Seven major tax challenges for international retailers

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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, before you can begin to enjoy the benefits of tax compliance, you’ll first need to ensure you have the resources and knowledge to navigate regulations from tax and customs authorities. Unfortunately, ‘international tax laws’ isn’t really a single concept you can research — instead, a company will need to learn about the unique tax laws of the country they’re selling into.

Luckily, most cross-border tax compliance issues have tried-and-tested solutions. At Avalara, our focus is on helping our customers solve tax compliance problems, no matter the size of their company or where they’re based. To help your company succeed, we’ve listed some of the most common tax challenges faced by multinational companies, along with some advice on overcoming them.

Tax challenges in the US

Understanding sales tax liabilities

Unknowingly acquiring additional tax liabilities is one of the more significant problems a company will face when trading in the US. There are over 13,000 sales and use tax jurisdictions in the US, and if a company is liable to collect taxes in any one of them and fails to remit, there can be severe repercussions. Tools like Avalara’s free US sales tax risk assessment can help identify where you have tax obligations.

Calculating correct sales tax rates

Tax calculations in the US can prove incredibly difficult for a few reasons. The first is the massive number of US sales tax jurisdictions. Second, these jurisdictions can frequently change their rates depending on various economic factors, so retailers that are used to stable VAT rates might struggle to keep up.

Finally, jurisdictions can often overlap, meaning you might need to apply a state, county, and city tax rate — all in a single transaction. The challenges we’ve listed here are just a few examples of the pitfalls you might encounter when selling into the US market.

For more advice on how to make the most of the considerable advantage the US market represents, check out Avalara’s complete guide to selling into the US.

Tax challenges in the EU

IOSS

Import One-Stop Shop (IOSS) is a simplified reporting model launched in 2021 and it continues to evolve. IOSS allows a business to register for VAT in a single EU member country to sell throughout the European Union instead of registering in each country they sell to.

While IOSS is more straightforward than the previous option, registration can still be complicated for international businesses. For instance, you’ll need to work out if you need an IOSS intermediary, which a third-party non-EU businesses must use to begin the registration.

Selling through marketplaces

Selling your products as a third-party retailer through an online marketplace (ie, selling goods through Amazon or ebay) can become complicated in the EU because of the ever-changing regulations. For the most part, the marketplace you’re selling through is responsible for the collection, reporting and remittance of VAT for sales by a third-party seller. However, this doesn’t mean sellers have no responsibilities when it comes to VAT — make sure you have a reliable digital solution to take care of any compliance obligations that do come up.

E-invoicing

E-invoicing is mandatory (or is soon to be mandatory) in several European countries, including Spain, France and Poland. These mandates often have stipulations regarding the e-invoicing software used, so it’s important retailers have automation that fulfils the legal requirements.

Tax challenges in the UK

Brexit

Britain’s exit from the European Union has meant that trading into the UK as an EU business is significantly more complicated than it was just a few years ago. The disruption is wide-ranging for retailers in both the UK and the EU, so it’s essential to understand how best to alleviate the impact.

As moving products across borders is most often the main issue, you need to ensure you have a solid knowledge of VAT and customs duty. However, investing in a high-quality shipping solution is also helpful. Thorough research is a great start — be sure to check out Avalara’s Brexit webinar for a range of practical advice on continuing ecommerce in the region.

UK VAT rules

VAT will likely be a source of initial confusion for businesses selling into the UK. However, European companies which have already dealt with their own version of VAT will likely handle the transition to UK VAT better than non-EU companies, used to an equivalent like GST or sales tax.

In general, the most important points to learn are how to register for VAT and how (and when) to complete and file a VAT return. You’ll also want to keep up with VAT rate changes, as charging the correct rate is vital for compliance.

Additionally, businesses should keep an eye out for updates regarding the UK Making Tax Digital (MTD) initiative, as it significantly impacts the filing of VAT returns. Check out our comprehensive article on the current phase of MTD and what the future might hold.

Avalara: your partner for cross-border compliance

One of your priorities when it comes to scaling up your retail business is tax compliance. Trading in a new marketplace means incurring new tax liabilities, and if you’re trading across borders, you’re likely to be unfamiliar with the new country’s tax laws. As such, it’s vital to seek out expert advice or utilise digital tools that make compliance easy.

At Avalara, we can provide solutions for any tax challenge you might face. If you’re looking to increase your knowledge of foreign tax law, our research services can help you understand how best to begin trading in international markets. If your business needs an accurate, efficient way of calculating tax rates, our AvaTax software offers a perfect solution.

Whatever your problem, Avalara is here to help. To enable success with your next cross-border expansion, contact us to speak with one of our experts today.

This post has been sponsored by Avalara