This is How to Get Rid of VAT and Boost Conversions for EU Customers
As an ecommerce business owner or marketer, you know that navigating the complexities of Value Added Tax (VAT) can be a major headache, especially when it comes to serving customers in the European Union (EU). Dealing with VAT often leads to higher shopping cart abandonment rates, frustrated buyers, and ultimately, lost revenue.
But what if I told you there's a way to effectively eliminate VAT and provide a much smoother purchasing experience for your EU customers? In this article, we'll explore practical strategies and best practices to help you do just that.
The VAT Dilemma for EU Ecommerce Businesses
Value Added Tax (VAT) is a consumption tax that's applied to the sale of goods and services within the European Union. While the standard VAT rate across the EU is 20%, individual countries can set their own rates, which range from as low as 17% (Luxembourg) to as high as 27% (Hungary).
For ecommerce businesses selling to EU customers, VAT presents a number of challenges:
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Higher Prices: When VAT is added to the final purchase price, it can make your products feel more expensive and less attractive to potential buyers.
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Complicated Compliance: Businesses must register for VAT in every EU country where they have customers, adding administrative overhead and the need to stay on top of constantly changing regulations.
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Payment Friction: Having to calculate, collect, and remit VAT at checkout creates an additional step in the buying process, increasing the risk of shopping cart abandonment.
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Revenue Loss: The combination of higher prices and payment friction often leads to lower conversion rates, ultimately costing you revenue.
These issues are a major pain point for EU-focused ecommerce businesses, which is why finding a way to effectively eliminate VAT is so important.
Strategies to Get Rid of VAT and Boost Conversions
Here are some proven strategies you can implement to remove the burden of VAT and provide a seamless buying experience for your EU customers:
1. Leverage a VAT Exemption Threshold
Many EU countries offer a VAT exemption threshold, which allows businesses to sell to local customers without having to register for VAT, collect it, and remit it to the government.
For example, in the UK, the current VAT registration threshold is £85,000. This means that if your total annual sales to UK customers are below £85,000, you're not required to register for UK VAT. Similar thresholds exist in other EU countries, typically ranging from €35,000 to €100,000.
By keeping your sales to individual EU countries below the respective VAT exemption thresholds, you can effectively eliminate the need to deal with VAT for those customers. This can significantly streamline your checkout process and boost conversions.
Of course, as your business grows, you'll eventually need to register for VAT in each country where you exceed the threshold. But in the early stages, leveraging these exemptions can be a game-changer.
2. Implement a VAT-Inclusive Pricing Strategy
Another effective strategy is to simply include VAT in your product prices from the start, rather than adding it at checkout. This provides a more transparent and seamless buying experience for your customers.
By incorporating VAT into your initial pricing, you can display a single, all-inclusive price that your EU customers will see and pay. This eliminates the need for them to calculate the additional tax amount, reducing friction and improving conversion rates.
To implement this strategy, you'll need to carefully analyze your pricing, profit margins, and target markets to determine the right all-inclusive prices that still allow you to remain competitive and profitable. It may also require some adjustments to your ecommerce platform and checkout flow.
While this approach doesn't technically "get rid" of VAT, it does provide a much more streamlined purchasing experience for your EU customers, which can have a significant impact on your bottom line.
3. Leverage a Payment Processor with VAT Compliance Tools
Many modern payment processors and ecommerce platforms now offer built-in tools and features to help businesses manage VAT compliance. By partnering with the right provider, you can simplify the entire process and remove the burden from your customers.
For example, some payment processors like Stripe and PayPal offer automatic VAT calculation, collection, and remittance capabilities. This means that when an EU customer completes a purchase, the correct VAT amount is automatically added, collected, and filed with the appropriate tax authorities on your behalf.
This not only eliminates the need for your customers to worry about VAT, but it also ensures you remain compliant without having to take on the administrative overhead yourself. It's a win-win for both you and your buyers.
When evaluating payment processors, be sure to look for ones that specialize in cross-border ecommerce and have robust VAT compliance features. This can be a game-changer for your EU sales.
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4. Explore VAT Refund or Reclaim Services
If you've already registered for VAT in one or more EU countries, you may be able to take advantage of VAT refund or reclaim services to get some of that money back.
Certain providers offer solutions that can help you identify eligible VAT refunds and guide you through the process of claiming them. This can be particularly useful if you've made purchases or incurred expenses in other EU countries where you're not registered for VAT.
By reclaiming the VAT you've paid, you can effectively reduce your overall tax burden and improve your profit margins. Just be sure to work with a reputable service provider that specializes in VAT refunds to ensure you maximize your claims.
5. Leverage the Reverse Charge Mechanism
The reverse charge mechanism is a VAT accounting method that can help you avoid the need to register for VAT in certain EU countries.
Under the reverse charge rules, the responsibility for accounting for VAT shifts from the seller to the buyer. This means that when you sell to a business customer in another EU country, they are responsible for calculating, reporting, and paying the VAT to their own tax authorities.
To utilize the reverse charge mechanism, your customer must be a registered VAT payer in their home country. You'll also need to ensure that you properly identify the sale as a reverse charge transaction on your invoices and in your accounting records.
By leveraging the reverse charge, you can effectively eliminate the need to register for VAT in multiple EU countries, streamlining your compliance and providing a smoother purchasing experience for your business customers.
Putting it All Together: A Case Study
Let's look at a real-world example of how one ecommerce business used a combination of these strategies to successfully eliminate VAT and boost conversions for their EU customers.
Plimus, a leading payment processing platform, recognized the challenges their clients were facing with VAT. To address this, they implemented a multi-pronged approach:
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VAT Exemption Threshold: Plimus worked with their clients to identify countries where their sales were below the VAT registration thresholds. This allowed them to provide a VAT-free checkout experience for customers in those markets.
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VAT-Inclusive Pricing: For EU countries where Plimus did need to register for VAT, they opted to incorporate the tax into their initial pricing. This provided a more transparent and seamless buying experience for customers.
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Reverse Charge Mechanism: Plimus leveraged the reverse charge method for business customers, shifting the VAT responsibility to the buyer and eliminating the need for their clients to register in multiple EU countries.
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Automated VAT Compliance: Plimus utilized their own payment processing tools to automatically calculate, collect, and remit VAT on behalf of their clients, further simplifying the process.
By deploying this comprehensive strategy, Plimus was able to significantly reduce the friction and frustration associated with VAT for their ecommerce clients and their customers. The result? Higher conversion rates, increased sales, and happier buyers.
Conclusion: Take Control of VAT and Boost Your EU Sales
Dealing with VAT can be a major headache for ecommerce businesses selling to customers in the European Union. But by implementing the right strategies and tools, you can effectively eliminate the burden of VAT and provide a seamless purchasing experience that drives higher conversions and revenue.
Whether it's leveraging VAT exemption thresholds, incorporating taxes into your pricing, or partnering with a payment processor that handles compliance for you, there are numerous ways to take control of VAT and unlock the full potential of your EU customer base.
So what are you waiting for? Start exploring these strategies today and watch your EU sales soar. For more information on how Flowpoint.ai can help you optimize your website and boost conversions, be sure to check out our website analytics and AI-powered recommendation features.