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International Sales: What Are the Tax Implications?

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The tax implications of international sales can be intimidating for any retailer operating in eCommerce. Here’s what you need to know to be successful.
International Sales: What Are the Tax Implications?

For international sales, some US states provide exemptions for sales tax, although some destination countries will charge value-added tax for items when they enter as imports, which will require you to complete customs forms for shipments to foreign destinations. A recent article on the Commerce Lens explored considerations for multistate sales. Selling internationally, however, has its own tax and tariff implications.

International Sales Will Grow Your Business

Selling internationally is important for the economy as a whole but also benefits individual merchants, allowing them to grow faster. Research shows that, internationally, 40 percent of respondents had bought goods online from another country, with retailers in the United States, the UK, and Germany being the most popular eCommerce sources. For American eCommerce retailers, the best opportunities are offered in Canada, as well as the UK and Australia. However, significant opportunities are also seen in Brazil, Germany, and China.

In short: the time is ripe to cash in on the opportunities available, but there are some considerations to bear in mind.

Rates Vary Widely

When selling to either Canada or Mexico, preferential duty rates are applied to products that meet the North American Free Trade Agreement (NAFTA) rules for the origin of goods exported. For those products that qualify, zero duties are payable for goods shipped from the US to Canada, while zero or low rates are applicable for those sent to Mexico.

In many other countries, a tax is levied by the national government on the value of goods, as well as on freight and insurance costs. This is not a one-size-fits-all issue, as rates vary widely by product as well as by country, with some levies being extremely high and others much more reasonable. Customs fees may also be payable, as may national sales and local taxes.

The Burden Falls on the Buyer

The taxes and other tariffs are payable by the buyer of the goods, which can considerably add to the cost of the purchase. It is important that your buyer understands the total final cost, where possible, although in many cases this might be an estimate. It is also important that you do your research to make sure that the estimate is as accurate as possible. If not, you might alienate your customers and reduce the chance of repeat sales. The best strategy is to look for third-party fulfillment providers that deliver a duty-paid international shipping option in which extra taxes and duties are calculated at checkout and there are no additional fees on delivery. Export.gov reports that the US has reached free-trade agreements with more than 20 countries, the details of which are available on its website. It provides a number of useful links to help you calculate what tariffs will be applicable. However, it points out that value-added taxes and customs tariffs are generally not included.

For a more accurate estimate of total final cost, there are a number of services that can assist you.

International sales are rapidly becoming a staple of business for many organizations operating in the eCommerce sector. There may be many considerations to take into account, but the resources are there to assist you. Don’t let those considerations hold you back from growing your business and tapping into new, lucrative markets abroad.