A guide to understanding VAT, GST & international ecommerce taxes
Samir Kamnani
·December 27, 2024
As an ecommerce seller, when you’re considering international expansion, other English-speaking countries are likely to be your best bet for a smooth transition.
Fortunately, there’s a huge market in play, with no translation required: Between the United States, the United Kingdom, and Australia, you have a total potential audience of about 424 million people—representing a combined total of $1.22 trillion in online spending for the last year.
Whichever of the three regions you’re based in, you’re likely to have some hurdles when it comes to understanding and complying with cross-border tax regulation. In this article, we’ll break down your tax obligations as a seller, and your customers’ obligations as a buyer, across each of these geographies.
United States
Shipping out from the U.S.? Let’s look at your tax compliance requirements when selling domestically and internationally:
Domestically: When selling products within the U.S., if you and the buyer live in the same state, you’ll need to collect sales tax (typically between 5% and 7% of the purchase price). You’ll also need to collect sales tax if you have economic “nexus” in the state where the buyer lives, meaning that you either have an office there or meet the financial thresholds for sales tax eligibility based on the revenue you earn in that state (ranging from $100,000 to $500,000). Some states (Alaska, Delaware, Montana, New Hampshire and Oregon) do not require the collection of sales tax under any circumstances.
To the U.K.: When you’re selling products across the pond, you’ll generally need to collect the U.K.’s value added tax, VAT, which is a flat fee of 20% on most product categories. You may also be responsible for collecting customs duties ranging from 0 to 10%, although products valued at £135 or below are exempt from customs fees.
To Australia: Australian consumers are required to pay a 10% goods and services tax (GST) on most products, which your company should collect at the point of sale, once you exceed $75,000 AUD in annual revenue from Australia. Products valued under $1,000 AUD are exempt from customs fees. For products valued beyond that threshold, buyers are subject to customs fees that vary based on product category.
United Kingdom
U.K. merchants need to understand their obligations when it comes to collecting fees. Here’s a quick primer:
Domestically: When selling within Great Britain, you’ll need to charge and collect VAT, which is 20% on most items, though it may be reduced to either 5% or 0% on certain product categories, which include medical devices and energy-saving products. See the full list of eligible categories here.
To the U.S.: When shipping to the U.S., U.K. merchants aren’t required to collect VAT, and they’re not required to collect state sales tax unless they have nexus in that state. They are, however, required to collect customs fees if the value of the shipment exceeds $800. Customs taxes vary by product category; you can use the Trade Tariff tool to look up requirements for your product category.
To Australia: If your sales volume to Australian shoppers is low (below $75,000 AUD), you do not need to collect any tax on shipments valued below $1,000. Once you exceed the $75,000 AUD threshold, however, you’ll be required to collect the 10% GST on most exports. Shipments valued over $1,000 may also be subject to customs fees based on product category.
Australia
Looking to grow your business from Down Under? Here’s what you need to know about tax collection.
Domestically: Once your domestic sales reach at least $75,000 AUD, you’ll be required to collect the 10% GST on all eligible sales from buyers within Australia.
To the U.S.: For overseas sales made to U.S. customers, you’re not required to collect GST, and there is no mandate to collect state sales tax unless your business has an office or meets economic nexus requirements within a given state. Under the Australia Free Trade Agreement (AUFTA), most imports are not subject to duty fees.
To the U.K.: Australian sellers are generally required to collect VAT on sales made to U.K. customers—representing 20% of the purchase price in most categories, though reduced on certain product types. There are no duty fees on goods valued below £135, but products above that value are subject to import taxes that vary based on product type.
Streamlining cross-border sales and returns
To simplify the process of selling to international shoppers, leverage the power of a global ecommerce platform like Shopify Plus. With Shopify Plus, you can instantly create localised shopfronts for each country where you conduct business, ensuring that all required taxes are collected at the point of sale based on each country or locality’s rules. You’ll be able to rest assured that you’re meeting government compliance regulations, with smooth record-keeping that doesn’t rely on manual data entry.
Keep in mind that not all sales are final, and it’s important to have a good returns management strategy in place. When a customer requests a return, you’re also obligated to refund the sales tax and other fees that you’ve collected. By using an integrated AU returns management or UK returns management solution like Loop, you’ll be able to easily track order and return status, and refund all eligible fees to your international customers. You’ll also have access to return insights that help you understand trends in returns behaviour, so that you can customise your product messaging more effectively to lower your return rates both domestically and abroad.
Expanding into international markets can be a daunting task, but with the right technology partners in place, it’ll be smooth sailing all the way.
Ready to see how Loop can help you build a great cross-border returns experience? Book a demo today.
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