How To Navigate Cross-Border Taxation Issues
Governments across the globe know online shopping is an opportunity to collect money. They see valuable tax dollars leaking out to businesses in other countries, and the opportunity to capitalize by creating new tax laws specific to cross-border payments, and the businesses that accept them, is too good to pass up. Those tax laws target those looking to become a borderless business, which means creating new ways to tax your enterprise.
Global eCommerce companies must work to optimize their business models for cross-border taxation issues, which means knowing how to traverse individual international tax laws and regulations to stay in compliance and keep your business compliant. Navigating cross-border taxation issues can be quite a chore but is a necessary step in finding success in a time of considerable eCommerce growth.In the global economy, selling internationally is easier than ever. For global eCommerce companies, global online retail sales are up 24.1% from 2019 to 2020–representing $4.3 trillion in additional revenue.
Countries tax global businesses differently, so knowing the different tax rates and rules based on location is vital to maintaining a healthy business. While adding taxes on top of purchase prices may be a recipe for an eCommerce disaster, it’s nonetheless a reality in some countries.
Even if cross-border tax rates as high as 40% seem like a nightmare for a retailer, as a customer, knowing these taxes will be added ahead of time may be the difference between a decision to purchase or looking elsewhere. Not only does this ensure transparency throughout the process, but it also ensures the item is being sold for the correct price based on the location it is being sent to.
Though taking a 40% pay cut on a product may not affect the customer, it is neither a benefit nor a bane for your eCommerce business when you consider that if these taxes are affecting you, they’re also affecting your competitors.
Not every country has such high cross-border taxation rates, so retailers and customers need to keep up with the ever-changing taxation rules. This may be not easy due to the increasing cross-border taxation rates across multiple countries. Just in the past year, countries that included cross-border taxes increased from 8 to 11. Failure to calculate the correct taxes to charge can result in high-cost mistakes at the expense of the eCommerce cross-border business resulting in numerous complications.
You can ensure you’re staying on top of the ever-changing taxation rates and ensure transparency throughout the process by investing in appropriate technology platforms that integrate payments and shipping platforms.
For retailers and customers, above and beyond calculating those tax rates, transparency means being up-front about charging taxes in a transaction. Today placing an order online can take seconds to complete, from product search to processing payment, and if you don’t have a fully visible method of showing the customer which taxes, shipping, or other costs they’re paying, it could lead to confusion, or, even worse, anger and dissatisfaction. This is why transparency with cross-border taxes across the entire process is crucial for customer satisfaction.
Businesses have a few ways to integrate additional costs like cross-border taxes and currency exchange rates into their final product price so their customers can fully see where they come from. When businesses decide to apply different currency exchange rates, it can cause dramatic price changes. In most cases, the retailer decides the fees based on marketplace currency or the customer's location. About a third of retailers let the customer decide whether they want the fees applied early on in the buying process or at the end.
Applying fees earlier in the process increases transparency because customers know upfront that a conversion fee is added to the purchase price. Last-step conversions let the customer decide at the end of the purchase process, but can be a last-minute surprise, leaving them feeling they’re being taken advantage of. Taxes can then be added on top of the converted price, showcasing the correct amount of money owed.
If a global eCommerce retailer does everything correctly in this process, additional fees will not be charged to the customer without their knowledge. Taking away the ability for customers to opt for last-step conversions gives the customer the correct purchase price right away, increasing transparency and the probability of purchase.
Whichever way the business selects to showcase its taxes and fees, ensuring transparency throughout the buying process is crucial to customer conversion. If customers knowingly shop on an eCommerce cross-border retailer, they are likely aware of monetary exchange fees and additional taxes. Keeping these extra charges visible and informing customers will not cause them to back down from a purchase. However, noticing unexplained charges on their card will upset customers and dissolve their trust in the business when they submit their orders.
In other words, you’re more likely to win a repeat customer when there are no surprise charges when the customer checks their bank statement. Ensuring transparency throughout the cross-border transaction benefits everyone and should be standard practice.
Investing in Technology
Also important to the cross-border compliance journey is making the appropriate investments in technology. Relying on old, outdated technology will inevitably lead to various potential issues for retailers, including delayed shipments, outdated pricing, and dissatisfied customers. New technology that simplifies processes can decrease the chances of error, which leads to increased customer satisfaction, aid in transparency, and improve overall sales.
The increase in cross-border purchases from everyday items to luxury goods since the pandemic has brought to attention the need for a more efficient system for retailers and consumers. As the years pass, your systems will require consistent updates, and considering the chances that cross-border purchases should continue to increase as customers enjoy a top-flight online purchasing experience, you have even more reason to look into better, more efficient systems. Being vigilant about keeping your systems reliable and seamless keeps your cross-border payment systems optimized, ensuring your cross-border business keeps customers coming back.
Investing in platforms that can take some of the tougher work off your plate, such as those that facilitate tax compliance and reporting as part of its service, can help you serve your customers better, ensure you’ll get the full value of your software investments, and help you stand out from your competition.
Navigating cross-border taxation is important for both eCommerce businesses and consumers that wish to purchase the goods being offered. Some may agree that the freedom to buy from a different country far outweighs the price tag that comes with it. After all, a customer looking for authentic products can purchase them from the comfort of their home without ever stepping foot in that country. When comparing the price of a cross-border trip to cross-border taxation, the latter will almost always be the more affordable option.
Ensuring that each eCommerce cross-border business is transparent and knowledgeable about the taxation of their product is the one way to keep customers happy and the profit margins high. With the correct technology, a seamless transaction can be provided, making cross-border taxation easily navigated by retailers and consumers.
Using a company like Fyorin can help you lower the transactional costs of cross-border transactions, control costs and help manage and reduce the burden international tax codes can place on your business. Why work through your business issues alone? Consult with experts who have been through the process before, and watch your business thrive.