Do you speak VAT? You know, Value Added Tax! Here in the U.S., sales tax is the name of the game, but in most countries around the world, VAT (or GST, IVA, TVA, IPI, ICMS, ISS among other acronyms) is…
While the introduction of remote seller nexus laws in the U.S. has concluded for the most part, things are heating up beyond our borders! Big changes are effective in both Canada and the European Union as of July 1 to adapt and modernize tax regimes in light of the global e-commerce landscape.
If you are growing your business footprint abroad in Canada or EU Member States, you need to understand your obligations as a seller or marketplace to collect and remit tax to reduce risk and maintain good relationships with your suppliers and customers.
Prior to this year, Canada has largely not required foreign businesses to collect and remit their Goods and Services Tax (GST) or Harmonized Sales Tax (HST) without having a permanent establishment in the country. To level the playing field among Canadian and foreign businesses, the Canadian government introduced new measures to apply Canada’s sales tax to a broader base of sales reflective of the growing global digital economy.
Effective July 1, 2021, certain U.S. businesses that exceed $30,000 CAD in taxable sales into Canada over a 12-month period are required to register for GST/HST.
1) Cross-border digital product and services businesses. These are non-resident vendors and distribution platform operators (aka marketplace facilitators in U.S. terms) that sell taxable digital products or services, like video or music streaming services, to Canadian customers.
2) Suppliers of goods through Canadian fulfillment warehouses. Non-resident vendors and distribution platform operators that supply (or facilitate the supply of) qualifying goods, or “qualifying tangible personal property supply” to Canadian customers must register. This includes taxable goods shipped from a fulfillment warehouse or shipped from another place in Canada to a customer in Canada.
3) Platform-based short-term accommodation businesses. Suppliers of taxable short-term accommodations in Canada or accommodation platform operators that facilitate sales through their accommodation platforms.
If you fall under any of the categories above, you will need to continually monitor your taxable sales into Canada to pinpoint when you exceed $30,000 CAD threshold. In calculating the threshold, you should exclude any sales made through a distribution platform operator (marketplace facilitator) that is already registered for GST/HST. These sales are not included toward the threshold calculation for individual non-resident vendors if the distribution platform operator is already collecting the tax.
On July 1, 2021, EU member states introduced major reforms to its Value Added Tax (VAT) rules to simply compliance and modernize the system for cross-border business-to-consumer (B2C) e-commerce. Let’s dive into an overview of these reforms.
First, the previous thresholds for online sellers making sales into the EU Member States (“distance sales”) have been replaced by a single EU-wide EUR 10 000 threshold. If you exceed this threshold, you are required to register for VAT in the Member State where your buyers are located.
To simplify compliance, the EU has introduced a new One Stop Shop (OSS) electronic portal that allows sellers to register for VAT in a single Member State for all intra-EU distance sales of goods and for business-to-consumer supplies of services and pay VAT in a single electronic quarterly return.
A third key change is that marketplace facilitators have a new role for VAT purposes if they are considered a “deemed supplier” when they facilitate cross-border B2C transactions on behalf of their marketplace sellers.
Finally, all goods imported into the EU are now subject to VAT. Previously, foreign sellers selling into the EU could import goods into the EU VAT-free if the value of the goods was below EUR 22. The EU has created a new Import One-Stop Shop (IOSS) to simplify VAT collection, declaration, and payment on imported goods valued at less than EUR 150.
1) Online sellers. Online sellers should closely monitor the new EU-wide EUR 10 000 threshold and note the impact the removal of small-value (EUR 22) import exemption the has on their business.
2) Online electronic interfaces. An electronic interface has a broad definition and may include a website, portal, marketplace, platform, or application program interface. Electronic interfaces that are online marketplaces need to evaluate if they fall under the definition of “deemed supplier” for purposes of collecting and remitting VAT on behalf of marketplace sellers.
3) Postal operators and couriers. Online sellers and online marketplaces using the IOSS will need to provide postal operators and couriers with information required for customs clearance, including their IOSS VAT identification number. When online sellers or marketplaces are not registered in the IOSS, there is a simplified VAT collection mechanism for postal operators and couriers for declaration and payment of import VAT (special arrangements).
As you can see, businesses along the full length of the e-commerce supply chain need to evaluate their obligations in light of the new VAT rules.
No matter if you regularly do business internationally or if you are just gearing up to test the waters abroad, you cannot overlook the tax requirements for your products and services. Selling abroad in Canada and the EU can be a lucrative endeavor for you company but you have to have a savvy indirect tax team in place to wade through all the differences in terminology, what triggers collection obligations, and administrative requirements to stay compliant and reduce risk.