Having access to new international markets can increase your revenue, which can then be funnelled back into your business to fund future expansion and development. These benefits make expanding your business abroad a no-brainer.
While ensuring that your business remains tax compliant is something you are required to do by law, there are still several benefits of getting tax compliance right, both for your business and customers alike. Some of the biggest benefits include:
- The ability to scale your business without worrying about a soaring tax bill
- Ensuring that your business avoids any fines or penalties for misfiling tax returns
- Becoming more attractive to investors, venture capitalists and other organisations for acquisition
- Ensures that your customers aren’t charged expensive customs or importing bills upon purchase
- Giving back to your community – tax compliance allows public enterprises such as schools, police, and fire departments to operate.
However, you must first make sure you have the tools and expertise to understand the rules set down by tax and customs authorities before you can start to reap the rewards of tax compliance. Unfortunately, there isn’t actually an unified idea called “international tax laws” that can be studied; rather, a corporation must get familiar with the particular tax regulations of the country they are selling to.
Fortunately, most problems with cross-border tax compliance have established fixes. Regardless of the size or location of the customer’s business, our goal at Avalara is to assist them in resolving tax compliance issues. We’ve outlined some of the most typical tax obstacles that multinational corporations face below, along with suggestions for how to solve them,
Tax challenges in the US
Understanding sales tax liabilities
One of the more serious issues a firm will experience when trading in the US is unknowingly accruing additional tax responsibilities. There are more than 13,000 sales and use tax jurisdictions in the US, and if a business is required to collect taxes in one of them but does not send the money in on time, there may be serious consequences. You can determine where you have tax responsibilities by using tools like Avalara’s free US sales tax risk assessment.
Calculating correct sales tax rates
Tax calculations in the US can be very challenging for a variety of reasons. The vast number of US sales tax jurisdictions is the first. Second, because these jurisdictions’ rates are regularly subject to fluctuate based on a variety of economic reasons, retailers accustomed to steady VAT rates may find it difficult to keep up.
Finally, since jurisdictions frequently cross over, you could have to use the state, county, and local tax rates in the same transaction. These difficulties are only a few of the potential hazards you can run across while trying to sell to the US market.
Check out Avalara’s comprehensive guide to selling into the US for more tips on how to maximize the significant advantage the US market affords.
Tax challenges in the EU
IOSS
A streamlined reporting mechanism called Import One-Stop Shop (IOSS) was introduced in 2021 and is still developing. Instead of registering in each country they sell to, IOSS enables a company to register for VAT in a single EU member state and sell across the whole EU.
IOSS is simpler than the prior alternative, however registration might still be challenging for businesses operating internationally. For instance, you must determine whether you require an IOSS intermediary, which a non-EU corporation must utilize as a starting point for registration.
Selling through marketplaces
Because of the sometimes altering legislation, selling your products as a third-party merchant through an online marketplace (i.e., selling goods through Amazon or ebay) can be challenging in the EU. The majority of the time, the marketplace you’re selling on is in charge of collecting, reporting, and remitting VAT for sales made by third-party sellers. This does not absolve sellers of any VAT-related obligations, so be sure to have a solid digital solution in place to handle any compliance requirements that may arise.
E-invoicing
Several European nations, notably Spain, France, and Poland, have made or will soon make e-invoicing mandatory. Retailers must have automation that complies with legal standards as these mandates frequently have criteria for the e-invoicing software used.
Tax challenges in the UK
Brexit
Due to Britain’s departure from the European Union, doing business in the UK is now far more difficult than it was a few years ago. It’s crucial to comprehend the finest ways to lessen the damage because the interruption will affect shops across the board in the EU and the UK.
You must make sure you are well-versed in VAT and customs duty because transferring goods across borders is frequently the major challenge. However, spending money on a top-notch shipping service is also beneficial. Thorough research is a good place to start; for a variety of useful tips on sustaining e-commerce in the area, watch the Brexit webinar presented by Avalara.
UK VAT rules
For companies selling to the UK, VAT will probably cause some initial misunderstanding. While non-EU businesses familiar to an equivalent like GST or sales tax will probably adjust to the UK VAT more smoothly than European businesses who have already dealt with their own version of the tax.
The most crucial things to understand generally are how to register for VAT and when (and how to complete) a VAT return. Keeping up with changes in the VAT rate is also advisable because charging the proper rate is essential for compliance.
Businesses should also keep an eye out for updates surrounding the Making Tax Digital (MTD) project in the UK, as it has a big impact on how VAT returns are filed. Look at our in-depth article on the current phase of MTD and what the future might hold.
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