February 22, 2023
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Taxes. Ah yes, we can tell that got you excited already! Like it or not, as an online business you are as responsible for getting taxes on your sales right as any other business.
A growing global trend is that governments are tightening their rules around the correct charging of taxes and are looking for ways they might crack down on those who don’t comply. This means it is the responsibility of online store owners to have a basic understanding of tax requirements if you intend to sell internationally.
One of the reasons why countries are cracking down on sales taxes is that they want their merchants to be competitive. Buyers do look for the best deal, so requiring sales taxes from foreign digital sellers helps to level the playing field.
When shopping around, buyers don’t like surprise charges at the checkout (this is one of the big reasons why people abandon shopping carts). These include charges such as shipping or taxes. You have to charge the taxes, so make sure you are clear on that, such as by listing prices as $X + tax. Or perhaps including a sentence on the product page to say taxes may be charged at checkout and are dependent on customer location.
You need to know and be compliant with the rules of the individual country you’re selling your products in. Obviously, the rules are going to be different for each country. You need to charge sales tax according to their rules and show this clearly on your invoices.
We’re going to look at a few examples next up, but keep an eye out. This is not an exhaustive list, and there are several countries which have laws either due to come into effect, or waiting to be passed to govern taxes for goods or services sold online.
(Look out for New Zealand going into effect in July 2017 and Russia in January 2017, among others).
The EU introduced new rules which impact the sale of digital goods and services on 1stJanuary 2015. It turns out, though, there have been rules applicable to online businesses since 2003, though many have simply ignored them. This applies to physical goods as well– companies can no longer exploit a loophole where taxation was based on where the company was registered. You must now charge VAT based on the country of the consumer.
The EU requires that sellers charge VAT (value added tax) on transactions with all EU consumers. Businesses may be exempted under a “reverse charge” rule, but you as the seller must collect VAT registration information off them to demonstrate they are an exempted business.
The complication is that (currently) there are 28 member states in the EU and each state has its own rates and rules on what gets taxed, with VAT rates ranging from 5% to 27%. Sellers both inside and outside the EU must charge VAT, though if the customer doesn’t reside in the EU and you are EU-based, it is not required to charge VAT. Here are some other things you should know: •
If you are selling physical goods into Australia, but your company does not have a physical presence there, your sales may still be subject to GST. This means you may need to apply for an ABN (Australian Business Number) so that you are able to collect and pay GST. Laws governing taxes on digital goods are also coming into effect from 1 July 2017.
Whether or not to impose a “Netflix tax” became an election issue in 2015. At this point, though, there is no further word on whether or not foreign-based sellers will need to collect and pay sales taxes. If you are based in Canada, then you need to follow the rules based upon your Province.
Currently, you only need to collect State-based sales tax if your business has a physical presence in a particular state. This is called establishing a “nexus” and can be determined if you, for example, have an office or warehouse in the state.
For online sellers, this is important to know. The storage of your goods in an Amazon FBA warehouse can establish a nexus for you in the state where the warehouse is located. For example, if your goods are in one of their Seattle warehouses, you may be considered to have nexus in Washington. This applies to you even if you are otherwise based in a foreign country.
Singapore’s laws governing GST currently only relate to businesses considered to be operating in Singapore (there are some good examples of exactly what that means here). This is one to keep on your watch list though – there is considerable talk that GST may be on its way for online transactions from foreign-based businesses.
You’re probably thinking that with all these various rules involved, it might be too much of a headache to do business across borders. However, if you’ve already got a significant base of customers across borders or intend to build one, it might just be worth your while finding a way to comply. Shopify is able to automatically calculate the appropriate taxes to charge your customers, while Sufio issues professional invoices which are compliant with tax legislation worldwide.
