Considering starting on Amazon? Discover the essential legal requirements, business structures, and insurance obligations crucial to your success as a seller.
Jens Vittrup
Becoming an Amazon seller involves more than just offering great products and having a solid sales strategy. Your legal obligations and chosen business structure can have a considerable impact on your success on the platform. Whether you are considering starting as a sole trader or establishing a limited company, understanding the range of requirements set by Amazon – especially regarding insurance and business licences – is essential.
This guide outlines everything you need to know about the legal requirements for selling on Amazon, including insurance obligations, business structures, and whether you need special permissions to sell certain product categories, such as food. We also cover the topic of VAT/GST for international sellers.
When selling on Amazon, having insurance is more than a recommendation – it is a requirement for many sellers. Amazon insists that sellers have Commercial General Liability insurance once their monthly sales exceed $10,000 for three consecutive months. This requirement is in place to protect both you as a seller and Amazon as a platform.
The policy must provide cover of at least $1 million per occurrence and in total, and include product liability, personal injury, and property damage. Furthermore, the policy must list “Amazon.com, Inc., its affiliates and assignees” as additional insured parties. This ensures that both you and Amazon are protected should an issue arise with a product you sell.
Even if your sales have not yet reached the $10,000 threshold, it is advisable to consider arranging Amazon insurance early in your business journey. This brings peace of mind and prepares your business for future growth. If a claim for compensation is made, lacking insurance could mean you are personally responsible for all costs.
Amazon seller insurance comprises several types of cover, which may be relevant depending on your business model and the products you offer. The most basic is Commercial General Liability insurance, which is required by Amazon, but there are other forms you should consider:
When choosing insurance, it is important to work with a broker who understands e-commerce and specifically selling on Amazon. They can help you find a policy that meets Amazon’s requirements and suits your business model. The policy should be able to scale with your business so that your coverage remains sufficient as you grow.
One of the most common questions new Amazon sellers ask is whether a business licence or commercial permit is required to sell on the platform. The short answer is that Amazon does not directly require a business licence to create a seller account. You can begin selling as a private individual.
However, many jurisdictions require local business licences or commercial permits, regardless of whether you operate online or from a physical shop. This varies from country to country, and even from municipality to municipality. In Denmark, you generally need a CVR number when your turnover exceeds a certain threshold or if you wish to deduct business expenses for tax purposes.
In addition to the basic business licence, you may need specific permits depending on the type of products you sell. For example, there may be particular requirements for selling electronics, cosmetics, or food. Although Amazon does not proactively check whether you hold these licences, selling without the necessary permissions can lead to serious consequences, including fines and removal of your products from the platform.
Having the correct licences also offers additional advantages, such as the ability to purchase wholesale, access business discounts, and establish professional relationships with suppliers. It is an investment in the long-term success and legitimacy of your Amazon business.
A frequently asked question once you decide to start selling on Amazon is: “Do I need to set up a company or limited company to sell?” Amazon does not require you to set up a company. You can easily begin as a sole trader. However, there are advantages and disadvantages to both approaches that are important to consider.
As a sole trader, starting out is straightforward and cost-effective. You just need to register for a CVR number, and you are ready to begin. Accounting is also relatively simple. The main drawback is that you are personally liable for the business’s debts and obligations. This means your personal assets, such as your home or car, could be at risk if your business faces difficulties.
Establishing a company, such as an ApS (private limited company) or IVS (now abolished in Denmark, replaced by other options), creates a separation between your personal and business assets. This is called “limited liability” and is one of the main benefits of a company structure. Other advantages include:
The disadvantages of forming a company include higher start-up costs, more complex accounting, and increased legal obligations. For many committed Amazon sellers, however, the benefits often outweigh the drawbacks, especially as the business develops and risk increases.
Food is a popular category on Amazon, but it is subject to specific regulatory requirements. If you are considering selling food products, it is important to understand both Amazon’s requirements and general food safety regulations.
Amazon requires that all food products comply with local laws and regulations relating to food safety. In Denmark, this means you must adhere to the requirements of the Danish Veterinary and Food Administration, which typically include registering as a food business and possibly obtaining special permits depending on the type of food.
For food products, there are usually stricter requirements for labelling, including ingredient lists, nutritional content, allergens, and best-before dates. Amazon may require documentation proving your products meet these standards before you are allowed to sell.
Depending on your business model, there may also be requirements regarding:
You should also note that some foods may be restricted or prohibited on Amazon, especially homemade products lacking professional labelling or certification. Before investing in inventory, it is important to review Amazon’s category-specific requirements for food and consult relevant authorities about the necessary licences.
To maintain your Amazon Seller Central account in good standing, you must comply with all these rules. Breaches can result in product removal or even suspension of your seller account.
VAT (in Denmark) or GST (Goods and Services Tax) in other countries is a complex area for Amazon sellers, especially for those trading internationally. Amazon requires you to comply with all relevant tax laws, but it is your responsibility to understand and adhere to these regulations.
In Denmark, you must register your business for VAT when your annual turnover exceeds DKK 50,000. Once registered, you are required to charge VAT on your sales and report and pay this to the tax authorities. Amazon provides tools to help you calculate and charge the correct VAT in various European countries.
If you sell to customers in other EU countries, be aware of distance selling rules and the One Stop Shop (OSS) system. This system allows you to report and pay VAT for sales to other EU countries through a single country, greatly simplifying the process.
Sellers outside the EU who sell to EU customers may also be required to register for VAT or use Amazon’s VAT Calculation Service. Failure to comply with VAT regulations can lead to:
Although it may be tempting to avoid VAT registration to save on costs or administration, this is not a sound long-term strategy. Amazon’s systems are becoming more advanced at detecting non-compliant sellers, and European authorities are increasingly sharing information on e-commerce businesses.
Selecting the right business structure is a crucial decision for Amazon sellers. Each structure has distinct advantages and disadvantages, and the best choice depends on your specific circumstances, including your willingness to take risks, growth ambitions, and tax considerations.
A sole proprietorship is the simplest business structure. It involves minimal paperwork and is relatively inexpensive to set up and run. As a sole trader, you and your business are legally the same entity, making tax reporting straightforward but meaning you are personally responsible for all business obligations.
A private limited company (ApS) provides limited liability, so your personal assets are generally protected from business debts and obligations. An ApS requires a minimum capital (previously DKK 50,000, now DKK 40,000) and involves more formal accounting and administrative requirements. However, it also offers greater credibility and can be advantageous as your business grows.
A partnership is an option if you are starting the business with others. In this structure, ownership, control, and responsibility are shared among partners. This can make it easier to combine resources and skills, but it is important to have clear communication and a robust partnership agreement to avoid conflicts.
The entrepreneur company (IVS) was previously an option in Denmark with lower capital requirements, but this structure has now been abolished. Existing IVS companies had to be converted to an ApS by the end of 2023.
Your choice of business structure can have long-term consequences for your Amazon business, so it is worthwhile to consult an accountant or solicitor with e-commerce expertise before making your decision. They can help you choose the structure that best protects your assets, optimises your tax position, and supports your growth plans.
Once you have selected the most suitable business structure, it is time to formally establish your business. Here are the basic steps to follow when setting up your business for Amazon sales:
Begin by choosing a business name. The name must be unique and not conflict with existing businesses. If you plan to sell internationally, ensure the name works well in different languages and does not have negative connotations elsewhere. It is also sensible to check if the domain name is available.
The next step is to register your business with the relevant authorities. In Denmark, this is done via the Danish Business Authority, where you can set up a sole proprietorship or company online through virk.dk. You will receive a CVR number, which is your business’s unique identification number.
Depending on your business structure and sector, you may also need to:
Once your business is formally established, you are ready to set up your Amazon seller account. Amazon will require your business details, including your CVR number, bank account, and contact information, and may request additional documentation to verify your business.
It is also important to establish effective bookkeeping practices from the outset. This may include:
Consider seeking advice from an accountant with experience in e-commerce and Amazon businesses. They can ensure your business is set up correctly and provide guidance on tax strategies relevant to Amazon sellers.
Tax is a complex but unavoidable aspect of running an Amazon business. Understanding your tax obligations will help you avoid unpleasant surprises and may also enable you to save money through legitimate tax optimisation.
For Danish Amazon sellers, income tax is a primary consideration. Profits from your Amazon business must be reported to the tax authorities. The way you do this depends on your business structure:
VAT is another key factor. As mentioned previously, Danish businesses must register for VAT when their annual turnover exceeds DKK 50,000. As an Amazon seller involved in international trade, you must also be aware of VAT rules in other countries where you have customers or stock.
Amazon FBA (Fulfilment by Amazon) sellers face particular tax challenges, as their stock is often stored in several countries. This can create a “permanent establishment” in those countries, potentially triggering tax liability there. Amazon provides data regarding the location of your stock, which can help you understand your obligations.
The following strategies can help you navigate this complex landscape:
Remember, tax evasion is illegal, but tax optimisation is perfectly legal. With the right advice, you can ensure your Amazon business is fully compliant while minimising your tax burden within the law.
In addition to meeting basic legal requirements, proactive legal measures can help protect your Amazon business from future disputes. These measures can include various types of agreements and policies that define your relationships with customers, suppliers, and partners.
Firstly, ensure you have clear terms and conditions for your products, which should be accessible on your Amazon product page or via a link. These should cover:
A privacy policy is also important, particularly if you collect customer data. Amazon shares some customer information with sellers, and you must handle this data in accordance with data protection laws such as GDPR. Your privacy policy should explain how customer data is collected, used, and protected.
If you work with suppliers or manufacturers, formal written contracts are essential. These should address:
To protect your brand and products, consider registering trademarks and designs. Amazon’s Brand Registry programme offers additional protection and management tools for registered brand owners, helping to combat counterfeiting and unauthorised sellers.
It is also advisable to have a plan for managing negative reviews and customer complaints. Amazon places great importance on customer experience, and poor handling can impact your seller account. A clear complaints procedure can help you maintain strong seller performance metrics.
Finally, think about developing an exit strategy or succession plan for your business. This might include procedures for selling the business, transferring it to family members, or closing it down if necessary.
By proactively addressing these legal aspects, you can minimise risks and lay a strong foundation for your Amazon business.
Beyond general laws and regulations, it is vital to understand and adhere to Amazon’s own policies and guidelines. These rules are designed to ensure a positive experience for both customers and sellers, and violations can lead to account restrictions or closure.
Amazon’s restrictions and bans on products are extensive and regularly updated. Some items are completely prohibited, while others require prior approval. Before investing in inventory, check carefully whether your products are allowed. This is particularly important for categories like cosmetics, food, electronics, and children’s products.
Amazon also enforces strict requirements for product descriptions and images. These must be accurate and detailed, and must not mislead customers. False claims about product features or trademark infringement can result in severe consequences for your account.
Customer service is another area where Amazon has high expectations. Sellers must respond to customer enquiries within 24 hours, handle returns professionally, and maintain low error rates. Negative reviews or repeated complaints can reduce your visibility on the platform and, in the worst case, lead to suspension.
For FBA sellers, there are additional requirements for product packaging, barcodes, and shipping procedures. Breaches of these rules can result in extra fees or rejection of your products at Amazon’s fulfilment centres.
To remain up to date with Amazon’s policies:
Remember, preventing problems by following the guidelines from the outset is far easier than reinstating a suspended account. Proactive compliance with Amazon’s policies is one of the smartest investments you can make for your business’s long-term success.
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