International Tax Considerations for Australian Ecommerce Businesses Selling Overseas

Are you an Australian online retailer looking to grow your business and reach new customers in the global market?

Online retailing overseas is a powerful and profitable way to expand your brand and boost sales. However, going global also means facing new international business tax challenges and risks that can affect your bottom line.

In the first article of our series, we will introduce the main types of tax that Australian ecommerce businesses need to consider when selling overseas, namely:

• Income tax: Taxes that can apply to income, profits, or transactions across different countries.

• Indirect tax: A transactional tax that applies on the supply of goods or services and is borne by the consumer.

• Customs and duties: Tax that is relevant to the importation or exportation of the products or goods.

An introduction to international tax for ecommerce businesses

1. Income tax

Income tax is the tax that applies to the income, profits, or transactions between entities, including transactions across different countries.

When selling overseas, online retailers need to understand and comply with the tax rules and regulations that apply to their business in both the foreign jurisdiction and Australia, and plan their tax strategy accordingly. Failing to do so can result in penalties, disputes with tax authorities, or double taxation.

Some of the key aspects of international income tax that online retailers need to consider are:

• Whether sales are made from an Australian entity, or a separate local entity in the foreign jurisdiction is set up. Where a separate entity is used to operate in the foreign market, such as a subsidiary company, or where operation is through a branch or an agent, it’s important to consider how this affects tax obligations and risks in both the foreign jurisdiction and on home soil.

• The transfer pricing rules that apply to transactions with related parties in different countries, and how to ensure that they are at arm’s length.

• The reporting and disclosure requirements that apply to income, payments, and transactions in the global market, and how to comply with the anti-avoidance rules that aim to prevent tax evasion or abuse.

• The tax treaties and agreements that exist between Australia and other countries, and how they can affect the overall tax position and tax efficiency.

2. Indirect tax

Indirect tax is the tax on consumption that applies to the supply of goods and services, such as sales tax, value-added tax (VAT) or goods and services tax (GST).

Online retailers selling internationally need to understand the different types of indirect taxes that exist in the countries where products or services are sold. There may be a requirement to register, charge, collect, and remit the indirect taxes to the local tax authorities.

Furthermore, in some instances there may be a simplified or special scheme to alleviate the compliance burden, an example of which is the EU’s One-Stop Shop (OSS) scheme.

Some of the key areas of global indirect tax that ecommerce businesses in Australia need to consider are:

• The indirect tax rates and rules that apply to products or services, based on their type, value, and destination.

• The registration and filing requirements that apply to sales in the foreign market, and whether there is a simplified or special scheme available to reduce the administrative burden and cost of compliance.

• Whether there is a reverse charge mechanism or any marketplace liability rules that apply in jurisdictions where online sales are made. An informed decision can then be made whether to shift the responsibility of charging and collecting the indirect tax to the merchant or the marketplace.

• The indirect tax thresholds that apply to sales in the foreign market, and once breached, how to correctly charge, collect and remit the indirect tax to the local tax authorities.

• Ensuring any tax documents issued to customers, such as invoices, are compliant and accurate, subject to the relevant jurisdictional rules.

• Indirect tax liability and registration requirements resulting from the IncotermsⓇ used on importation of goods.

3. Customs & duties

Customs and duties should be considered on the importation and exportation of goods. These taxes can have a significant impact on the cost, profitability, and customer experience of online sales, and require careful planning and compliance.

It is important that entities importing and exporting goods value, classify, and document goods correctly, and pay the appropriate customs duties and fees to ensure your goods are cleared through the customs authorities in a timely and efficient manner.

“There is nothing more confronting for a first-time customer of a brand, newly entering a market, than a bad customs experience. When a retailer has done all the hard work to acquire, convert and freight their product to a customer who is, up until this point, happy with their purchase – to then be hit with a potentially large, unexpected cost is hardly likely to foster retention and brand loyalty. 

“If the customer rejects the order – the retailer loses the sale, incurs additional return freight and restocking costs. If they keep it, most likely they won’t shop with that brand again. Dotting every ‘i’ and crossing every ‘t’ in setting up a user friendly and tax compliant business, including ensuring understanding of the potential impact of any indirect taxes that may be applicable on importation, really is fundamental to giving new market expansion a realistic chance of success.” 

Sean Clanchy, Managing Director, Swanky APAC

Some of the key aspects of customs and duties that Australian online retailers need to consider are:

• The customs and duties rates and rules that apply to goods, based on their origin, destination, classification, and value.

• The declaration and payment requirements that apply to imports or exports at the border, and how to comply with the customs and trade regulations and procedures.

• The licences, permits, or certifications that need to be obtained to import or export goods in the foreign market, and how to apply for these.

• The trade agreements and preferential tariffs that exist between Australia and other countries, and how they can affect customs and duties obligations and benefits.

• Impact of IncotermsⓇ from a customs perspective, such as Delivered Duty Paid (DDP) which places the onus on the overseas supplier for payment of customs duties and indirect taxes.

Plan your international business tax strategy accordingly

Tax is an important and complex area that needs to be navigated carefully when ecommerce businesses consider expanding internationally.

It is important to understand and comply with tax rules and regulations that apply in both foreign and home jurisdictions, and plan an international tax strategy accordingly. By doing so, tax pitfalls can be avoided, tax costs can be minimised, and tax benefits can be maximised. These outcomes will ultimately go a long way to achieving a successful and profitable global business.

If you are an online retailer that needs more guidance or assistance on the tax aspects of selling overseas, please reach out to Grant Thornton and we will be happy to assist. Our tax team can provide support across all relevant tax types to assess your tax position and risks, design and implement tax strategies, and ensure compliance with tax obligations and reporting in the global market.

About the authors

Mark Foster, Director, Grant Thornton Australia 

Mark is an indirect tax specialist with extensive experience in providing GST advice and global trade solutions to clients within Australia and internationally. Mark has a track record of advising clients of all sizes, including multinationals, and is uniquely placed to assist clients from a global indirect tax and global trade perspective.

Michael Catterall, Partner, Grant Thornton Australia 

Michael has over 20 years’ experience in advising on taxation matters in both Australia and the UK. He has experience in advising on corporate and international tax. Michael has particular expertise in assisting companies as they establish themselves in the Australian market and look to fast-track their growth. Michael has worked with some of Australia’s largest businesses and most recognised brands, and is highly experienced in advising tax consolidated groups on acquisitions and divestments.

Richard Nutt, Partner, Grant Thornton Australia 

Richard has more than 20 years of experience advising clients on global trade and customs matters across multiple jurisdictions. Richard commenced his career as a customs broker and industrial engineer specialising in supply chain and now advises clients on customs and trade strategy, customs duty reduction, transfer pricing in relation to customs valuation, process improvements and supply chain reengineering.