Many businesses mistakenly believe that when they expand overseas, they are still only bound by their domestic laws.
What actually happens is that your new customers are protected by their laws; these include consumer laws, employee regulations, and data protection rules. So it’s best to err on the side of caution, but at the same time not to let the legal aspect of expansion to discourage you!
In this, article four of the expanding internationally series, we’ll be alerting you to the areas to look out for, and how to get your Shopify store tax compliant in a new territory.
Don’t worry, this is going to be insightful, informative and not dry. A lot of the information currently out there is a little too dense to be practical for an eCommerce store. This article cuts out the flow and is a mix of our experience with clients, relevant legal information and common barriers to entry.
And most importantly, we’ll show you how to climb these barriers.
eCommerce Taxes & VAT
Handling international taxes can feel really overwhelming. Each country has their own set of regulations, and the last thing you want is to become non-compliant with the law accidentally.
So how do you ensure tax-compliance?
If you’re looking into international growth, you’ve probably already got a good handle on your current domestic tax affairs.
Tip #1: Centralize local and global tax compliance information.
I don’t care if you take nothing more from this article than this one tip.
It’s not a wise business move to spread your tax information across different software providers. Get an accounting software kit together. Fortunately, online tax software exists that can consolidate your taxes.
Intuit’s TurboTax is an excellent option for Shopify stores that identify as an SMB. The reason it works so well is that it’s simple to use but also sophisticated in design. It runs double accuracy checks and even scans through your forms for tax deductions and credits.
We recommend the deluxe option if; you’re serious about getting your international taxes in order, and you don’t have much in the way of experience or knowledge.
On the other end of the scale, if you’re looking to reduce costs wherever possible and are willing to put in a bit more work (due to lack of automated features), TaxAct is a great online tool for US merchants. It helps you to file your taxes faster and with more support. It also does a great job in explaining the jargon and fine print.
Tip #2: Contact your domestic revenue office.
They will have an international department where you can ask about the tax and VAT situation in your target countries. It’s actually best to get this out of the way before you begin selling. You’ve then got confidence, but it’s also crucal for budgeting.
Your profits could take a surprising hit once you realize the cost of selling in that country.
On the other hand, if you’re lucky you may find that some of your products may be VAT exempt or charged at a reduced rate. Either way, it’s good to gather the intel before the launch.
Tip #3: Use what your Shopify account gave you!
If you’re a Shopify Plus customer, there’s an in-built solution provider that’s about to become your best friend: Avalara. With this, you can set up complex tax rules with ease and bring your sales and tax information into one dashboard where you can control everything.
Also, Avalara’s AvaTax is a thing of wonder.
When a customer on the other side of the world submits an order, the AvaTax software instantly calculations the tax on their shopping cart. It then cross-checks thousands of rates, rules, and jurisdictional boundaries to give you the most accurate results in a flash.
Develop your cross border accounting strategy
Getting together a plan on how you’re going to create and input procedures. Do you need to employ accounting assistance? Or is someone already in the company willing and able to take on this role?
When beginning to piece together the tax regulations relevant to your business, look out for countries that have tax treaties with your own. This incentive can make trading in your new market much more feasible.
Tax treaties also prevent your business from having to pay tax in your own country as well as in the trading country. This tax reduction means you can compete on a fairer playing field with local market leaders.
There are also rules in place like the Common Consolidated Corporate Tax Base (CCCTB) in the EU.
It’s used to calculate a company’s taxable profits. It means that cross-border countries only have to comply with one single set of rules and only have to file one single tax return. You can check out more info on how to trade in the EU as a non-EU trader here.
In the states, it’s another set of rules again.
Back in June 2018, the US Supreme Court came out with the declaration that sales tax is to be applied to businesses without a local, physical presence with US customers.
So it’s good to be in the know with changes like these cropping up globally.
Last year, 1.79 billion people made an online purchase. The evolution of eCommerce is changing the way people live, and legislation is changing globally to fit this new wave of business. So, whatever country you’ll be making an entrance into, it’s a solid plan to look into what the score is for international traders.
Be aware of product patents
It is natural for a company to protect their competitive advantage in their market. So make sure to check that there are no patents that overlap on what you’re selling.
Patents can be international and domestic, so each time you expand into a new country, it’s good to do a sweep of the patents that have been taken out in the market.
Infringing your competitor’s patents can result in them taking legal action. So, again it’s best to do the research before you’ve launched in the new territory and find workarounds or explore different options.
If you need help with this initial process, we have extensive experience helping Shopify stores trade within the legal boundaries of foreign markets. Get in touch via our contact page, we can show you how to prepare your business for expansion.