One of the biggest benefits of selling with Shopify is the ability to sell globally, providing customers with localized experiences no matter where they are thanks to tools such as translation, currency conversions, and more.
Whether you’re in the U.S. selling into Europe, in Europe selling into the U.S., or making other cross-border sales, reaching new international audiences can be great for growth. But it creates a whole new world of complexity when it comes to taxes.
Even if you’re outside the U.S., selling to customers in the U.S. subjects you to the sales tax laws of various states — if your transactions or revenue reach an economic nexus threshold in a particular state, you could be required to collect and remit taxes there. And if you keep inventory in one or more states, you might not even need to reach a sales threshold to trigger tax obligations.
Similarly, if you’re a U.S. company selling abroad, you likely have global tax obligations (even if you don’t realize it). Some countries have sales thresholds, but in a few, there’s no minimum — so if you just make one sale, you’re on the hook to collect and remit tax.
Of course, different states and different countries have different rules and regulations on taxability, rates, and more. And those rules change all the time. Even invoicing can present compliance hurdles, depending on the country. Add it all up, and there’s a lot to think about.
Three key tax challenges when selling globally
- Getting tax right in different countries. Asked about their biggest challenges with selling globally, nearly half of sellers in a NAPCO Research survey cited difficulties calculating taxes and duties in different countries.
- Navigating VAT. This consumption tax can vary subtly across different countries, and because it’s calculated and collected at each stage of the supply chain, there are many opportunities for error.
- Drop shipping. If you don’t keep items in stock, but instead have a manufacturer or another business fulfill orders directly, things can get complicated very quickly. After all, each sale in this scenario is really two sales — one between the seller and customer, the other between the seller and manufacturer. It’s easy for the situation to get messy, because the tax is calculated based on how the items are used in both sales.
So how do you stay on top of these challenges — and the myriad others we don’t have room to get into here — when your business is growing in new markets that span the globe?
