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A Beginner's Guide to Ecommerce Tax Compliance and International Shipping

It’s easier than ever for businesses to go global. International shipping infrastructure has expanded dramatically, while global-ready e-commerce platforms like Oracle Commerce Cloud ease the pains of digital expansion.

One roadblock still trips up many growing businesses, both small and large: international tax compliance.

For U.S. companies, transactional tax in other countries can be a shock to the system. These businesses are used to sales and use tax regulations in the United States, but almost every other nation in the world uses a system of Value Added Tax, or VAT.

How is VAT different? Instead of only the end user paying tax, VAT requires tax payments to be remitted at every stage of the supply chain: wholesalers, manufacturers, and retailers are not exempt. Businesses also are entitled to seek refunds of the portion of VAT already contributed at another level of the supply chain. Sound complicated? Check out this video and blog explaining the basics:

Different nations have different VAT rates and rules, so the difficulty of maintaining compliance increases with each new country you ship to. You can automate many compliance tasks with a tool like those offered by Avalara VATlive. Avalara’s industry-leading innovations in both U.S. and international transactional taxes can take the guesswork out of rate determination.

Once you understand VAT, you’re one step closer to filling in the international tax compliance picture — but VAT is not the only tax charged to international sellers. Import duties and tariffs add an additional layer of complexity to figuring out the total cost of shipping a product from one country to another.

If your product catalog is diverse, rate determination gets trickier: each product needs to be assigned a different tariff code classification. Classification categories are very specific, and even products as similar as rubber-soled flip-flops and leather-soled flip-flops can have different total import taxes and duties.

The process of determining and calculating these categories is time-consuming and requires international trade experience and know-how. When businesses rely on manual calculation or shipping companies to determine the total landed cost of a shipment, costly mistakes often follow, leaving dissatisfied customers in their wake. 

Don’t let these complexities get in the way of your planned expansion. Instead, investigate a solution like Avalara LandedCost, which eliminates the need for hiring high-priced consultants and offers flat-rate pricing for tariff code determinations.

By eliminating manual determination and calculation steps from the process of selling online, businesses can stop compliance errors before they start and keep costs low. Today, there’s no reason to let the complications of tax compliance slow down your plans for growth — no matter where you’re headed next.

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