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Navigating VAT for Cross-Border eCommerce

Selling on cross-border eCommerce has numerous challenges and one amongst them is the Value Added Tax or VAT. With enormous growth potential, many are selling abroad today and it is essential to remember that there are more than 160 countries around the world who charge VAT and the rules vary from country to country. Depending on the rules you need to plan before selling internationally on eCommerce so that the decision to include VAT in your price or pay it yourself can be taken, all depending on your business model. However, VAT needs to be made a priority if you are planning to sell to other countries because you need to be VAT compliant or risk getting penalized. A point to note here is that even when selling on marketplaces you need to be VAT compliant.

United States of America

The VAT in the USA is nothing but Sales tax. The option to charge this sales tax arises when you have what is known as a nexus in the United States, that is you are involved in some way or other with a commercial transaction, have a physical business, trade of some form or other.

What you need to do:

  1.  Register for a sales tax permit online 
  2.  Collect sales tax from every transaction made 
  3.  Deposit the tax collected from customers with the appropriate agency. 

However, for online sellers, there are some special tax rules when they have no nexus and no physical presence at all. The obligation to pay tax is not nil in this case. You need to still notify your customers that they have to pay taxes to their state revenue office and submit a list of these customers along with the tax owed by them to the revenue office.

The United Kingdom

VAT needs to be paid in the UK when you sell online on all goods except e-books and music downloads, digital goods and services which are all covered by a separate set of rules. The VAT can be charged by a business only after it registers itself. The threshold for registering VAT is over 85,000 pounds. If the turnover is less than the threshold, then VAT does not need to be charged. The percentage of VAT to be charged is given hereunder:

20 %For most items
5 %Health and welfare-related products and goods, Energy-related goods, Mobility aids
0 %Children’s clothes and related stuff

There is also a difference between VAT exempt and 0% VAT because the latter must go on record. The 0 rated goods also count towards the threshold. If you are based in the UK and selling to the EU you still need to charge the UK vat rate. In case a customer is Vat registered you are allowed to “zero rate” the goods. Goods sold outside the EU need not be charged VAT. Put on the price tag whether the item is Vat inclusive and remember that delivery charges also include vat.

India: 

The VAT has been almost eliminated with the introduction of the GST and the tax structure has thus been simplified. It is applicable to goods and services and it is only the end user who pays for it. The GST is charged uniformly across different states of India. Since it is a destination-based tax the taxes are collected at the endpoint with both CGST and SGST being levied. All Ecommerce operators need to be registered for GST but there is no specified threshold. However, if the turnover is less than Rs 20 lacs the eCommerce seller is not required to register for GST.

Philippines:

Here 12% VAT can be levied on transactions above $ 37,310 and applies to stores as well. Where the transactions are lower than the threshold mentioned, a 3% VAT is levied on any online transaction. Anyone trading in the Philippines rendering services or importing goods is liable to VAT.

Vietnam:  

Overseas eCommerce retailers need to have a local representation with a registered office and pay 10% VAT. In November 2017 the Vietnam Government initiated the process of all Cross border payments to be made via domestic gateways. The eCommerce market is not too attractive in Vietnam though.

Singapore

Any online purchase under 400 Singapore Dollars is not charged GST. According to The Straits Times, the Singapore Ministry of Finance is quoted, “B2B imported services will be taxed via a reverse charge mechanism, while B2C imported services will be taxed through an overseas vendor registration model”. The tax structure released by the Government for eCommerce says that from January 1st 2020 online consumers will be paying GST on video streaming, apps, online subscriptions and other related digital services.

Malaysia: 

Online local services are taxed under GST. There does not seem to be any tax structure in place applicable to foreigners and Malaysia is likely to follow in the footsteps of Singapore.

The Middle East: 

Any person supplying goods via the internet or providing services via any type of digitized channel must collect VAT as in any traditional business. Even when service is provided by third-party eCommerce sellers or service providers, VAT is applicable. The rate of VAT charged is at 5% for all goods sold online to local customers.

The Value Added Tax is very important whether you are selling on international marketplaces or you have your own store. It is advisable to have a strong grasp of the tax requirements of the country you propose to sell in, keeping in mind that evasion or even wrong calculations of VAT may lead to penalties being imposed. This is where Eunimart comes to the rescue with a completely automated estimation of taxes and duties depending on where you want to sell your products. Their advanced AI and eCommerce experts help you reduce errors and fines and gives you a detailed estimate of your complete expenses and profit with the Pricing Calculator. Sell Easy with Eunimart!