Translation and taxation: Accordance advises on what to do when e-commerce goes global

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Accordance, the VAT consultancy, says it’s vital that e-commerce businesses are aware of the regulations that surround cross-border trade.

E-commerce business is international right from the start – as the internet is the perfect tool to reach millions of new customers because it crosses boundaries, is universal and allows businesses to have a virtual presence, even when a physical one is not practical.

“VAT is one of the first taxes encountered when trading cross-border and it’s important businesses meet these tax obligations,” says Andy Spencer, Accordance’s Head of Consulting. “Distance Selling regulations, as set out by the EU, require businesses to apply appropriate VAT to all e-commerce transactions.”

Distance Selling
A business falls within Distance Selling regulations for VAT purposes where a VAT registered business in one EU Member state sells goods to a non-registered individual in another Member State. These regulations only apply to goods, not services, and the most common examples where Distance Selling takes place is through e-commerce or mail order transactions.

Each country within the EU has set their own thresholds which limit the sales allowed into that country before the business must be registered for VAT in that Member State; once thresholds are breached, local VAT must be charged and local reporting requirements met. For example, the Italian Distance Selling Threshold is currently €35,000 and once a UK business sells more than €35,000 worth of goods to Italy, that UK business must register for VAT in Italy and begin charging local VAT (the standard rate is 21% at present, although this is also subject to change). Once the VAT registration is in place, the business must submit Italian VAT returns and Intrastat reports to the local tax authorities.

How do I ensure VAT compliance for my e-commerce business?
Each EU Member State has their own thresholds, their own VAT rates and their own reporting requirements, so it is imperative that businesses remember this checklist for staying VAT compliant:

1.    Identify where your customers are based
You need to know where your customers are based, so you can ensure you can apply the correct VAT rules to their transactions. This is especially crucial if you have customers in many different Member States.
2.    Keep track of your sales in each country where you are trading
Your business may need to register for VAT when they cross the Distance Selling threshold in a Member State. By keeping track of your sales figures you can register as soon as you cross the threshold, minimising your risk to fines and penalties.
3.    Obtain VAT registrations
To obtain a VAT registration, you will have to liaise with the local tax authorities (possibly in their local language) of the Member State that you have crossed the threshold of. Once you have been registered you will obtain your new local VAT number and you will need to start charging local VAT and ensure you trade in compliance with the local VAT legislation.
4.    Manage your retrospective registrations
If you cross a distance selling threshold without realising or, for any other reason, you find out you should already be registered for VAT in a member state, you may need to obtain a backdated registration from the local tax authorities. You may be charged a fine or penalty for this, but the sooner you contact the tax authorities and rectify the situation the less risk you put on your business.
5.    Ensure reporting compliance
Once you are registered for VAT in a Member State you must ensure that you file the correct local declarations – these may include all or some of the following: VAT Returns, EC Sales Lists, Intrastat Reports.
6.    Keep up to date
VAT rules, including rates and thresholds, are liable to change each year, so it is imperative that your business keeps up to date with changes in legislation. Also, as your business expands into new territories, it is necessary to keep your eye on the information that you need to ensure that you stay VAT compliant.

What to translate?
Accordance has a longstanding relationship with the translation company, Metavebia, who advises that if you are selling in different countries – it is worth translating your site into the local language. This means that you offer the same experience to all your customers. However, there are some elements to take into account when selling abroad:

  • Shipping - the price of small items may be doubled or more when including the shipping. Check prices with your preferred courier, and consider using a different one for each country. Or simply remove this item from your foreign offering.
  • Regulations and tax - Some countries may tax some goods (e.g. alcohol) differently or apply some regulation that prevents you from selling them. Your international tax consultant should be able to provide you with the necessary information.
  • Current sales - If you identify a group of products that sell well in a given country, why not start with these alone, and see whether the customer demand grows.

“E-commerce offers exciting opportunities to sell to customers all over the world – but it is vital to aware of the various tax implications of doing business in different countries,” says Andy.

Notes to editors:

  •     Accordance is a unified VAT Compliance and Consulting practice, with a focus on cross-border transactions.
  •     The company provides practical, commercially beneficial VAT assistance to blue-chip companies across the EU and beyond.
  •     Accordance assists a full spectrum of international businesses better manage cross-border VAT costs.
  •     The company reaches across Europe, but manages all work from an accessible and responsive hub in the UK.
  •     Accordance often works with accountants, acting as an ‘outsourced VAT department’ for their clients.
  •     The Accordance team includes senior ex-Big 4 VAT personnel, expert European VAT Compliance management, VAT legal specialists, Customs and Duty Experts and VAT savings experts.

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Angela Ward
The Marketing Eye
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