EU goods supplies are subject to special rules. Here is the VAT taxation procedure for some of the most common intra-EU services provided:

 General intra-EU supply taxation rules

The general rules for this type of supplies are listed in Chapter 5 Taxation of intra-community supplies of VATA (articles 51 to 53). Continue reading “VAT on intra-EU services”

Advance payments in accordance with VATA

Advance payments are a key component of the Value Added Tax Act (VATA) in Bulgaria, due to the fact that they have a direct relation to the VAT charging obligation and with the tax credit deduction rights. Here is a short overview of the types of advance payments and their relationship with invoice issuance as well as the rights for tax deduction for advance payments and the deposits made as such payments:

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Required documentation and reporting in compliance with the Value Added Tax Act (VATA)

In accordance with the 2006/112 EC directive from 28.12 2016 issued by the EC for the adoption of a common VAT taxation system among member states, there are set rules for issuing invoices and for the harmonization of the tax laws related to VAT including the specific requirements for their contents and conditions for issuing in Bulgaria. Any tax registered supplier is obligated to issue an invoice for the supply of services or goods for an advance payment received except for the cases when the supplies are documented otherwise.

A person who is registered under VATA for taxable supplies can take advantage of the right for tax deduction only when the services and goods provided are used for the purposes said by the registered person.

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VAT charging and tax rates

Responsibility for charging VAT

Any person registered under the Bulgarian Value Added Tax Act (VATA) is obliged to charge value added tax and issue a tax document, such as an invoice, protocol or notice with the VAT amount indicated on a separate line. The document needs to be added to the purchase ledger for the relevant period in the VAT declaration issued in accordance to Art. 86 of VATA. If a document is not issued in the required period, the VAT is due for the period when the tax becomes chargeable.

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Supply of goods – types of places in accordance with Bulgarian VAT regulations

There are different ways for determining the place of supply of goods in accordance with the Bulgarian Value Added Tax Act (VATA). This is detrimental for the type of VAT taxation regime of each supply to Bulgaria. The basic principle for VAT taxation for each supply is that it is in accordance to the local laws on the territory of the supply.

General terms

Art. 6 (2) of VATA stipulates that when the goods are not shipped or forwarded but rather their ownership is passed by handing them over – the place of supply is where they are handed over to the buyer.

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OECD issues consultation documentation regarding the investment schemes involving misuse of residence for circumventing the Common Reporting Standard

A growing number of jurisdictions are offering Citizenship by investment (CBI) or Residence by investment (RBI) schemes allowing foreign citizens to obtain local citizenship or permanent or temporary residence rights in order to take advantage of the local flat fees or in exchange for local investments. These individuals may be interested in these opportunities for a number of legitimate reasons such as taking advantage of visa free travelling, increased mobility or better job or educational opportunities, or the choice of living in an economically stable country. But at the same time the information which is released on the market and obtained by the OECD CRS public disclosure facility stresses on the various RBI and CBI misuse schemes which are aimed at circumventing the requirements for reporting under the Common Reporting Standards (CRS).

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OECD has released its latest developments regarding the BEPS implementation

OECD has announced further actions to be taken for efficient Base erosion and profit shifting (BEPS) implementation for the collaboration among the country members of the Organization and their jurisdictions of potential tax avoidance schemes which use the existing mismatches and gaps in the tax rules for shifting profits toward locations with lower or no taxes. The latest developments are targeted towards assuring certainty for both Multinational Corporations and tax administrations and require Country-by-Country (CBC) reporting.

The Inclusive Framework includes the newly approved updates to the results of the preferential regime reviews of the Forum on Harmful Tax Practices (FHTP) regarding BEPS Action 5.

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