Avalara is a Business Reporter client.
It’s more important than ever for retailers to simplify complex tax challenges when selling internationally
Borders present opportunities to enter new markets – and the number of retailers selling internationally is growing, which suggests the increasing ease of doing business with other countries. In terms of ways to connect with new global customers, and even how businesses are able to establish their logistics, this may well be true. But there is still a challenge for businesses when crossing borders: international tax compliance.
Tax compliance can be complex. It can be boring, and it can be stressful – but what it can’t be is ignored. Compliance challenges are something retailers must overcome in order to sell into new global markets successfully. This includes learning and adhering to the rules and requirements of each market, accurately calculating thousands of frequently changing global tax rates, overcoming language barriers, assigning product codes correctly for international shipping and handling customs duties.
In the EU, economic instability of the business landscape is causing expenses to increase across the board. As a result, tax compliance remains paramount – non-compliance penalties would hit even harder, and it’s more important than ever to clear customs and reach customers as quickly as possible while minimising additional costs and the number of returns.
As revenue continues to fall in many industries, consumers lose the purchasing power they once had and become increasingly price-conscious. In a bid to secure new or repeat business, ecommerce stakeholders are under pressure to reduce costs and errors, something that can be alleviated through automation of tax, customs and duty calculations.
There’s also the problem of competition. Multinational corporations, specifically large online marketplaces, have a well-established logistics setup within Europe and can shrug off the customs expenses that medium-sized businesses with less automation might struggle with. It’s important, then, as a stakeholder in an ecommerce business, to invest in areas such as automation to ensure you’re minimising the risk of error to stay competitive with same-size or larger corporations.
So how can this be achieved when you’re short on the requisite knowledge, skills and resources for managing new compliance obligations?
As always, information is a key tool. Customer location data allows companies to figure out shipping times, relevant tax laws and customs duties. Learning about these factors and comparing them allows you to optimise your logistics and further streamline consumer buying processes. The result of this deep learning enables businesses to offer solutions such as delivered duty paid (DDP), whereby total costs, including product price, sales tax, delivery fee and duty rates are made transparent to the consumer at the initial purchase stage for an improved customer experience.
Ecommerce businesses also need to stay switched on outside of tangible goods. Digital services, for example, are becoming ever more popular – and they come with their own set of tax rules. Identifying where VAT, GST or Digital Services Tax (DST) must be applied and collected on services such as streaming and SaaS is a challenge in itself.
Whether tangible or digital goods, obligations in the supply chain are evolving across borders at a similar pace. E-invoicing is now being rolled out across Europe and beyond. As a result, many high-level stakeholders are implementing tax automation to stay ahead of the changes and to minimise the risk of non-compliance.
Businesses should also carefully consider any relevant laws and policies for online returns to ensure they stay compliant and not refund any amount that should have been remitted as tax or overpay customs and duties.
That same tactic of “careful consideration” really is your best strategy to avoid complications as you grow across borders. Your business needs to have a full understanding of the potential risks when you begin to expand, and there are automated solutions and teams of experts available in the market to minimise liabilities and keep your business compliant.
Worldwide retail ecommerce sales could reach $6.169 trillion in 2023 and comprise 22.3 per cent of total retail sales. If you’re part of that rising tide, you need to make sure you carefully consider all of the new tax and customs obligations you’ll incur before you start growing internationally.
Avalara helps businesses of all sizes simplify tax compliance with automated, cloud-based solutions. Each year, we process billions of indirect tax transactions, file thousands of tax returns and manage millions of exemption certificates. To find out more, visit avlr.co/sellglobal
