Cross border selling involves a host of legal and financial implications in terms of local tax laws. Depending on the type of client (B2B or B2C), the location (inside or outside of the EU), and the distance selling limits, businesses have a variety of tax responsibilities. Even digital products (reports, tutorials, online magazines, games) are subject to tax regulations in some countries.
1. VAT on Online Products
For B2C products sold online, the VAT of the country into which the products are shipped is applied. If the company is below a certain threshold, which varies from country to country, they can charge the VAT of their own country. However, once that threshold has been passed, they must charge the VAT of the country that they are selling to. It is important to properly register with the local tax authorities if you foresee doing significant business in that area.
2. VAT on Online Services
Since January 1, 2015, all services sold online are subject to VAT of the country of the consumer, with the following implications:
- Services are subject to VAT of the country of the consumer
- The service provider must declare and pay the VAT in each EU country where the services are used
In order to alleviate the burden on service providers of going through administrative formalities in each EU country, a special program was established in 2015: Mini One Stop Shop – MOSS. Online service providers can declare their VAT for all of their sales across EU countries on a single online platform..
3. Tax Resources
- UK – HM Revenue and Customs – https://www.gov.uk/government/organisations/hm-revenue-customs
- Australia – Australian Taxation Office – https://www.ato.gov.au/
- USA – Internal Revenue Service (tax rules differ from one state to another) – https://www.irs.gov/
- Spain – Agencia Tributaria – http://www.agenciatributaria.es/AEAT.internet/en_gb/Inicio.shtml
- France – Impots – https://www.impots.gouv.fr/portail/files/media/1_metier/5_international/french_tax_system.pdf – http://douane.gouv.fr/
- Germany – Bundeszentralamt für Steuern – http://www.bzst.de/EN/Home/home_node.html
- Italy – Agenzia delle Entrate – http://www1.agenziaentrate.gov.it/english/
- New Zealand – Inland Revenue – http://www.ird.govt.nz/
4. Custom duties
On top of the sales tax applied to products during purchase, they also receive customs duties added at the border. These fees are usually the responsibility of the customer; however, unexpected duties can result in a loss of trust and therefor a lost customer, as well as potential negative feedback in the form of reviews or social media posts.
Customs duties and taxes are calculated based on a combination of factors:
- Declared value of the product
- Shipping costs
- Trade agreements
- Product use
- Harmonisation system (HS) code
Discover all of our tips in the ultimate guide to online cross-border sales in Europe, developed in partnership with Lengow !
