James Thomson, partner at Buy Box Experts, gives you the lowdown on the things you’ll need to bear in mind if you’re looking to start selling in Europe.
For the US-based seller considering entry into Europe, there are significant, costly steps to avoid regarding foreign product pricing in these new markets. Factors such as value-added tax (VAT), shipping, and currency rates will require plenty of attention – probably more so than back home.
Let’s begin with VAT
Across the European Union, the national governments add a value-added tax to the cost of products sold in their countries. Unlike in the US, that tax is rolled directly into the cost of the product so that the sticker price already factors in the tax. With VAT cost ranging from 19% in Germany, 20% in the UK and all the way to 25% in Denmark, the impact of this tax is rather significant to the sticker price that the customer sees. For example, an item that lists for 120 pounds in the UK has had 20 pounds of tax added to the pre-tax cost of 100 pounds [100 + 20% of 100 = 120].
While many US-based sellers have nonchalantly listed products for sale in the US without proper state sales tax procedures in place, much more tax discipline is required for selling in the EU. In Europe, Amazon will need a valid VAT number from the seller in order to ensure that the tax is being properly added. If the seller doesn’t provide a valid VAT number, Amazon automatically adds the VAT rate to the product price which the seller has already provided – so if the seller has simply forgotten to provide a VAT number, it won’t take long for the seller to notice that its prices have been artificially increased on the European Amazon marketplaces. Sellers are encouraged to use free tools like VAT Calculator to make necessary VAT calculations on their inventory headed to the EU.
The cost of shipping
Next, shipping costs can have a much more pronounced impact on the overall profitability of the US-based seller. With products being sent from the US to the EU, US-based sellers will quickly notice that there can be significant price differences across shipping carriers. If the seller is using a commercial carrier like DHL, UPS or FedEx for small package shipping, it is worth taking the time to find out how to get access to heavy rate discounts offered to high-volume customers. While a seller might have, for example, its own UPS account, it is likely that a large US-based 3PL or freight forwarder has access to much better rates, even if those intermediaries charge the seller a fee for processing the overseas shipment. Fuel surcharges have become more common in the past few years, resulting in meaningful changes in shipping costs from month to month, as the worldwide price of fuel fluctuates.
Finally, currency rates (and more importantly, the changes in currency rates) can catch US-based sellers by surprise when they discover that their carefully-devised profit model has been turned upside down by changes in currency rates between the US dollar and the euro or pound. As such, we encourage US-based sellers to keep a careful eye on these changes, and continually update their cost models to account for such changes. With many sellers used to 10-15% overall profitability on items on Amazon.com, the impact of a modest 6-8% swing in exchange rates could significantly hamper the US-based seller’s ability to be profitable [such a variance is not uncommon for the US dollar relative to the euro or pound].
All views and advice provided in this article are opinions of the author and not those of World First.