E-commerce accounting: Basics you need to know about international sales taxes
Laura Tien
October 17, 2024
One of the accounting hurdles that e-commerce businesses face is international sales taxes. Fortunately, if you’re using an e-commerce platform like Shopify, the right amount of sales tax is usually already collected for you. However, it’s still useful to understand how rules and exemptions apply to you. Otherwise, you could end up upsetting customers or overpaying taxes.
First of all, what is sales tax? Sales tax is applied to goods and services as a flat rate or percentage, and charged to the end customer. Depending on where your business is, where your customer is and potentially other factors, the processes involved differ. In this article, we’ll run through the basics for living and selling in some of the major regions.
GST in Australia and New Zealand
If you’re selling to customers in Australia, sales tax is relatively simple. Those with revenue under AUD $75,000 in 12 months don’t have to register to collect GST (goods and services tax). After that point, you need to register to charge a flat 10% GST, regardless of whether your business is based on Australia or not.
Sales taxes in New Zealand works in a similar way to Australia. For those with revenue under NZD $60,000 in a year, registering for GST is voluntary. Businesses with making more revenue, regardless of whether you’re based in New Zealand or not, need to register and charge 15% GST on all sales.
VAT in the EU (European Union) and UK (United Kingdom)
If you’re located in the EU and you’re selling to customers in the EU, sales tax isn’t too complicated. You need to charge VAT (value-added tax) on every sale you make. The rate itself will vary depending on your revenue for the year and distance selling thresholds based on where your customer is.
Since the rate depends on where your customer is located, some e-commerce platforms will have solutions to help businesses to verify VAT identification numbers. For example, you can check the EU VAT number through VIES at your WooCommerce checkout.
Those located outside of the EU and selling to customers in the EU must register for EU VAT after reaching the annual threshold, typically £85,000. However, it might still be beneficial to register if you’re below the threshold, particularly if the EU is one of your main markets. This can help prevent customers from having to pay unexpected taxes or fees.
Changes related to Brexit have come into effect this year, affecting businesses in the UK, in the EU, and outside these regions. If you’re a merchant outside of the UK selling goods that do not exceed £135 in value directly (such as on Shopify) to UK customers and not on an online marketplace (such as Amazon), you need to register for UK VAT and collect 20% VAT.
Sales taxes in the United States (US)
If you’re selling to the US but not based there, you don’t have to apply for tax unless you meet the tax registration annual threshold, generally 200 transactions or US $100,000. Once you surpass it, you have what’s called an economic nexus in the country and you’ll need to meet tax requirements and charge tax within the US.
If you do live in the US, tax rules can get quite complicated depending on where you’re based, where your customer is based and where your supplier is based. You’ll have to register for tax at a state level wherever you have a physical presence, collect tax there and remit it. You’re exempt from charging sales tax from states where you don’t have a physical presence. However, some states still require you to charge tax if you have a supplier there.
Sales taxes in Asia (Singapore, Philippines & Hong Kong)
Those based in Singapore and selling to Singaporean customers must charge 7% GST on online purchases for products over SGD $400. For overseas sellers, there is a 9% GST charge on goods exceeding SGD $400. In the coming years, it looks as though these exemptions will be removed, at least for overseas sellers.
Those based in the Philippines and selling to Filipino customers must impose a 3% VAT on online sales worth less than PH ₱1.92 million a year and 12% VAT on online sales worth more than that. Residents in the Philippines are responsible for bearing 12% VAT when buying goods worth more than PH ₱10,000 from overseas sellers.
Hong Kong does not impose sales taxes.
How to automatically track sales taxes
Assuming your e-commerce platform is correctly tracking international sales taxes, these can then be synced to your accounting software with an accounting integration. Amaka offers a range of integrations that sync unlimited transactions. The free plan will automatically map your tax types whereas the premium plan allows you to customise.
Key takeaways on international sales taxes
E-commerce accounting can definitely feel overwhelming at times. If you’re just starting out, you might not need an accountant year-round. However, it’s generally recommended to work with a tax accountant when tax time comes. It’s recommended to work with a specialised e-commerce accountant year-round when you start working on your e-commerce business full-time.