International e-commerce has experienced exponential growth over the past decade. This allows companies to market their products and/or services in various parts of the world with ease.
However, this growth is not without considerable tax challenges. In this article, you will learn the main aspects of international e-commerce taxation and how you can ensure that your company complies with current tax regulations.
What is International E-Commerce?
When we talk about international e-commerce, we refer to commercial transactions that are made over the Internet, generally between companies and clients from different countries.
Since this type of trade involves making transactions across borders, this leads us to another potential drawback: international payment, tax regulations, tariff barriers, and shipping logistics.
International e-commerce is distinguished from local e-commerce by mediating between companies and customers in different countries.
International e-commerce, therefore, requires developing strategies aimed at adapting customs regulations or developing the offerings for its different commercial activities.
What Are the Taxes in International E-Commerce?
E-commerce operations may be subject to a plurality of taxes depending on the jurisdiction in which they are developed. Some of the most significant taxes are:
Value Added Tax (VAT) or Goods and Services Tax (GST)
Sales of digital goods and services are subject to VAT or GST in many jurisdictions, including some in the EU and some in Latin America. The tax rate varies according to national legislation.
Some jurisdictions even have specific provisions in their legislation for foreign companies when they sell to customers located in their territory, requiring them to register and collect the tax.
Sales Tax
In the United States, for example, companies may be required to collect sales tax under certain circumstances if an “economic nexus” or connection is established in the jurisdictions in which the trade is conducted.
Export Duties and Taxes
When goods are sold to customers abroad, import duties or taxes may also apply. These costs are usually the responsibility of the buyer, although the seller should be aware of the costs associated with their sale, in order to avoid problems with their shipments.
Corporate Income Tax
Depending on the country to which it is exporting, an e-commerce company may be subject to income taxes in more than one jurisdiction. In many cases, double taxation treaties could be helpful in preventing the company from paying two taxes on the same income. To navigate these complex tax obligations efficiently, many businesses
are turning to tax preparation outsourcing as a cost-effective
solution that ensures compliance across borders.
If you want to investigate any of these key points for international e-commerce further, we recommend using VPNs. With these types of tools, you can access global information without restrictions and also protect yourself from data theft.
International Tax Rules and Regulations
As tax regulations vary from country to country, it is important that you know some of the most relevant international rules:
VAT Regulations in the EU
The European Union approved VAT rules for e-commerce in July 2021. These require sellers and marketplaces to collect VAT on cross-border sales. The One-Stop Shop (OSS) platform allows companies to register in a single EU country and declare VAT on all their sales within the territory.
“Economic Nexus” Laws in the US
Thanks to the ruling of the US Supreme Court in South Dakota v. Wayfair Inc. (2018), states can require businesses without a physical presence to collect sales tax if they exceed certain revenue or transaction thresholds.
Double Tax Treaties
To avoid companies being taxed twice for the same income produced in different countries, many governments have signed double tax treaties that determine which country has jurisdiction to collect taxes.
Tips to Comply With Taxes in E-Commerce
If you fail to comply with tax regulations, your company will be subject to sanctions. Therefore, you must try to guide it toward compliance with tax obligations. Some effective strategies to achieve this are:
- Registration and compliance: You must investigate the country where your company must comply with tax obligations. This way, you can register it and begin collecting when necessary.
- Tax advice: Hiring qualified tax advisors with experience in international e-commerce is essential to address legal problems and reduce tax burdens.
- Legislative monitoring: Since tax laws can be dynamic, it is important to stay up to date with changes and new requirements.
Taxation related to international e-commerce is a critical point that you must learn to manage as a business owner. If you know which taxes apply and comply with jurisdictional regulations, you will be able to grow your assets and strengthen your business in any part of the world.
