Fulfillment by Amazon (FBA) is a program of the American company that allows anyone to open an online store and sell products to customers around the world. The only requirement is obviously, a company that serves as the legal framework for the activity. In this article, we discuss how to create your FBA company in Estonia, its benefits, and some considerations to take into account.

How does the Fulfillment By Amazon program work?

FBA is really nothing more than a classic drop-shipping system where the provider is Amazon.

What is drop-shipping? It is a business model that consists of an online store that sells products from third-party suppliers. When a customer buys a product in your online store, it is the supplier who sends the goods to them. You charge the customer, and then the provider charges you, or the provider charges the customer directly and then pays you a fee.

The idea is similar to a wholesale-retail relationship, but on demand.

In the case of FBA, the supplier is Amazon, that is, it is Amazon who physically sends the product to the customer, while your company will be in charge of promoting and selling the product to the final consumer.

On this page, you have a more detailed explanation of how it works with Amazon.

Why establishing your FBA company in Estonia?

There are many advantages in registering and operating your FBA company in Estonia. The e-Residency program, which allows anyone to open and operate a business in Estonia completely online, together with the innovative fiscal system of the Baltic country, is a winning combination to start selling products on Amazon.

Let’s talk about some of the advantages.

Completely Online Administration

To begin with, Estonia has been digitizing its entire administration for decades. To the point of being the first country that allowed Internet voting. Estonians can do any paperwork online, from paying their taxes to registering their new car or seeing what homework their child has at school.

But not only the Estonians. At the end of 2014, Estonia launched the e-Residency program, which allows any inhabitant of the planet to become a virtual resident of the Estonian digital nation. Although it does not give you any right to citizenship or residency, being e-Resident allows you to do very interesting things, such as opening a business and managing it without visiting Estonia.

You can say that other European institutions are also digital … But there really is no possible comparison. We are talking about a system that allows you to sign an online power of attorney for another person to manage the accounting of your company and declare taxes for you. In less than a minute, and without the intervention of a notary.

Why is that important? For starters, because your FBA company will live completely in the digital world. In addition, as an entrepreneur, you can manage your business completely online. You can be a digital nomad, traveling around the world, and comfortably manage your company from your laptop wherever you are.

A unique and innovative tax system

Most western business systems are not only very complex, but some of them seem designed to make it difficult for entrepreneurs to open a business. Sooner or later, you will need to go physically to an office to perform some bureaucratic procedure. To make things worse, in some countries, you even need to pay a fee to act as a freelancer or have a company, and that’s a competitive disadvantage.

In contrast, the Estonian tax system seems designed for small entrepreneurs and startups. First of all, opening a company is easy, cheap, and not subject to monthly payments beyond accountancy. In addition, you do not pay taxes for the income of the company, or the money that gets re-invested in it. This includes any justified expense of the business, such as invoices to professionals for work done, hosting and servers, public transport costs to see customers, a laptop … think about the possibilities.

That means that the first months, in which possibly the income of your online store will still be low, by not assigning salaries, you do not have to pay taxes. You only pay taxes when you distribute dividends or salaries.

But more important than any fiscal advantage is the fact that the Estonian business system is transparent and easy to understand. In this post we explain it in detail.

Your FBA Company In Estonia

Important aspects to consider

The e-Residency program is especially suitable for digital products and services. Does that mean you can not sell physical products? Generally, it would not be advisable for a series of issues that we have mentioned previously, but the drop-shipping model (and, by extension, derivative models such as Amazon FBA) are based on the premise that it is the supplier, and not your company, the one that makes the shipment to the final customer, and therefore manages the warehouse, inventory, and products. The role of your company is limited to that of an e-Commerce, a facilitator of the sale.

However, that does not prevent the fact that your company is actually selling physical products to consumers. As a consequence, there are a series of conditions to be taken into account. The most important is that, if you exceed a certain threshold of sales in a certain European country – other than Estonia – you will have to register as a VAT operator in that country, obtain a VAT number, and pay the VAT of your sales.

For example, if you make one year 50,000 euros in sales in France, you will have to register a VAT number in France and pay the VAT there to the French authorities.

This operation must be done independently with the tax office of each country where you exceed that threshold, and should ideally be done by an accountant from that country. Unfortunately, we can not help you in this process.

What is the limit in each country?

The following table contains the limit in each country of the Eurozone (in the local currency of the country). If your sales in that country reach or exceed that amount, you are obliged to obtain a VAT number and declare the VAT for your sales in that country.

Austria € 35,000
Belgium € 35,000
Bulgaria BGN 70,000
Croatia HRK 270,000
Cyprus € 35,000
Czech Republic CZK 1,140,000
Denmark DKK 280,000
Estonia € 40,000
Finland € 35,000
France € 35,000
Germany € 100,000
Greece € 35,000
Hungary HUF 8,800,000
Ireland € 35,000
Italy € 35,000
Latvia € 35,000
Lithuania € 35,000
Luxembourg € 100,000
Malta € 35,000
Netherlands € 100,000
Norway N/A
Poland PLN 160,000
Portugal € 35,000
Romania RON 118,000
Slovakia € 35,000
Slovenia € 35,000
Spain € 35,000
Sweden SEK 320,000
Switzerland N/A
United Kingdom £70,000

Your dropshipping company needs to obtain a VAT number in each country where its sales exceed those thresholds. And from that moment on, you must make VAT returns in each of those countries.

This service is not included in our registration or accounting packages, but there are specific providers offering VAT registration and reporting on all European countries for a very affordable price. A good example is Amazon’s VAT services program.

VAT Services on Amazon allows you to spend more time on your business and less on VAT. With VAT Services on Amazon, you complete VAT registration, filing and submission in Seller Central for just € 400 per year. Amazon works with global tax service provider Avalara to provide this service in United Kingdom, Germany, France, Italy, Spain, Poland and Czech Republic.

VAT declarations in Estonia are included in our services, of course.

How do I register as a VAT operator in each country?

Unfortunately, there is no single mechanism to register as a VAT operator in all European countries. Each country has its own protocol, which can be completely online (as in the case of the United Kingdom) or require bureaucratic paperwork or even your physical presence in the country.

One of the great advantages of Estonia is the complete digitalization of its administration and being able to do all these paperwork completely online. Unfortunately, not all countries make it that easy for you.

What if I do not exceed the limit?

If you do not exceed the limit, you are not required to register as an intra-community operator, nor obtain a VAT number in the country and declare the VAT. However, take into account that in some FBA setups, Amazon will require you to have a VAT number if you have a warehouse in some European country. This does not necessarily happen in all cases, so it is better to ask Amazon.

Do I have to create a company in each country that exceeds the limit?

Not necessarily. Just sign up, get your VAT number, and make the relevant reports. It is perfectly valid for your company in Estonia to have different VAT numbers in different European countries.

Will my company have a VAT number?

Generally speaking, no. That’s because the Estonian Tax Office won’t grant a VAT number to a drop-shipping business (including FBA businesses, of course) unless some of these conditions are met:

  • Your business has its warehouse in Estonia. Goods are, thus, sent from Estonia to final consumers.
  • Your business’ sales exceed the threshold past which you need to ask for a local VAT, like any other country.

Does that mean that your company can’t sell anything in Europe? Not at all. You will be able to sell and invoice your customers using your company name, address and registration code. If you are not VAT liable, you will not add VAT to your invoices at all, unless you have to register a VAT number because you go past the threshold in that country.

Everything you need to start working as an FBA seller

Here in “Your Company In Estonia”, we take care of registering your company with our ‘Company Registration’ Pack. This includes everything you need to start working as an FBA vendor, such as the company registration, intra-community VAT in Estonia, virtual office service, including contact person and physical address for the company and support during the process of becoming e-Resident. From that moment, our ‘Monthly Accountancy’ Pack will allow you to focus on growing your business while we take care of the rest.

Depending on what you sell, and your activity, it may be necessary to obtain a specific license, although this is not usually the case. If you have doubts about it, do not hesitate, request a consultancy with us.