Taxation through the Amazon platform

We will look at the specifics of taxation when declaring services provided through a platform such as Amazon under the VAT Act. Imagine that we have a Bulgarian company that operates online trading through a platform such as Amazon and other similar online trading platforms.

The current trend for such cooperation is to take place through the so-called “dropshipping” model. The dropshipping business is a way to trade in goods that have not been purchased in advance by the manufacturer. The dropshipping trader advertises the product and when it is sold online, the trader buys it from the manufacturer and sends it to the customer.

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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.

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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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