Selling outside the U.S. does not free you from the complexities of sales tax. In many countries, you will run into some kind of sales tax – familiar if you’re used to selling in the U.S., but different, too.

Europe’s value-added tax

VAT is applied at each stage of the supply chain and is recoverable by most businesses and, similar to American sales tax, rates are generally applied at a local (in Europe’s case, usually by country) level with exceptions on certain products. Each party in the supply chain charges, remits and recovers VAT until the transaction reaches the final individual consumer. A private individual cannot recover the VAT.

Place-of-supply rules dictate where and when VAT applies and who is responsible for reporting. There are also different place-of-supply rules for goods versus services and whether the recipient of the supply is a business or a private individual.

Determining your VAT obligations involves several other questions:

  • Are you importing goods into Europe and then selling there?
  • Do you hold stock/inventory in Europe?
  • Are you purchasing goods locally in Europe for onward supply?
  • Do you provide consultancy services that are connected to immovable property (a land-related service)?
  • Do you provide digital services to consumers in Europe?
  • Do you hold conferences in Europe and charge admission? Do you attend conferences in Europe?

There is a standard VAT registration for each country but in some cases you can use a simplified registration – One Stop Shop, or OSS, registration – to register in one EU state and report all sales to all member states. You file VAT returns monthly, bi-monthly, quarterly or bi-annually or annually depending on the country and other factors. You may also need to file other declarations, mainly relating to cross-border trade in goods, on such information as type and weight of goods, mode of transport and country of origin, among other details.

You pay any VAT liabilities to the tax office of the appropriate country. Latin America and Mexico also have VATs.

(Check out our webinar on VATs.)

Canada

Our neighbor to the north applies a Goods and Services Tax (GST), which in some Canadian provinces combines with a Provincial Sales Tax (PST) to produce a Harmonized Sales Tax (HST).

The HST applies in New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island. The GST solely applies in Alberta, Northwest Territories, Nunavut and Yukon. The provinces that levy a PST in addition to the GST are British Columbia, Manitoba, Quebec (the Quebec sales tax is the “QST”) and Saskatchewan.

GST/HST is registered under one account, and the province of a customer’s residence dictates what sales tax rate to charge.

Generally, a company is deemed to “carry on” business in Canada if it sells products to customers in Canada and uses Canadian-based resources, including local advertising and/or warehouses. Sporadic shipments to customers do not constitute regular and continuous business activity, but most of the goods and services in Canada are considered taxable.

Online businesses selling into Canada, excluding the small supplier exception, will register with the Canada Revenue Agency for a GST/HST account, just as they have to register with U.S. tax jurisdictions in which they have nexus. (A “small supplier” is a company whose revenue from worldwide taxable supplies falls below a certain threshold over the last year.)

Check with the Canada Revenue Agency for more complete information.

Sales tax non-compliance across borders can add significant risk to your business. We can help you comply. Contact us to learn about the latest developments in sales-tax nexus and what they mean to you and your company. 

 

Robert Dumas

Written by Robert Dumas

Accountant, consultant and entrepreneur, Robert Dumas began his public accounting career on the tax staff at Arthur Young & Co., followed by a brief stint at Grant Thornton. In 1998, Robert founded Tax Partners, which became the largest sales tax compliance service bureau in the country, and later sold it to Thomson Corporation. Robert founded TaxConnex in 2006 on the principle that the sales tax industry needed more than automation to truly help clients, thus building within TaxConnex a proprietary platform and network of sales tax experts to truly take sales tax off client’s plates.