Personal Finance & Money Asked on July 13, 2021
All OECD countries have a broadly based consumption tax of varying rates:
They go under different names, for example, in Australia it’s the ‘Goods and Services Tax (GST)’, and in Denmark it’s the ‘Value Added Tax (VAT)’, but in each country, it essentially means that if you sell something (whether it be a good or service), then you must give part of the sale price to the government as tax.
Despite the existence of these taxes appearing to be relatively simple, it’s levied in different ways, with some exceptions, and the way it can be paid differs by country. For example, the UK doesn’t even require it to be paid by the seller, it can instead be reverse-charaged by the buyer.
Someone freelancing, a consultant, or a small business owner (e.g. online store) who sells to many (e.g. ~30) of these countries each year, would endure very large administrative burden having to research each country’s tax arrangements to ensure that they meet their tax obligations when selling to residents of that country. And then similar burden again making the actual lodgements, which could easily take days or weeks.
Is there any resource, software tool, reference (e.g. website) that clearly show’s what a seller must pay in consumption tax in each country? Note: even a summary table of the tax rate, minimum sales before rate applies, where and how to pay it would be a huge improvement on having to manually look up 20+ different countries tax rules and make 20+ individual tax lodgements.
To show how common this would be, consider a freelancer getting clients from any of the global freelancing sites, who may do hundreds of jobs per year for clients all around the world. Or consider Airbnb experience hosts, who may conduct online experiences to guests from all around the world. In both cases, they’re selling to residents of other countries, and so must meet their obligations to each of those countries. But this seems incredibly burdensome. How do they do it?
This a complex and easy question at the same time.
Complex: the GST VAT and other taxes are valued added taxes and are not forced to be payed on international transactions on multiple countries. When your business start you can sale on this countries first and serve to more countries later, you will need to evaluate the troubles on each new country you're interested on. Ex UK has especific rules for overseas sellers
Use Avalara, they offers manage this kind of complexity
Answered by chefjuanpi on July 13, 2021
Many small companies just don't bother to comply with tax requirements of other countries.
There is at least a good argument that you are not subject to another countries laws if you have no presence in that country. Especially if you operate a website and never even ship a physical product to other countries.
Even if the above argument fails, any country tax authority would be very unlikely to go after small companies in other countries. It is just too much work to make it worthwhile.
That said, there are companies out there who handle this for you. FastSpring, Paddle and Quaderno come to mind.
Answered by gaefan on July 13, 2021
For cross-country trade between EU countries, as a facilitation for smaller merchants the EU countries agreed to have a threshold, where below a certain yearly revenue, you are allowed to simply use the VAT rate of your country (the country of origin) totally ignoring the VAT rules of the destination country.
There are two major pitfalls however:
Because agreeing to something is hard, they agreed on the general mechanism, but couldn't agree on an exact sum. In the end, every country choose a treshold by themself, so the treshold is different for each of them (between 35 000 € and 100 000€), here is a nice table for all EU countries.
If you happen to unanticipatedly surpass the treshold for a particular country midyear, you have to retroactively adjust all the already written invoices for that year to reflect the VAT rules of the destination country.
If we are going fully international it gets even more complex, there is no way to even start giving an overview over the various regulations by providing a simple table. That's because to many factors besides the destination country enter into such an equation, for example:
So to answer your question, most small shops I know handle intra EU trade by themself (I don't know were you are located). If they only have sales relations with a small number of international countries, but those form a significant amount of their revenue, they may also choose to hire an tax accountant familiar with the rules for those countries.
Doing trade with every possible country, you can really only do that by beeing super-large, or finding a service provider handling all tax issues for you (I won't recommend a specific one, but those are super easy to find by searching for 'international vat handling service'). Unfortunately in most of the cases that option is still to expansive to be economically sensible for a freelancer or small business owner.
Answered by s1lv3r on July 13, 2021
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