A Step-by-Step Guide to Going Global
How to succeed when expanding across borders
A Step-by-Step Guide to Going Global
How to succeed when expanding across borders
The rewards of cross-border selling
Why trade across borders? For the most part, brands want to expand their customer base. Selling internationally as an ecommerce brand can be a great way to get your business in front of the approximately 2.14 billion consumers worldwide who shop online.
With ecommerce and SaaS (software as a service) businesses, you’re not bound by the physical limitations of brick-and-mortar stores. However, no matter where you do business, there are always tax implications you need to consider to remain compliant.
That said, with the right support, tax challenges can be overcome. This is particularly true of U.K. and EU businesses looking to trade within Europe. For example, the creation of IOSS (the Import One-Stop Shop) has made VAT registration much simpler, and has simplified the movement of goods into or across the EU. In addition, Avalara’s wide range of VAT solutions can help facilitate trade throughout the continent.
Your finance team may question expansion — why spend the considerable amount of money necessary to sell across borders? The simple explanation is that there’s a lot of potential in overseas markets. There are more customers, there’s more money to be made, and there are more opportunities to build your brand’s story.
All these opportunities can become a reality as long as your business takes the right precautions before beginning a cross-border expansion. That’s why we’ve created our Step by Step Guide to Going Global. In this guide, you’ll find information on what you should prioritise when expanding abroad: important issues like tax, customs, and the necessary infrastructure. Keep reading to find out more.
“In this guide, you’ll find information on what you should prioritise when expanding abroad: important issues like tax, customs, and the necessary infrastructure.”
Step 1: Planning your cross-border strategy
Whether you’re selling abroad for the first time, or reopening your cross-border sales since COVID-19, it’s critical to take stock and create a comprehensive strategy before anything else. We’ve included three broad categories in this guide to help you plan your cross-border initiative.
EVALUATING YOUR BUSINESS
Is selling your products and services across borders the right move for your company? It’s a good question, and depends entirely on your business model.
If your company sells products directly to consumers (without retail or wholesalers acting as go-betweens), you’ll likely have considerable advantage in cross-border sales. Many businesses that have had enormous success internationally (like Apple or Dyson) operate a direct-to-consumer (DTC) model, which helps them avoid supply chain complications and unnecessary import issues.
If you’re solely a retailer (i.e., you don’t manufacture your goods, and instead sell products you’ve curated from branded manufacturers), breaking into new markets can be difficult, but not impossible. A big part of succeeding as a retailer internationally is to offer products that consumers can’t purchase in-country.
Retailers may also face lower margins when selling internationally, due to increased expenses within their supply chain. However, the costs will likely be balanced by the increased overall revenue they’ll earn by selling in a larger market with many more customers.
If you’re a digital business (a SaaS business, for instance) selling internationally is complicated. Each region has its own set of complex and sometimes contradictory tax rules and legislation — there are now more than 80 tax authorities worldwide applying tax at destination. However, digital businesses can rely on automation software to ease most of their tax compliance struggles.
DID YOU KNOW?
“There are now more than 80 tax authorities worldwide applying tax at destination.”
TESTING THE WATER IN NEW MARKETS
While a company’s business model has a huge impact on the success of any cross-border initiatives, it’s essential that a business knows there’s demand for its products in a foreign market before they begin trading there.
You'll need to conduct extensive research on your new market — from your potential competitors to the typical price of the kind of goods you sell. If there isn’t a significant demand for your goods, or your research is inconclusive, you might want to test the water as an online marketplace seller before attempting a full cross-border initiative. By selling through an online marketplace, your business will take on less risk.
However, selling through a marketplace comes with its own challenges, such as dealing with specific tax obligations. If you like the idea of investigating cross-border trade through an online marketplace, check out Avalara’s tax guides on the practice. There are separate guides for both the EU and the U.S.
If you’ve identified a demand in the market, remember to evaluate your supply chain to ensure all suppliers can keep up with that demand. You should also establish whether you can still price your goods competitively in a foreign market. If you keep prices the same, your margins may be lower because of customs duties and additional taxes.
DETERMINING YOUR UPSKILLING REQUIREMENTS
Another vital consideration is whether you and your team have the knowledge necessary to operate your business abroad. Aside from the business expertise you may already have, you’ll need very specific proficiencies in:
Languages: Businesses hoping to expand into new countries will have a much easier time if they have someone on staff who can speak the local language. In fact, some tax authorities may only provide the paperwork for tasks like VAT registration and customs clearance in their local language.
Foreign tax law: If you’re looking to trade in a significantly different market (for example, a U.S. company looking to sell products in Germany), you’ll need to research how taxes are collected and paid in that market before you start selling there.
With different customs and import requirements (on top of the tax obligations) it can be easy to cross thresholds and become liable without knowing it. Try using Avalara’s free VAT risk assessment to identify where your liabilities originate, so you know what you should focus your research on.
- International logistics: It’s important to have a solution for calculating customs duties while importing and exporting goods. However, it’s equally vital that you have someone within your company who understands the details of physically transporting your goods over borders. This person (whether a hired employee or external advisor) will be able to advise you on things like the right couriers to use or whether it’s worth purchasing warehouses abroad to help move stock.
To ensure you have the skill sets necessary to expand abroad, you’ll need the support of your whole business. As such, working cross-functionally (that is, having every department of your business work in concert) is essential. If you’re interested in how cross-functional teams can accelerate global expansion — and the part technology can play — download our infobrief with IDC, Accelerating Your Global Expansion in 2022.
Step 2: The complexities of customs compliance
Primarily digital businesses, like those selling software, won’t need to worry too much about customs because their goods are intangible. However, if your business requires you to export physical goods, you’ll need to familiarise yourself with customs compliance.
Customs authorities handle the import and export of goods for a particular country, and trading across borders means you’ll need to interact with customs fairly frequently. As such, it helps to have a good understanding of common customs-related issues.
CALCULATING CUSTOMS DUTIES
Customs duties will be of significant concern as a business shipping products internationally. These duties are the taxes that are imposed on goods being transported across international borders. Many different factors go into calculating customs duties, including the type of item and its country of origin.
A common problem among cross-border businesses is how to account for customs duties when pricing an item at an online checkout. The complexity of customs duties calculations and the need to provide a price instantly means it’s almost mandatory to automate these calculations. Once you implement a solution for paying duties, you’ll be able to advertise your shipping as DDP (Delivery Duty Paid).
If you don’t apply customs duties at checkout, they’ll be charged to your customer directly. Subsequently, upon delivery, the customer will be asked to pay a potentially large expense. This shipping model is known as DAP (Delivered At Place), and can harm the customer experience significantly, so it’s in a company’s best interest to find a way of efficiently calculating customs fees if they plan to trade internationally.
For more information on DDP vs. DAP, as well as further advice on shipping internationally, download our guide: Understanding Delivery Duty Paid.
If your business is looking for a digital solution to the customs problem, consider Avalara AvaTax. In addition to providing VAT and sales tax calculations, this solution can plug into your existing ecommerce platform to provide fast and more reliable customs duties at checkout. Using AvaTax means no more surprise charges, which in turn means happier customers.
HARMONIZED SYSTEM CODES
A Harmonized System (HS) tariff code is a six-digit code used to calculate tariff rates for all internationally traded products. Global customs authorities require tariff codes for the classification of goods and services traded across the world. HS codes are a key part of international trade. In fact, 98% of all merchandise sold internationally is categorised with an HS code at some point in its journey.
Assigning the right HS code to your goods is your responsibility — unfortunately, customs and shipping companies cannot take care of this for you. Having the right HS code on your goods is immensely important, as any number of problems can occur if an item is incorrectly labelled.
For instance, your item may be delayed while customs identifies it, leading to a late delivery and an unhappy customer. Even worse, items with the wrong HS code are charged the highest possible customs duties, so incorrectly labelling your goods can cut into your profits.
HS codes are created by the World Customs Organization (WCO) and are standardised internationally. You can find HS code lists on their website, and on your country’s government website (for instance, here’s the list for the EU and the U.K.). An important point to remember is that HS codes are updated every five years by the WCO — keep an eye out for these updates to ensure your company stays compliant.
HS codes can be complex, especially if you frequently ship a wide variety of products in large amounts. As such, it’s a smart idea to automate the process instead of relying on human employees. Avalara Item Classification uses an AI-based classification engine to quickly categorise products in any industry, from retail to manufacturing. The solution is also easy to integrate into existing systems, minimising any business disruption.
You can also read up on the Harmonized System in our dedicated guide: Are HS codes your business’ weak spot?
Step 3: Navigating tax requirements
VAT, GST, sales and use tax — there’s a lot to keep track of if you’re trading internationally. Although this complexity can make compliance difficult, it should still be a priority to understand and fulfil your tax obligations. If you fail to comply with a nation’s tax laws, you’re apt to receive fines and other sanctions, which might affect your ability to access that market in future.
However, taking the right precautions can help ensure tax compliance regardless of which country you’re operating in. Read on to discover our four steps to total tax compliance:
1. RESEARCHING YOUR TAX AND CUSTOMS OBLIGATIONS
Thoroughly researching your tax obligations should be your first step if you’re looking to expand across borders.
Performing research is vital because of the considerable complexity of tax laws abroad — almost every country will have a different set of laws surrounding tax. Even individual U.S. states will have considerably different tax laws. However, the EU is something of an exception, since the organisation has implemented standard VAT rules and rates across all its member countries.
Acquiring a satisfactory level of tax knowledge can be immensely time-consuming. One alternative is to keep a tax expert on staff for each country you plan to sell in, but this practice can quickly become very expensive.
To avoid having to hire a full team of financial advisors to help you decipher foreign tax laws, it’s wise to investigate digital solutions. For instance, Avalara Tax Research provides businesses access to a wealth of tax and industry-specific information, allowing leaders to spend less time on taxes and more time solving the other challenges involved in expanding internationally.
2. UNDERSTANDING WHERE YOU NEED TO REGISTER
Regardless of location, registering with the correct authorities is a key step in tax compliance. As with most other aspects of tax law, the exact registration process varies depending on the country you’re selling in.
For most countries, the registration process should be outlined on their government website, but be sure to check for specific instructions. For instance, certain documents may need to be physical paperwork (instead of digital) or filed in the country’s official language. Even individual U.S. states will likely have different registration requirements. If you’re planning to sell to multiple countries, it’s a good idea to automate the registration process to prevent mistakes.
For Europe, registration is greatly streamlined by IOSS, the Import One-Stop Shop. It’s a simplified VAT reporting model that allows non-EU businesses to sell their goods throughout the EU without having to register for VAT in each country individually. Instead, businesses only need to register for VAT in one of the 27 EU member states. For the movement of goods within the EU, the OSS serves a similar purpose, and facilitates B2C digital goods transactions.
If your business is based outside of the EU, you may need to work with an intermediary to register with IOSS, which means another company will file any IOSS paperwork on your behalf. Avalara’s IOSS service is a one example of an intermediary: We’ll take care of the filing of VAT returns, and help ensure tax money is paid to the correct authorities. Our IOSS service can also help you get an IOSS number (and therefore start selling) much faster than doing it alone.
If you’re looking to sell internationally as an online marketplace seller before you take the plunge of trading independently, it’s vital that you understand the differences in the registration process for marketplace traders. For instance, some U.S. states do not require the seller (i.e., your business) to register for sales tax; it instead becomes the responsibility of the marketplace itself.
3. TAX CALCULATION
It’s well established that customers appreciate transparency and convenience when completing a transaction — 96% of customers say that not being able to view a final landed price would put them off making a purchase. International sales are no different, so your ecommerce platform should be able to immediately provide a final price to shoppers that includes any relevant taxes and customs duties.
Calculating an accurate final price is no mean feat. To provide a price including tax, your ecommerce platform must first be able to calculate the correct tax rates for the specific country you’re selling to. It must also account for the type of product you’re selling, as some items (such as luxury goods or medical equipment) may be taxed at a higher or lower rate.
In addition, the tax rules for selling software and digital services in the EU differ significantly from physical goods. You’ll need to make multiple checks during the sale, as businesses will be treated differently, and some products are exempt from VAT. Read more about the unique rules for digital services.
Doing all this math manually (and at a satisfactory speed) is nearly impossible, so businesses need to source a digital solution to provide fast, more accurate tax calculations. Our AvaTax platform can fill this role, and is compatible with a wide range of popular ecommerce platforms.
“96% of customers say that not being able to view a final landed price would put them off making a purchase”
4. TAX RETURNS AND REMITTANCE
Filing tax returns and remitting the correct amounts to the appropriate authorities involves considerably more paperwork than other tax-based tasks. There are numerous forms to fill in and file, and that’s just for domestic businesses. International traders will need to file tax returns for each country they sell in.
Fortunately, there are a few ways of simplifying and streamlining the process. The first, as always, is research. For completing a tax return, the three most important questions are what must be included, how it must be submitted, and when it must be submitted.
What: Knowing what to include in a tax return is important, but it’s particularly crucial that you know well before you begin filing the return. This foreknowledge is vital because you need to retain any relevant documentation that helps you fill in the return — receipts, invoices, etc. Having easily accessible digital records is a necessity, as international traders will accrue a vast amount of documentation very quickly.
How: To make taxes simpler for both businesses and the government, the U.K. implemented a scheme known as Making Tax Digital (MTD) in 2019. Essentially, it means all VAT returns must be submitted digitally, using MTD-compatible software. When you’re submitting your tax returns, keep an eye out for schemes like MTD that mandate a specific method of filing.
Similarly, a growing number of countries around the world are starting to mandate the use of e-invoicing and live reporting. If you operate in countries where a mandate exists, you’ll need to ensure you’re compliant with the prevailing legislation. Check out our one-minute e-invoicing explainer to learn more.
When: As with most things tax-related, the exact deadline for filing your return varies. Luckily, most governments will make the return deadline clear on their website. International companies must pay particular attention to these deadlines, as they’ll have different ones for each country’s tax return.
With so much to remember, it’s a good idea to consider some level of automation for tax returns. Avalara’s returns and reporting solutions allow you to quickly and easily create tax returns, either by using our reporting software or by outsourcing your tax returns to our team of experts. Automating tax returns saves your company time and money, while reducing the risk of being targeted for an audit.
Step 4: Your tech and your team
Any expansion is guaranteed to be more successful with a robust tech stack and a multi-talented team supporting it. Is your company ready to handle cross-border sales? Read on to learn about products and solutions that can improve your existing digital infrastructure, as well as the type of expertise you may need to access either in house or partner with externally.
CAN YOUR TECH STACK HANDLE INTERNATIONAL SALES?
When it comes to technology, the main consideration for domestic and international sales is your ability to scale. There’s an additional level of complexity to consider when handling data from multiple different countries.
For instance, the checkout page for an ecommerce site that trades internationally must be able to calculate multiple foreign tax rates and incorporate HS codes to calculate customs charges automatically. The CRM must be able to organise the details of new customers from a range of different countries or states. Some countries require e-invoices or real-time reporting. Utilising the correct technology isn’t just about improving efficiency — it’s also an important part of compliance.
As a result of the COVID-19 pandemic, software as a service (SaaS) businesses have received a considerable surge in popularity, many of which use a subscription-based business model. For SaaS businesses that offer subscriptions, a core part of their tech stack will be the inclusion of subscription billing software.
Your tech stack is the place where Avalara products and services can really make a difference. We have more than 1,200 signed partner integrations into the most popular ecommerce platforms, accounting systems, and enterprise resource planning tools. Regardless of the software you’re using now, Avalara has a solution that’s both compatible and essential for your expansion.
Below, you can find a few examples of the platforms that Avalara solutions can seamlessly connect with:
Adobe Commerce (formerly Magento)
Enterprise Resource Planning tools
As mentioned, the subscription model has become enormously popular with all types of businesses in recent years. While there are challenges in adopting the subscription model, they can be overcome by using a subscription management platform, such as Chargbee. Using Chargebee to help manage your subscriptions can ensure a much more consistent revenue stream for your business.
If you’re specifically interested in automating delivery, consider working with Metapack. Sixty percent of EU customers have had a bad experience with retail delivery — these experiences often force them to cut ties with the company responsible. By working with companies like Metapack, you’ll get the best choice of courier, as you’ll have access to over 4,000 delivery services.
To discuss your automation options further, Avalara is here to help. Beyond tax compliance automation and compliance services, we can help facilitate your company’s global expansion by integrating our technology with your suppliers. Find out more about how Avalara can support international sales.
WHO YOU NEED TO SUCCEED
Effective tech is essential to any cross-border initiative, but it’s not the only thing you’ll need. Being able to access people with the appropriate talents and knowledge for expanding abroad is also crucial to your success.
Since every business is different, “the right team” will obviously be unique to each business leader. However, it’s a good idea to consider the different types of partner you might find a need for while trading internationally. The specific experts you need will differ depending on your location and the industry you operate in, but here are a few groups you may want to consider making contact with:
Indirect tax team: Having someone on hand that you can ask questions regarding compliance and other tax research topics is invaluable if you don’t have a strong financial background. Even better is if you have a team that can oversee complicated paperwork like VAT returns, so you can improve accuracy and reduce the risk of audits.
Customs advisor: We’ve looked at how important customs are in international trade, so it’s important you understand them (or at least can speak to someone who does). Look for a customs advisor to help you navigate topics like item classification, customs duties, and import taxes.
Localization expert: Although a good knowledge of English can take you pretty far in the business world, having someone who’s fluent in the language of the country you’re trading in can open a lot of doors. With language localisation, it’s important to perform testing prior to rolling out a multilingual version of every service you offer. Testing can help you identify useful details, like culturally relevant SEO keywords or terms that can be explained through symbols instead of words.
A localisation expert can also identify market trends in the region, allowing you to make a comprehensive business plan. Having someone who can help you with localising your payment platforms and explain currencies is particularly helpful.
- Shipping partner: Retail companies that need to transport physical goods overseas will need to find a partner that can ensure efficient delivery. However, there’s more to it than just finding a reliable courier.
Try to find a partner with access to a number of shipping options, so you can find the best service for your packages, as well as wide coverage to ensure delivery to a variety of different countries. You’ll also want to consider the volume of deliveries your partner can handle, as you may need to rely on them more heavily as your operation grows.
While having this level of expertise on staff is useful, be aware that you can outsource much of these services to other companies, which can save your business a considerable amount of money. For instance, if you’re looking for a tax and customs expert, Avalara can provide reliable advice and support. Learn more about how Avalara can assist your business.
Step 5: Launching into new markets with Avalara
Expanding your business across international borders is a huge task, and there’s a lot of moving parts you’ll need to oversee to make sure things run smoothly. Why do it all alone?
Avalara is here to help you and your team achieve success, regardless of where you’re selling your products. Check out the section below for helpful links on how Avalara can guide your business to success.
“The custom solution we developed with Avalara was an absolute game-changer. It allows us to keep inventory on our platform without becoming non-compliant”
– Brad Caproni, Director, Global Indirect Tax
SELLING IN THE EU AND THE U.K.?
Companies based in the U.S., Asia, or Australia are likely to be unfamiliar with the intricacies of VAT rules, specifically things like reporting and registration. To help support the expansion of these companies, Avalara offers a full range of VAT solutions: everything from outsourced or automated VAT returns to vital tax research services.
SELLING IN THE U.S. FROM ELSEWHERE?
If you’re interested in selling in the U.S., an important first step is getting to grips with sales and use tax. It’s a complicated subject, but Avalara can guide you through the process: As with VAT, we have a huge range of helpful products and services to help your business comply with U.S. sales tax rules.
If you’d like more advice on selling in the U.S., check out our guides for ecommerce and marketplace sellers. Both guides look at the specific differences EU businesses might need help with when expanding to the United States.
If you’d like more advice on selling in the U.S., check out our guides for Ecommerce and Marketplace Sellers.
TO BUSINESSES EVERYWHERE
Achieving success abroad isn’t easy, but with Avalara’s help, you can overcome many challenges. Whether your business needs a little help with tax calculations or you’re looking for a full suite of digital solutions to support your international sales, we’re here to help.
DISCLAIMER: Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this guide is for informational purposes only and does not provide legal or tax advice.