Accounting for Amazon e-commerce using an Estonian company

Key Points:

When opening a company in Estonia to sell on Amazon, an entrepreneur typically expects a familiar process: purchasing goods, selling them, receiving payment, and calculating profits. In the first few weeks, everything actually works out that way: funds arrive in the account, turnover grows, and the picture appears clear.

The fact is that Amazon goes beyond a typical online store. It’s a comprehensive platform that integrates the functions of a payment intermediary, logistics operator, warehouse, advertising system, and tax infrastructure. Therefore, a bank statement only reflects the final settlement between the company and the platform, not a complete picture of its actual business activities.

This is where we differ from any other accounting service.

In traditional retail, the emphasis is on company documents, while Amazon retail is based on data collected by the platform.

Why has the bank statement lost its status as a primary document?

In traditional business, accounting begins with analysis: a receipt is a sale, a write-off is an expense. At Amazon, this logic is reversed. The seller doesn’t receive money directly from the buyer. Amazon accepts payments, then processes numerous internal transactions and transfers the remaining amount to the seller.

A single payment can include:

• sales from different countries
• returns for previous months
• collected fees
• logistics costs
• product disposal
• advertising
• orders
• tax adjustments

The transfer can be considered a recalculation. By presenting it as income, the company is effectively reporting an arbitrary value, not actual turnover. Therefore, accounting begins with Seller Central reports, not bank data.

The Process of Calculating Actual Revenue

It’s important for an Amazon business owner to understand that revenue from working with Amazon and the company’s overall turnover are not the same thing.

Turnover is the cost of goods sold to customers. Payment is the remainder after settlements with the platform.

In some cases, the difference can be significant. A company may receive only 40-60% of actual revenue, with the rest retained within the system itself. First, the accountant reconciles sales reports, then determines all expenses, and only then compares the resulting data with the payment made.

Amazon: How Commissions Affect Perception of Profit

Often, entrepreneurs, seeing a positive account balance, believe their business is profitable. However, at the end of the year, the actual profit turns out to be significantly lower than expected.

Amazon manages expenses frugally and discreetly. Since they are not reflected in separate accounts, they are psychologically perceived not as expenses, but rather as a decrease in income.

From an accounting perspective, the company makes payments:

• Sales fee
• Order processing fee
• Delivery of goods to the buyer
• Possible product returns
• Warehousing
• Extended storage
• Transportation between warehouses
• Advertising materials
• Penalties imposed by the platform
• Category changes

As a result, most of the reserve is spent before the funds are credited to the balance.

Reasons for a month change in the past: Understanding returns.

Amazon stands out from traditional retail in that transactions are not finalized once the purchase is made. Buyers have the option to return the item within a few weeks. Amazon will recalculate the commission, logistics costs, and tax, and then deduct the difference from the seller’s next payment.

The current month’s report may include transactions from previous periods, which, without further analysis, can create the appearance of random payment fluctuations.

Amazon accounting is a dynamic system that is constantly being improved, not a static report that is updated only once a month.

Inventory Management and Tax Aspects

A key feature of Amazon retail is that the location of the product determines the location of the business. Regardless of the company’s registration or residence, if the product is stored in a warehouse in Germany or France, Amazon considers this activity to be conducted in those countries.

This entails VAT liability.

The entrepreneur doesn’t always understand exactly when this transfer occurs, as it occurs automatically within Amazon’s warehouse network. From a commercial perspective, there are no changes: the product continues to be sold through a single account. However, from a tax perspective, the company is effectively starting operations in a new country.

Consequently, Amazon businesses almost always go global, even if they were initially conceived as local businesses operating in only one country.

How an Accountant Works

In this model, the accountant goes beyond simple document processing. They become the assembler of the business’s financial model, gathering information from various sources.

First, marketplace reports are reviewed to determine actual sales volumes. Next, commissions are calculated, logistics, and returns are taken into account. Then, the movement of goods between warehouses is analyzed, which helps identify the countries where tax liabilities arose.

Reporting occurs after this stage. The accountant, therefore, doesn’t record transactions as they occur, but reconstructs them.

The Importance of a Proper Start-Up

At the initial stage of sales, the first few months usually present no difficulties. Sales volume is small, the indicators are clear, and the entrepreneur is easily able to navigate the balance sheet.

Amazon continually adjusts its processes: changing return policies, recalculating commissions, moving goods, and adjusting storage costs. As a result, over the course of a year, these numerous changes create a complex and confusing chain of transactions.

Reconstructing accounting records, if they were kept from the very beginning using bank statements, is a more complex task than regular accounting, which is kept from the very first month. This requires processing the entire reporting history.