It’s coming up to Christmas season (at least for the online retailers out there) and we’re speaking to a lot of our clients about buying and selling internationally. As such, we’ve decided to get an expert to compile some tips on selling internationally; so here’s Claire Taylor, founder of Simply VAT.
Selling Online Internationally - The Market
The growth of the eCommerce market is phenomenal – in 2014, in just in the UK alone – it was predicted to rise another 17% to reach a staggering £107 billion. And cross border sales currently providing 10% of that figure are expected to account for 20% of all online sales by 2017; a huge opportunity for online retailers to increase profits by tapping into overseas markets.
Being a UK retailer is an added bonus – Google research has shown significant increases in searches for UK brands and retailers – since 2010 it’s risen by 46% year on year.
Selling Online - What You Need To Think About
You have an online shop – which is open 24/7 and able – theoretically – to access everyone in the world, but there is more to think about both in terms of supplying it and in terms of customer experience – and the statistics prove this.
The stats available say that 95% of shoppers shopping abroad abandon the cart before buying anything as opposed to 67% for domestic shoppers. The high amount of abandonment is usually down to unfamiliarity like unfamiliar address format, uncertainty about landing costs, unfamiliar currency and unfamiliar payment options. There are cultural nuances even with payment preferences for example in eastern Europe COD is still welcomed whereas in Germany they like a bank transfer and here we like debit or credit cards.
So you need to make sure foreign customers can relate to your website and it all be a familiar and trusted experience for them.
There are solutions out there every step of the way. And experts that can help from web localisation through to how to promote your business on foreign search engines through to the obligatory compliance issues such as adhering to the consumer rights directive which covers such things as refunds and returns policies to your international VAT obligations.
What Are Your International VAT Obligations as an Online Retailer?
Are you aware that by selling goods to consumers in Europe – you are governed by the EU distance selling rules for VAT?
What are these rules?
The rules state that if you sell goods to consumers in the EU, you charge local VAT (only if you are VAT registered otherwise you don’t charge VAT), until you reach the set VAT registration threshold in any other EU country.
Once you reach this threshold you need to register for VAT there – where your customers are –charge the VAT applicable to your particular goods – and pay it over to the relevant tax authority on time – and in the format and language requested.
There are 2 bands of VAT registration thresholds:
- For most of the EU – the threshold is €35,000 (or equivalent)
- However in France, Germany, The Netherlands and Luxembourg – the threshold is set at €100,000 and if you are EU company selling into the UK – the UK distance selling threshold is £70,000.
For companies selling medium to high value goods – it doesn’t take much to breach the lower set threshold of €35,000. – if you sell watches priced £2,000 – you only have to sell about 15 of them to exceed threshold for example in Belgium or Austria.
Somehow online retailers think because their shop is not bricks and mortar that the normal rules of taxation don’t apply to them. But this is a complete misconception. The tax authorities, tired of losing revenue through undeclared VAT from online sales, set up mutual cooperation in 2012. They now talk to each and share data. They have special unit that trawl the net looking for potential violators. It’s a no brainer for them – the revenue to be gained is monumental.
So you need to be aware of your international VAT obligations and need to factor in the cost of compliance into your cash flow along with other staples such as web-hosting or accountancy fees – as ignorance is no defence. The tax authorities will issue penalties and fines for late or non-compliance.
Don't Be Put Off With Your Plans For Global Domination
Don’t let the thought of having to be VAT compliant put you off your international expansion plans. SimplyVAT have produced a useful (and completely free) booklet ’10 pitfalls to international trading’ which gives you helpful hints on what to think about – including a list of the VAT registration thresholds in each country.