In part one and part two of our series, we looked at the ways in which your B2B business can expand into new international markets by utilizing a localization strategy. This includes converting your online store’s content into the local language, adopting local payment methods, and researching any available local shipping options. However, to make sure your localization strategy is complete, you will also have to take into consideration how you handle taxes.
Tax Localization Overview
Setting and managing taxes is a significant component of an online business’s operations, especially when expanding to international markets. Making sure your business is using the correct sales tax rules for the U.S., as well as Value Added Tax (VAT) for EU and other countries, can be a complex and error-prone operation. As an online business, you must be able to set the appropriate tax rules and rates, update and display any rate changes immediately, and collect all the necessary information to make sure your business is complying with local regulations. For these reasons, it is especially important that you select an eCommerce platform that can has tax localization features that can automatically manage your taxes. Below are some of the main challenges you will need to overcome.
Sales Taxes in Different Countries
Countries all over the world apply different sales tax rates, rules, and regulations. The U.S. has a complicated tax system that includes different sales tax rates for each state, as well different tax rates for certain industries, such as communication and lodging. In addition, the seller needs to be on top of any rate changes, make sure they are maintaining exemption certificates, and are complying with their tax filings.
The picture might be even more complex in EU/non-U.S. countries, where VAT is the primary consumption tax. While each country has a single tax rate, the seller must track which country is collecting the tax, if the buyer or seller pays the tax, which transaction stage VAT is added, and of the multiple refund levels.
Exempt Companies and Products
In many cases, some of the buyers may be exempt from paying taxes or additional import fees, or a certain product may not receive any sales tax. For instance, in many countries, medical equipment can be purchased and imported tax-free. It is important that your online store be able to not only calculate and apply these exemptions, but also be able to keep track of all them for your own accounting department. When it comes time to pay your own taxes, you will want everything carefully logged.
Integration With Tax Services
Tax laws change constantly, and they are always complex. Even if you do your best to stay on top of them, it is nearly impossible to keep track of the various laws and regulations that exist in and between different countries. This is why your eCommerce platform should let you set tax rules. It should also be able to integrate with tax compliance software and services, such as Avalara or Vertex, so companies with complex operations can focus on their business rather than whether or not they are complying with all the various tax rules and rate changes. These tax applications can help your company automatically keep up to date with the laws in each country or region in which you do business.
Automatically accounting for the different tax rates, fees, and possible tax exemptions of the countries you do business in is an important aspect of localization. Tax localization such as this will help your company comply with local tax rules and regulations, display the correct tax amount your customers need to pay, and will alleviate the burden of tax filings.
As this series has shown, successfully expanding into international markets involves a great deal of careful planning. However, one of the most important steps is to select a B2B eCommerce platform and technology partner/agency that will allow you to execute your strategy. If your business is about to embark on foreign market expansion, make sure to contact us.