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Register for VAT or not, need your advice

  • 20-04-2012 8:59pm
    #1
    Irishsunshine
    Closed Accounts Posts: 10 ✭


    Hi all,

    I want to register as a sole trader and open an online website to sell goods I'll import from China.

    I know my initial annual turnover is definitely under 75,000EUR, which means I don't need to register for VAT. I have read lots threads here. but still have a few questions in my case, I really appreciate that I will get some advices. Thank you in advance:

    1. As I know, if I don't register for VAT, I don't need to charge VAT for the goods that I sell to the Irish individuals online. I want to be sure if this is correct?

    2. If I sell the goods to UK customers, do I need to charge VAT, if I don't register for VAT?

    3. The benefits on not registering for VAT, in my understanding, is I can set a cheaper price on the goods, because I don't need to charge VAT. But the downside is I can't claim the VAT on the goods imported from China.

    so I'm still struggling on registering VAT or not. I have a calculation here, I'm not sure if it is correct:

    If I import €100 goods from China, I need to pay the VAT 21.5%(may be more now) which is €21.5.

    - scenario1: If I register for VAT, I claim VAT back, and get €21.5 back, and I sell the goods online at€200 plus VAT(200*21.5%) = €243. so my profit is 200-100=100.

    -scenario2: If I don't register for VAT, I sell at €200, so my profit is 200-100-21.5=88.5. BUT if I sell at 221.5 instead of 200, my profit changes to 221.5-100-21.5=100 which is as same as scenario2.

    In conclusion, to make the same profit €100, if I register for VAT, the price shown to customer is €243; if I don't register for VAT, the price shown to customer is €221.5 It means it's better not register for VAT, because customer prefer €221.5 to €243, if my calculation is correct??

    However, I still have another concern that if one day, my annual turnover make more than €75,000, I must register for VAT, at that time, If I still sell the goods at €221.5, my profit will be cut down. And it's not a wise idea to increase the price. That is the reason that I can't make a decision. Can any one wit experiences give me some suggestions?

    thank you.


Comments

  • #2
    tomED
    Registered Users, Registered Users 2 Posts: 1,452 ✭✭✭tomED


    Firstly VAT is now 23%.

    You need to think beyond what your margins will be and think about other benefits of registering for VAT.

    For example, the business costs such as PC, rent, advertising etc etc. Being registered for VAT may save you money in the bigger picture.

    I never imported goods, but I didn't think you paid VAT on imports - just customs no?

    If you think there's a chance that you'll exceed the limit, register for VAT.


  • #3
    sandin
    Closed Accounts Posts: 1,594 ✭✭✭sandin


    Be very careful buying goods from China - many retailers are experts at it and have offices over there. Unless its an unusual item, someone will be cheaper and better than you are.

    If its electrical, you will need to register for WEEE, also take into account warranties and guarantees and safety - absolutely get yourself product liability insurance.

    Remember you have shipping costs, eu duty, then vat on the total value including vat and duty. Then you have customs entry costs for each shipment too.

    Above is said becasue you seem very inexperienced (vat is 23%) and may find yourself at a big loss. Also there are thousands of scammers in China - so many that I have chinese customers (irish based) who would be fearful or ordering direct from China themselves.


  • #4
    Irishsunshine
    Closed Accounts Posts: 10 ✭Irishsunshine


    tomED wrote: »
    Firstly VAT is now 23%.

    You need to think beyond what your margins will be and think about other benefits of registering for VAT.

    For example, the business costs such as PC, rent, advertising etc etc. Being registered for VAT may save you money in the bigger picture.

    I never imported goods, but I didn't think you paid VAT on imports - just customs no?

    If you think there's a chance that you'll exceed the limit, register for VAT.

    Hi tomED, thank you for your reply. I think the VAT is charged for the imported goods.


  • #5
    Irishsunshine
    Closed Accounts Posts: 10 ✭Irishsunshine


    sandin wrote: »
    Be very careful buying goods from China - many retailers are experts at it and have offices over there. Unless its an unusual item, someone will be cheaper and better than you are.

    If its electrical, you will need to register for WEEE, also take into account warranties and guarantees and safety - absolutely get yourself product liability insurance.

    Remember you have shipping costs, eu duty, then vat on the total value including vat and duty. Then you have customs entry costs for each shipment too.

    Above is said becasue you seem very inexperienced (vat is 23%) and may find yourself at a big loss. Also there are thousands of scammers in China - so many that I have chinese customers (irish based) who would be fearful or ordering direct from China themselves.

    Hi, sandin,
    Thank you for your reply. Yes I'm very inexperienced. I didn't know that I should register for WEEE. Besides the WEEE, I know that the goods must have CE .

    Some of my goods are small electrical and electronic equipments.
    I don't what else I should be aware on selling the electrical and electronic equipments, like WEEE. could you give me some more advice?

    And the goods from China has no WEEE sign(a cross on a bin) on it, is this case, does that mean the goods is illegal to be sold in Ireland?

    Thanks again.


  • #6
    RUDOLF289
    Registered Users, Registered Users 2 Posts: 794 ✭✭✭RUDOLF289


    Hello Irishsunshine,

    One of the questions you have to ask your self is whether your clients (that you sell to) are VAT registered businesses or private individuals. If most of your business is likely to come from VAT registered businesses, if you are not registered for VAT, your clients can not claim back any VAT. Therefore, you would be less competitive.

    If you get involved in what is known as distance selling (i.e. selling to a client in another EU member state) a whole new set of rules apply. I really think you will need to get some professional advice.

    I would think, if you are importing from outside the EU, it is always better to register for VAT so you are entitled to claim back VAT. Also bear in mind that the VAT you would pay on expenses to set up an office, buy equipment etc to run your business are a deductable input in your VAT return. So those overheads that are subject to VAT become less expensive if you can claim the VAT back.

    There probably is too much to consider without taking professional advice. I know at least 4 or 5 good accountants throughout Ireland that I can put you in touch with that can help you out. It may cost some money, but it is likely to help you avoid the pitfalls.

    Best regards,
    Rudolf289


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