How to Manage Global Sales Tax for Products

Selling physical products globally involves various challenges, from handling storage and supply, shipping, delivery methods, customer location, and taxes. VAT, GST, and sales tax are the three standard forms of consumption tax used by major economies. Knowing the local tax laws of the country you’re selling to is crucial to avoid any potential penalties.

To help simplify the complex topic of “sales tax across the globe”, Fiskl has distilled the information and created a tax compliance framework for approaching sales tax in foreign countries.

When to Register for Sales Tax in a Foreign Country

To determine if your business qualifies for mandatory tax registration, consider the following:

• Taxable Products: Determine if the products you’re selling are taxable or exempt from tax.
• Sales Thresholds: Many countries have a tax registration threshold. If your annual sales exceed the threshold, you’ll have to register with the local tax system. Keep in mind that tax thresholds may not apply if you only sell B2B.
• Operating in the Country: Knowing if your business operates in the country, such as having a physical presence or using a local bank account, is important in determining tax obligations.

For example, in Australia, businesses selling over A$75,000 must register for GST. In Canada, businesses must register if their sales exceed $30,000 CAD. In the EU, the VAT thresholds vary between €35,000-100,000. In the US, the economic nexus law has dual thresholds of 200 transactions or $100,000 in sales.

How to Register for Sales Tax in a Foreign Country

Check the country’s tax agency website for information on how to manage sales tax as a foreign supplier. Many countries offer online registration for foreign businesses, but some may require email correspondence or hard-copy documents. A tax identification number will be assigned to your business for tax compliance purposes.

When to Charge Sales Tax

Check with each country’s tax rules if you sell through an online marketplace, as the tax responsibility may fall on the marketplace and not your business. Otherwise, charge sales tax at the point of sale and clearly communicate it to the customer. In some countries, B2B transactions may not require sales tax.

Import Taxes for the Customer

In the EU, if your business isn’t VAT-registered, the customer will pay import VAT upon receipt of your product. In Australia, the buyer will pay import GST if the customs value is above A$1,000. Check the country’s policies to set expectations with your customer and avoid any frustration.

Determining the Right Tax Rate

To determine the correct tax rate, consider the following:

• Product-specific Tax Rate: Some countries may have a blanket tax rate for imported goods, but there may be a special tax rate for the specific product you’re selling.
• Destination-based Tax Rate: Most countries require you to charge their local tax rate, which may have several levels from national to local municipality.

Taxing Shipping Costs

In the US, some states consider shipping costs part of the taxable total. In most other countries, shipping costs aren’t taxed.

Invoicing and Tax Records

Proper documentation of the purchase is crucial for tax compliance. Include the following information in a receipt, bill, or tax invoice:

• Business name and address
• Business tax ID for the destination country
• Customer’s name and address
• Unique invoice reference number
• Date of invoice creation
• List of products/services provided with quantity and cost
• Amount of sales tax, VAT, GST for each item or total tax amount for the invoice
• Total invoice amount
• Payment terms including payment channel and due date
• Invoice calculated in the destination country’s currency
• Option to provide the invoice in the customer’s language

Foreign Tax Returns

Filing tax returns in a foreign country can be done online in most countries. However, it’s important to keep track of the filing frequency and due dates. Consider the following:

• Note the filing frequency (monthly, quarterly, annually)
• Note filing due dates and payment deadlines
• Check if there is a “zero return” or “nil return” rule

Tax Records

To keep track of sales tax, it’s important to keep records of sales, tax collected, filed, and paid. Keep the following:

• Tax invoices and receipts sent and received
• Records for a specified number of years (e.g. 6 years in Canada, 10 years in the EU)

Simplifying the Process

Managing business tax compliance and policy changes can be time-consuming, especially if you’re selling globally. Fiskl can simplify the global sales tax management process by:

• Sending invoices in multiple languages and currencies
• Automatically tracking annual sales and tax per country
• Automatically processing Sales tax or VAT information from your invoices in each currency, directly to accounting
• Creating a separate tax registration (agency) entry in your tax management in Fiskl
• Creating Chart of Accounts account/category entries in the country’s currency
• Calculating automatically tax due for each tax agency in the respective currency
• Storing records securely for as long as needed

For detail by country, access the Ernst & Young Worldwide VAT, GST and Sales Tax Guide 2022 and click on your country on the map.

Complete E&Y Tax Guide 2022 for accountants, by country: Download the E&Y Tax Guide.

Keep up-to-date on significant tax developments around the globe with EY’s Global Tax Alert library.