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Navigating value-added tax implications for e-commerce businesses

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Considerations for online sellers

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March 18, 2025

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Key takeaways

Tax authorities worldwide are adopting rules to ensure tax collection on e-commerce activities.

U.S. businesses must comply with local indirect tax rules and collect tax from their customers where they are required to do so.

VAT compliance varies by country, requiring diligence in understanding local regulations.

The global e-commerce market has experienced exponential growth, with sales projected to exceed $6.5 trillion in 2025. In response, tax authorities all over the world have been adopting rules to ensure they continue to collect tax on the economic activities within their geographical boundaries. For U.S. businesses entering international markets via e-commerce, it is crucial to understand and comply with local value-added tax (VAT) and goods and services tax (GST) rules to avoid financial and legal issues. Since VAT rates, registration thresholds and compliance requirements vary across countries, businesses must be diligent when expanding abroad and fully understand the VAT implications.

Key VAT considerations

Distribution channels: Will products be sold through the business's website, through e-commerce platforms and online marketplaces, or through a combination of those channels?

Identification of customers: Will products be marketed and sold to private individuals only (B2C) or to businesses (B2B) as well?

Supply chain management: How will international shipments be managed? Is the business planning to hold inventory overseas?

Avoiding unexpected tax costs: Are measures being taken to optimize the customer experience and to ensure overseas customers are not receiving unexpected tax charges at the time of product delivery?

Registration and compliance: Are potential VAT registration and compliance obligations considered before entering new markets to avoid regulatory surprises?

Cross-border transactions: Are measures being taken to comply with VAT on cross-border transactions, including collecting and validating vendor and customer information, applying the correct VAT rates, and issuing compliant invoices?

Involvement of third parties: Are the roles and responsibilities of third parties, such as logistics providers, well-defined and agreed upon, including the VAT compliance for cross-border shipments, warehousing and other relevant activities and transactions?

Tax technology and automation: Will technology be used to automate VAT compliance processes, streamline VAT reporting and improve the accuracy of tax calculations?

Global VAT measures and compliance

Tax authorities worldwide have implemented measures to enhance tax collection, simplify compliance and foster fair competition. For example, the Import One Stop Shop and One Stop Shop regimes simplify VAT compliance for businesses engaging in e-commerce activity into and within the European Union. Businesses can meet their VAT obligations in 27 EU member states with a single registration, reducing time, cost and complexity for e-commerce within the EU.

Various VAT jurisdictions, including the EU, the UK, Singapore, Australia and New Zealand, require nonresident e-commerce businesses to register and account for local VAT/GST on the supply of low-value goods at the point of sale rather than at the customs border upon import. These measures expedite customs clearance and improve delivery times, enhancing the customer experience. Thresholds and requirements for low-value goods vary by jurisdiction and should be assessed individually.

Determining how these regulations may affect businesses will depend on various factors that must be well understood and carefully analyzed on a case-by-case basis.

Consult your indirect-tax professional for more on this topic.

VAT success story

Business challenge

A company in the process of expanding through multiple e-commerce channels (website, Amazon, Shopify) faced significant VAT compliance issues affecting growth and adherence to local tax laws.

The solution

RSM worked closely with the company’s international expansion team to establish their VAT footprint and streamline their VAT compliance processes in a way that fit the needs and capabilities of the business. The end-to-end support helped foster the company’s international expansion while enhancing their operational efficiency and compliance.