Storage of goods in the EU and the UK in e-commerce and VAT obligations

What are the tax obligations related to storing goods in another EU country or the UK?

When deciding to use a foreign warehouse, business owners must be aware that this process comes with the following obligations:

• Obtaining a local VAT number in the country where the warehouse is located.
• Declaring the movement of goods.
• Obtaining an EORI number (in the case of the UK).

Many of these obligations depend on the storage and sales models used. We will explore different scenarios below, but first, let’s answer a key question.

Is VAT registration necessary when storing goods in another EU country?

E-commerce sellers who store goods in an EU country other than their home country are, in most cases, required to register for VAT in the country where the warehouse is located. This registration is necessary because it allows for proper declaration of goods movements and local sales if such occur.

An exception to this rule, which allows sellers to avoid VAT registration in another country, is storing goods in a consignment warehouse. However, this solution requires meeting specific conditions.

After registering for VAT, another obligation that arises with storing goods in a foreign warehouse is declaring the movement of goods.

How to declare the movement of goods to a foreign warehouse in another EU country?

When a business sends goods from one country to its own warehouse in another country, it must declare a so-called non-transactional intra-community acquisition of goods in the destination country and a non-transactional intra-community supply of goods in the dispatch country.

Non-transactional Intra-community Supplies/Acquisitions and the movement of goods to foreign warehouses

To qualify for non-transactional WDT/WNT, the goods must be moved by the taxpayer from one EU country to another, and the following conditions must be met:

1. The goods must have been produced, extracted, or acquired by the taxpayer during their business activities (including WNT and import of goods).
2. The goods must be used in the taxpayer’s business.

Additionally, for non-transactional WDT/WNT, the taxpayer may apply a 0% VAT rate if certain conditions listed in Article 42(1) of the VAT Act are fulfilled.

Example

A Polish company, A, stores its goods in a warehouse in Romania, where it previously registered for VAT. The company sends its goods from its warehouse in Poland to its warehouse in Romania to sell them. Consequently, the company must declare this movement as a non-transactional ICS in Poland and a non-transactional ICA in Romania.

When goods are sold to another company, and the shipment occurs from one EU country to another, it is classified as an intra-community supply in the dispatch country (ICS) and an intra-community acquisition in the recipient’s country (ICA). For more information on this matter, please, check our article – What is an Intra-Community Supply of Goods (ICS)?.

VAT Calculation for Sales from a Foreign Warehouse

To correctly calculate VAT on goods sold from a foreign warehouse, consider three factors:

1. Customer status – private customer (B2C) or business customer (B2B).
2. Country where goods are delivered.
3. The total value of the company’s foreign sales.

The third point relates to the mail order sales limit, which is €10,000. If this threshold is exceeded, the seller must register for VAT and account for their B2C sales locally in the destination country, applying local VAT rates and submitting local VAT returns.

Alternatively, the seller can use the VAT OSS procedure, allowing them to report all foreign sales to private customers in other EU countries via a consolidated VAT return in their home country.

Private customer from the same country where the foreign warehouse is located

When selling goods stored in a foreign warehouse to private customers (B2C) from the territory of the same country, this sale should be settled locally, i.e. by filing a local VAT return.

The VAT OSS procedure cannot be used here, nor does the WSTO limit affect it. This is due to the fact that these apply to sales to private customers, and the country of delivery is another EU country. In this case, the factor excluding the application of the VAT OSS procedure is the location of the customers in the same country.

Example

Company A stores goods in its own warehouse located in Romania and sells them through its online store to private customers from that country.

In this situation, the VAT OSS procedure will not apply, because the contractors are located in the same country as the warehouse from which the goods are shipped. As a result, such sales should be treated as local sales, local VAT rates should be applied and settled by filing local VAT returns.

Private customer from a country other than the country of storage

If the seller has a foreign warehouse from which he sends goods to private customers from other EU countries, if the WSTO limit is not exceeded, such sales can be settled in the country of his registered office. If the limit has been exceeded, local settlement should be made (having a local VAT number) or the VAT OSS procedure should be used.

Example

Company B, based in Poland, has a foreign warehouse in Germany from which it sells its goods to private customers from Austria. If the annual sales limit of EUR 10,000 has not been exceeded, such sales can be settled in the Polish declaration, using the Polish VAT rate. However, if the limit has been exceeded, such transactions can be settled under the VAT OSS procedure or locally, which, however, requires VAT registration in Austria.

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How to settle sales to business customers while storing your goods in another EU country?

Entrepreneurs selling their goods via online stores or marketplace platforms and using foreign warehouses may also be required to settle sales to business customers, and this process differs from the settlement of sales in the B2C model.

It should be noted that the VAT OSS procedure will not apply to the settlement of B2B sales. However, this process is undoubtedly influenced by whether the shipment and delivery of goods take place within one country or not.

B2B sales to another EU country than the country of storage

If an e-commerce seller sells its goods located in a foreign warehouse located in a Member State to a business customer (B2B) from another EU country than the Member State of storage, then such a transaction should be accounted for as an intra-Community supply of goods (from the seller’s perspective) and an intra-Community acquisition of goods (from the buyer’s perspective).

Example

A Polish e-commerce company C has a warehouse in Denmark, from where it sells and ships its goods to another company from Sweden. In its declarations, company C will report this sale as an intra-Community supply of goods, and the company from Sweden as an intra-Community acquisition of goods. Furthermore, if the conditions are met, this transaction will be subject to a 0% VAT rate.

B2B sales within the same country as the storage country

When storing their goods abroad in an EU country and selling them B2B to a customer in the same EU country, sellers are required to apply the local VAT rate, issue a VAT invoice in accordance with the requirements in force in the country of sale and settle the VAT locally in the country of sale.

Example

A Polish company D has a foreign warehouse in Germany from where it sells its goods to a German company. Company D must issue an invoice containing its German VAT number and in accordance with German requirements, apply the local VAT rate (e.g. 19% – the basic VAT rate in Germany) and then settle the VAT on this sale as part of a local return.

Can sales from a foreign warehouse be settled using the VAT OSS procedure?

To sum up the VAT OSS topic and the settlement of sales from foreign warehouses – sales from a foreign warehouse can be settled using the VAT OSS procedure provided that the customer is a private person (B2C sales) and the goods are sent to another Member State as part of this transaction.

If you want to learn more about VAT OSS, check out our article: What is VAT OSS? Changes to VAT settlements in the EU.

VAT obligations during warehousing as part of e-commerce fulfillment

E-commerce sellers often decide to outsource processes related to logistics and warehousing of goods. This means that they outsource the storage, packaging, shipping and handling of returns to a foreign entity. However, it should be noted that in this model, the goods still remain their property.

Consequently, warehousing in your own warehouse abroad and as part of e-commerce fulfillment do not differ in terms of tax obligations. Owners of stored goods must still comply with the requirements for declaring the movement of goods between EU countries and settling VAT on sales transactions, which are influenced by, among others, the customer status and the country to which the goods are sent, as described above.

Let us add that the largest marketplace platforms have fulfillment services in their offer, a great example of which is Amazon FBA or Fulfillment by Kaufland. However, in order to use them, they first require the provision of VAT numbers obtained in the countries where the warehouses that the seller will use are located.

If you want to read more about fulfillment, including its advantages and disadvantages, you can find this information in our article E-commerce fulfillment – what is it and who is this service for?

VAT registration, movement of goods and foreign warehouse in the UK

Storing goods in the UK involves slightly different obligations than storing in another EU country.

It should be noted, however, that in both cases it is necessary to have a local VAT number. When using a warehouse located in the UK, the seller will be required to register for VAT in that country.

However, the procedure for moving goods from Poland to the UK will be different. This process will not be treated as an intra-Community supply of goods, but as an export of goods, which in the UK requires import customs clearance.

What is more, in order to move goods outside the EU, including to a warehouse in the UK, it is necessary to have an EORI number. However, we describe this topic comprehensively in the article What is the EORI number and how to get it?, which we strongly encourage you to read.

Selling goods from the EU to the UK as an export of goods

Sending goods from EU member states to the UK from 1 January 2021 is not treated as an intra-Community supply of goods and requires the use of customs procedures.

As a result, a seller who exports goods from the EU reports the export of goods for VAT purposes – regardless of the status of the buyer.

VAT rate of 0% for export of goods for Polish sellers

Export is generally subject to a VAT rate of 0%. However, it is necessary to meet the formal conditions specified in Article 41, paragraphs 6 and 6a of the Act on Goods and Services Tax in Poland, which state that the VAT rate of 0% applies if, before the deadline for filing a tax return for a given settlement period, the taxpayer received a document confirming the export of goods outside the territory of the EU. According to the aforementioned article of the VAT Act, such a document may be:

1) a document in electronic form received from the IT system used to process export declarations or a printout of this document confirmed by the competent customs authority;

2) a document in electronic form from the IT system used to process export declarations, received outside this system, if its authenticity is ensured;

3) an export declaration in writing recorded in paper form submitted outside the IT system used to process export declarations or a copy thereof confirmed by the relevant customs authority.

An example of a document that is commonly used to confirm the export of goods is the IE-599 document.

It should also be noted that the lack of required documentation will result in the need to apply the standard VAT rate.

Lack of customs documents confirming the export of goods from the EU

A situation may arise when the seller does not receive customs documents confirming the export clearance. This does not always mean that the basic VAT rate must be applied. The taxpayer may use other documents – e.g. confirmation of delivery of the shipment from a courier company or postal operator:

The above approach is based on the case law of the Court of Justice of the EU, in particular the judgment issued in case C-275/18. The Director of the National Tax Information also issues liberal individual interpretations, in which he allows the use of documents confirming the export of goods other than the IE 599 communication.

If you have any doubts regarding the possibility of using the 0% VAT rate when exporting goods – contact a tax advisor.

EU and UK storage of goods in e-commerce and VAT issues - summary

Storing goods in the EU and UK is very common in the e-commerce industry, but it must not be forgotten that it carries significant tax obligations that sellers must take into account in their activities. A key aspect is the need to register for VAT in the country where the warehouse is located, which allows for the correct declaration of goods movements and settlement of tax on intra-Community supplies and acquisitions of goods. It is also important to understand the differences between different storage models, such as fulfillment or call-off stock, which can have a different impact on the seller’s tax obligations.

If any of these aspects are a challenge for you and you are looking for support, schedule a consultation, indicate what is the problem, and our specialists will take care of the rest!