Selling physical items on Etsy: how VAT is collected

June 15, 2020

Etsy is an online marketplace that people all around the world can use to buy or sell various unique products, such as tailored arts and crafts. Just like other E-Commerce websites, for example, eBay and Amazon, Etsy is also subject to Value-Added Tax, which is applied to goods and services in the EU and other select regions of the world. On this platform, VAT can be applied to certain sellers on their paid seller fees and charged to buyers on their purchases. When this tax is applied, VAT submission becomes necessary.

Charging VAT on physical items

For VAT registered sellers, charging VAT on their physical items sold on Etsy is a requirement. For those that are selling from the EU, the applied value-added tax rate depends on two factors:

  • The nature of the product that is being sold;
  • The country in which the supply of these products is taxable with VAT.

Since each country applies different VAT rates to specific goods and services, it’s recommended to check these rates either on the European Commission’s website. You can also contact our consultants and we’ll inform you about the requirements in your location and when you have to file for a VAT submission.

VAT registered sellers are also responsible for including this tax in their listing prices on the Etsy store. It informs buyers located outside of Canada and the US that the product price includes VAT (if it is applicable) via copy text next to the item’s price.

Charging VAT on digital items

Some countries charge VAT on digital items no matter where the seller is located. Value-added tax will always be applied to purchases made by buyers from:

  • Australia;
  • Belarus;
  • the EU;
  • Iceland;
  • India;
  • New Zealand;
  • Norway;
  • Russia;
  • Serbia;
  • South Africa;
  • South Korea;
  • Taiwan;
  • Turkey;
  • Switzerland;
  • the United Arab Emirates.

In this case, the buyers are the ones paying VAT as part of their total purchase price. Sellers don’t have to add VAT to their digital products as Etsy automatically detects whether the buyer is in one of the aforementioned countries and applies it for them. Because this store also remits VAT collected on digital items to the relevant tax authorities, sellers don’t have to file a VAT submission for sold digital goods. On the other hand, if these products are sold to countries where Etsy doesn’t have to charge VAT, the seller may be the one responsible to collect it.

What should a seller invoice to a buyer look like?

Some sellers from the EU are required to provide an invoice with every purchase. This applies to goods sold to a non-taxable person (private individual) in the cases of:

  • Distance selling when taxable in another EU country;
  • New means of transport supplied to another EU country.

A full VAT invoice requires such information as:

  • Date of issue;
  • Date of the transaction and payment;
  • A unique number identifying the invoice;
  • If the customer is liable for tax, then their VAT identification number;
  • Supplier’s name and address;
  • Customer’s name and address;
  • Description of the type of goods or services, its unit price;
  • Applied VAT rate and the payable amount;
  • Breakdown of the payable VAT amount.

Some countries require additional invoice details, like exempt transactions, self-billing, and so on. For more information on specific cases, contact our consultants. If the invoices include all the necessary information, they act as proof that allows a right to deduct VAT during VAT submission.

Selling to specific countries from overseas

Due to recent VAT regulation changes, a few countries now require sellers on Etsy to charge value-added tax on physical product purchases.

Australian buyers

As of 2018, products shipped to Australia are subject to Goods & Sales Tax (GST). Etsy automatically includes the 10 % GST tax in the total price of the order and remits it to the Australian Taxation Office (ATO) if all three apply:

  1. The seller is located outside Australia.
  2. The goods are shipped to a buyer in Australia.
  3. The total value of the package is less than 1,000 AUD.

If the order is placed through PayPal, the store sends the collected GST to the seller as part of the payment and adds it to their Etsy statement. The Goods & Sales Tax doesn’t apply if the package is valued more than 1,000 AUD or both the seller and the buyer are located in Australia.

German buyers

As of 2019, Etsy is required to collect German VAT certificates from some members that sell products to buyers in Germany. Sellers affected by this requirement can send their VAT certificates to Etsy at [email protected] If you are unsure whether you need to register for Value-Added Tax in Germany, contact our consultants. We will help if you need to do so and help with further requirements, like filing a VAT submission.

UK buyers

The UK requires overseas sellers to register for VAT. An “overseas seller” is considered a seller who:

  • Sells goods located in the UK at the point of sale to UK customers;
  • Sells goods to UK customers and imports then into the country;

This also applies to any business activity in an EU member state where products are sold to UK customers. Once the seller is VAT registered, they must charge VAT on UK sales of standard-rated goods, pay this tax to HMRC and file for a VAT submission in the UK. Complete failure to comply with HMRC rules can result in the removal of the seller from the marketplace.

New Zealand buyers

As of 2019, products shipped to New Zealand are subject to Goods & Sales Tax (GST). Etsy automatically includes the 15 % GST tax in the total price of the order and remits it to the New Zealand Inland Revenue Department if the two apply:

  1. The seller is located outside New Zealand.
  2. The goods are shipped to a buyer in New Zealand.

If the order is placed through PayPal, the store sends the collected GST to the seller as part of the payment and adds it to their Etsy statement. The Goods & Sales Tax doesn’t apply if both the seller and the buyer are located in Australia.

Sellers are also required to include the following information on their packages and custom slips:

  • Etsy’s Inland Revenue Department (IRD) number 122-669-181.
  • Any indication that GST has been applied.

Norway buyers

As of April 1st, 2020, products shipped to Norway are subject to Value-Added Tax (VAT). Etsy automatically includes the 25 % VAT tax in the total price of the order and remits it to the Norwegian Tax Authority if these apply:

  1. The seller is located outside Norway.
  2. The shipping address is in Norway.
  3. The package contains items less than 3,000 NOK.
  4. The item is subject to VAT at the standard rate of 25%.
  5. The goods subject to excise duty and Food & Drink (also Candy & Chocolate) that Etsy is not required to charge VAT on but will be charged and collected at the border.

If the order is placed through PayPal, the store sends the collected VAT to the seller as part of the payment and adds it to their Etsy statement. The Value-Added Tax doesn’t apply if the package is valued equal or more than 3,000 NOK, both the seller and the buyer are located in Australia or the item is not subject to VAT.

Sellers are also required to include the following information on their packages and custom slips:

  • Etsy Ireland’s Norwegian tax (VOEC) number 2021137.
  • Note when VAT has been already collected.

Etsy is a great platform for small sellers to sell their hand-crafted products all around the world. But as with other E-Commerce platforms, it is necessary to follow all the VAT requirements in different countries so that everything operates within the legal boundaries. Register for VAT in relevant countries and file a VAT submission when it is needed. If you have any questions about Value-Added Tax, how it works, when it is applied, etc., feel free to contact our tax specialists for more information and we’ll help you as best we can.

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