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A retailer’s guide to overcoming cross-border ecommerce hurdles

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Sales tax rates, rules, and regulations change frequently. Although we hope you’ll find this information helpful, this report is for informational purposes only and does not provide legal or tax advice.


Why cross-border ecommerce is so important today

There has never been a better time to begin selling to online shoppers around the world or to bolster an existing cross-border ecommerce program.
The coronavirus pandemic dramatically increased online shopping worldwide as millions of consumers chose to shop from home because stores were closed or because they feared infection from mingling with other shoppers.

Globally, online retail sales surged 24.1% in 2020 over 2019, reaching $4.29 trillion, according to news and research organization Digital Commerce 360.

Consumers not only shopped more online from websites in their own country, but they also increasingly bought from online retailers beyond their own borders. In fact, 52% of consumers in a five-country survey say they now buy from retail websites overseas, according to a report released in early 2021 by ClearSale, a company that provides fraud management services to online retailers.

According to Pranav Gandhi, head of business and strategy analytics at Signifyd, cross-border transactions increased by 17% on Signifyd’s ecommerce network, which includes both retail and travel sites. Given that travel purchases plummeted during the pandemic, the increase in out-of-country retail transactions was likely far more than 17%.

Why do consumers shop cross-border? A global survey conducted in 2019 by postal service consortium International Post Corporation showed shoppers buy from overseas sites to find lower prices, goods that are scarce at home, or products from well-known brands abroad that they trust more than suppliers in their own countries. This survey showed that in China, for example, 46% of shoppers surveyed say they made their most recent cross-border purchase because they trusted goods from the seller’s country more than domestic products.

At the same time global demand is increasing, the spike in online shopping in major markets, like the United States, is making retailers and brands increasingly reliant on domestic online sales. During the fourth quarter of 2020, which includes the all-important holiday shopping season, ecommerce penetration of retail sales hit an unprecedented high of 21.6%, up from 17.8% in 2019 and 16.0% in 2018, according to a Digital Commerce 360 analysis of U.S. Commerce Department data.

That makes markets like the U.S. more competitive and the international opportunity more important as a source of potential growth. 

And yet, roughly half of North America’s leading online retailers don’t sell to consumers from other continents. Concerns about issues such as customs clearance, taxes, and import restrictions keep many retailers from seizing the cross-border ecommerce opportunity.

This guide will provide an introduction to the most important regulatory issues retailers and brands must understand as they sell to consumers from around the world. The issues are complex, but with the help of companies that specialize in handling them, retailers and brands can confidently take advantage of the huge opportunity to sell to the world’s online shoppers.

Content created by Digital Commerce 360


Sales tax rates, rules, and regulations change frequently. Although we hope you’ll find this information helpful, this report is for informational purposes only and does not provide legal or tax advice.

A rapidly changing landscape

The cross-border ecommerce opportunity is particularly compelling because so many midsize and larger online retailers in North America have yet to open their sites to foreign shoppers. According to Digital Commerce 360, among the Top 1000 online retailers in North America, only about half sell to shoppers in the United Kingdom — even though most U.K. shoppers speak English. And even fewer sell to consumers in major markets such as Germany, France, China, Japan, and India. 

What keeps these relatively large online merchants from selling internationally? Many are held back by complexities like language, delivery, customer service, customs clearance, and taxes and regulatory requirements that vary from one country to another. 

“Building out the expertise to enter new global markets can be a lengthy and expensive endeavor,” says Eric Christensen, chief payment officer and vice president of product at Digital River. “Tax regulations alone vary by country and locales within that country. Compliance can also be mandated by region, such as GDPR and PSD2, or at a more local level, such as California’s Consumer Privacy Protection Act.

“Numerous countries including China, India, and Brazil are looking at new regulations or enforcement in 2021. Brands will need to hire experts on their own and spend years laying the groundwork to enter new markets, or they can work with vendors who have the expertise in place to take that complexity off their hands, allowing brands to focus on their customers.”

Those that are selling cross-border are finding the landscape is changing rapidly. Many national governments are modifying their rules so they can collect more revenue from the steadily growing flow of online purchases entering their countries and protect domestic retailers from online competition abroad. Plus, Brexit adds a new wrinkle for companies selling to the U.K. or staging goods in that country for sale into the European Union.

On the positive side, the growth in cross-border online shopping has led service providers of various types to offer additional services to retailers seeking to sell to international shoppers, says Krishna Iyer, head of industry relations and strategic partners at ShipStation, a provider of fulfillment technology for online merchants and an Avalara partner.

For example, international shipping costs and delivery times are falling as airlines work more closely with the freight consolidators that handle most cross-border shipments, aggregating many small parcels into larger loads to reduce costs. As a result, Iyer says, instead of delivery to an overseas customer taking three or four weeks, an order may now arrive in several days.

Also, big online marketplace operators like Amazon and eBay, which recruit retailers and brands from all over the world to sell on their platforms, can provide helpful advice about which products are likely to be attractive in a given international market. They can also share information about products that can’t be shipped into a specific country because of local regulations, Iyer says. 

In short, despite legitimate obstacles, there is great opportunity today for expanding online sales internationally. And that has retailers and brands investigating how they can take advantage of the potential for cross-border sales to boost revenue.

Half of North America's top online retailers don't accept orders from consumers in Europe and other major markets, creating a bigger opportunity for those that do. 

An important choice

As retailers and brands investigate how they can take advantage of cross-border sales, they will find two broad options. One option is to rely on companies that claim to handle all the challenges of cross-border sales, including shipping, customs clearance, customer service, and taxes. While that sounds simple, few companies can truly be experts in all those areas, each of which requires deep expertise. In fact, many of the companies that offer all-inclusive services resell other firms’ offerings, making it harder for a retailer to ensure it is getting the service it requires and adding dramatically to the costs the retailer pays.

One U.S. manufacturer of high-end bicycles learned that lesson the hard way when it discovered it was paying tens of thousands of dollars too much in tariffs each year because of inaccurate Harmonized System (HS) codes on the parts it was importing from abroad. When the manufacturer engaged Avalara to handle its cross-border item classification work required for customs clearance, it saved that money and obtained the information it needed to petition for reimbursement of excess duties and fees it had paid.

That points to the second option: a more modular approach that relies on best-of-breed companies to handle each of the major tasks associated with cross-border ecommerce.

When cross-border sales were a small part of many companies’ business, getting first-rate service in all areas of international online sales may not have been as crucial. But as those global sales become a more significant part of their business, the stakes get higher.

It’s also important to note that consumers pay close attention to the experience they have when shopping with online retailers. In a global survey of 30,000 shoppers, market research firm BrizFeel found that customer experience was the most important factor in determining loyalty to a brand, exceeding even price and brand name.

That makes delivering a great consumer experience imperative — and customer experience includes what happens when the consumer accepts delivery. A shopper who buys a $100 dress from a foreign website and then finds she is being asked to pay an additional $60 in duties and taxes when the garment arrives is not likely to view that as a great shopping experience. To avoid alienating customers, retailers need first-rate advice in the often arcane details of national import restrictions, customs clearance, duties, and local taxes.

Top factors that drive loyalty for online consumers

When cross-border sales were a small part of many companies' business, getting first-rate service in all areas of international online sales may not have been as crucial as it is today. 

Consumer cross-border shopping behavior — and the retailer response

Millions of online shoppers purchase from retail websites in other countries, but there are big variations in numbers from one country to another.

For example, the ClearSale study shows that while 52% of consumers overall shop cross-border, 72% of Mexican consumers do so as well as 60% of Australians and 53% of Canadians. But only 37% of shoppers in the United States and the United Kingdom regularly purchase from foreign sites. 

That’s consistent with other studies that show consumers in countries with plenty of domestic online retail options — like the U.S. and the U.K.— are less likely than shoppers in smaller markets to risk buying from a foreign retailer. This points to big opportunities for retailers in the U.S. and other major economies to serve customers in smaller countries that are looking for well-known brands.

Another notable indicator of the big international opportunity from the five-country ClearSale study: Consumers who spend more tend to be more confident about shopping cross-border.

How confident do you feel purchasing products online from overseas merchants?
(By monthly online spend)

Source: 2021 Global Consumer Ecommerce Behavior Analysis from ClearSale. Based on survey by Sapio Research of more than 1,000 online shoppers in each of five countries: United States, Canada, Mexico, United Kingdom, and Australia. Figures may not add up to 100% due to rounding.

It’s also worth noting that younger consumers are the most comfortable shopping on foreign websites. In the ClearSale study, 63% of shoppers ages 18–24 say they buy from overseas sites and 62% of shoppers ages 25–34. But that percentage declines steadily as consumers age, with only 31% of those 65 and older shopping cross-border.

Younger consumers rarely hesitate to buy from overseas online retailers, with only 10% of those ages 18–34 saying they would be “quite unconfident” about making cross-border purchases. But that increases to 35% for shoppers 65 and older. 

Winning the loyalty of shoppers in their 20s and 30s today can help a retailer build a base of customers who will return again and again as they move through their peak earning years.

How confident do you feel purchasing products online from overseas merchants?

Source: 2021 Global Consumer Ecommerce Behavior Analysis from ClearSale. Based on survey by Sapio Research of more than 1,000 online shoppers in each of five countries: United States, Canada, Mexico, United Kingdom, and Australia. Figures may not add up to 100% due to rounding.

Winning the loyalty of shoppers in their 20s and 30s today can help a retailer build a base of customers who will return again and again as they move through their peak earning years.  

Why consumers buy from overseas retailers

The main reason consumers buy from foreign online retailers is to get a lower price, according to the 2019 edition of an annual survey of more than 35,000 consumers in 41 countries by the International
Post Corporation (IPC), a consortium of national postal services.

That aligns with IPC findings that China is the country from which cross-border online shoppers most frequently buy, accounting for 39% of consumers’ most recent international purchases. Many of those purchases come from platforms that specialize in selling inexpensive goods from China, like AliExpress and Wish. The U.S. was second in cross-border sales at 14%, followed by the U.K. at 10% and Germany at 9%.

However, U.S. online retailers accounted for a significantly larger percentage of sales to several major markets, such as Mexico (50% of cross-border sales), Japan (30%), and the U.K. (21%), according to the IPC report. The allure of U.S. brands is a global phenomenon, especially for shoppers not solely focused on price.

What are the main reasons you made your last purchase cross-border rather than domestically?
(Respondents could select more than one answer.)

Source: International Post Corporation 2019 survey of 35,737 consumers in 41 countries

Nor is price the main concern of many shoppers in certain developing economies where middle-class consumers are skeptical about the quality of domestic products. While 13% of all consumers surveyed by IPC cited “trust foreign country of purchase” as a major reason why they shopped on an overseas retail site, that went up to 46% for shoppers in China and 37% for consumers in India. 

These statistics point to the opportunity to sell to the growing middle classes in the world’s two biggest countries by population, particularly goods like food, cosmetics, and baby supplies — categories where shoppers tend to be especially concerned about safety and quality.

“While 13% of all consumers surveyed cited ‘trust foreign country of purchase’ as a major reason why they shopped on an overseas site, that went up to 46% for shoppers in China and 37% for consumers in India.”

North American online retailers and cross-border sales

International shoppers are coming to North American retail sites looking for the brands and quality goods they want. But not all retailers are taking advantage of that sales potential.

In 2019, 12.6% of traffic to Top 1000 online retailer sites came from outside of the U.S., according to a Digital Commerce 360 analysis of data from web traffic monitor SimilarWeb. That calculation excludes three companies whose websites get an unusually high percentage of overseas traffic — Amazon, Microsoft, and Apple. (Excluding Canada, overseas shoppers accounted for 10% of Top 1000 traffic, without those three companies.) And for retailers selling certain types of products, the percentage of overseas traffic was much higher.

As examples, 27% of traffic to toys and hobbies sites was from outside the U.S., possibly an indication parents want toys for their kids that are safe. And 26% of visitors to consumer electronics sites were from non-U.S. consumers, registering the appeal of products from Apple and other U.S. brands.   

Despite that evident interest from abroad, only 51.5% of retailers in the Digital Commerce 360 ranking of North America’s top retailers by web sales ship to consumers in the U.K., and the percentages go down for other countries outside of North America. Fewer than 49% will take orders from consumers in Germany and Australia, and 41% from China, whose consumers buy more online than shoppers in any country in the world, including the U.S.

Percentage of traffic to Top 1000 online retailer websites from outside U.S., by merchandise category

Source: 2020 Digital Commerce 360 Top 1000, SimilarWeb traffic data

Consumers in China are also the biggest buyers of luxury goods, so prestige brands are missing out if they don’t cater to these shoppers. Consumers in the Middle East are also prime prospects for luxury brands, but only 43.5% of Top 1000 retailers ship to that region. 

In other words, North American retailers that do serve the world’s shoppers will not be competing with all the retailers they vie with at home. That makes cross-border sales a more compelling opportunity.

Percentage of Top 1000 online retailers that ship to each country

Source: 2020 Digital Commerce 360

Why don’t more retailers sell internationally via the web? Surveys of retail executives show they’re worried about having to deal with issues they don’t face at home, according to the 2019 Global E-Retail Expansion Report from Digital Commerce 360. These issues include understanding which products they can ship to a given country, how to manage fulfillment, and their responsibilities for collecting tax and customs duties for each nation.

The next section of this report will break down the main regulatory challenges — and explain how they can be addressed.

Clearing the regulatory hurdles to cross-border sales

Every country has its own rules on what kinds of products it allows to be imported and how much it charges for customs duties and sales tax. Exporters have always had to deal with these complexities.

Online retailers had it relatively easy for many years, as many countries allowed small parcels of low value to cross their borders without inspection or imposition of duties or taxes. But that has now changed.

Governments around the world have recognized that their citizens are buying from foreign websites and importing goods on a regular basis. This phenomenon is shown in the dramatic increase in small parcels being shipped. U.S. delivery technology firm Pitney Bowes has estimated that the number of small packages shipped will more than double from 103 billion in 2019 to between 220 and 262 billion parcels by 2026.

In fact, the growing volume of cheap imports from China’s ecommerce sites played a big part in Sweden’s decision in 2018 to impose sales tax on all parcels entering the country. Previously, packages valued at less than 1,300 Swedish krona were exempt from tax.

The Swedish government estimated at the time that it was losing more than 100 million euros (about $120 million) each year by not taxing online orders crossing its border. What’s more, domestic retailers were complaining they were at a disadvantage because they had to collect sales tax from Swedish shoppers whereas foreign ecommerce operators — such as sellers on Amazon marketplaces or China’s AliExpress — could offer better prices by not charging tax.

Those two motivations of seeking more revenue and protecting domestic retailers have led other governments to also change their laws so they can tax more online orders. Australia, for example, had previously exempted imports valued at less than A$1,000. Now the Australian government requires any foreign online retailer that sells at least A$75,000 a year to Australian consumers to collect and remit sales tax on every parcel shipped into the country.

What’s more, governments are taking steps to enforce these rules. Customs agencies in many countries have added staff so they can inspect the growing volume of small parcels crossing borders. And many have invested in new technology, such as X-ray equipment and sniffing devices, allowing them to detect what’s inside a package. 

Bottom line: Online retailers will have to adhere more closely to customs regulations for each nation or risk disappointing customers whose packages get delayed — or who find themselves facing unexpected charges for duties or taxes.

Sweden eliminated its tax exemption for low-value imports in large part because of the growing volume of inexpensive items arriving from China.  

Brexit and the EU

The United Kingdom’s exit from the European Union, which took effect January 1, 2021, adds new complexity for online retailers. And, not surprisingly, both the U.K. and EU are moving to require collection of taxes on more online orders.

Previously, the U.K. did not require collection of its value-added tax (VAT), which is similar to U.S. sales tax, for imported online purchases of under 135 pounds. With Brexit, the U.K. has eliminated that exemption and will require online retailers to collect and remit VAT on all orders shipped to the U.K. Online retailers selling to U.K. consumers will also be required to register and remit VAT collected on orders to the U.K. quarterly.

VAT is 20% on most items, so that will mean a significant price increase for many U.K. online shoppers. And many British consumers shop cross-border: eMarketer estimates nearly 23 million U.K. consumers bought from overseas websites in 2020.

The European Union, meanwhile, is also eliminating its low-value VAT exemption of 20 euros, as of July 1, 2021. While not directly related to Brexit, this change means retailers will be obligated to collect VAT — typically around 20% in the EU although there are some variations by country — on all online orders shipped to consumers in the 27 EU member states.

Bottom line: Governments want the tax revenue from online orders, and Brexit has served as an opportunity to collect more tax from ecommerce.

“The European Union is eliminating its low-value VAT exemption of 20 euros, meaning online retailers will have to collect VAT on all online orders shipped to consumers in the EU’s 27 member states."

Four key regulatory hurdles to cross-border ecommerce

Understanding when to collect VAT, and how much to collect, is just a starting point for retailers selling internationally. There are nuances to every aspect of cross-border regulation, which is why merchants doing a significant amount of business internationally are well served by working with a company like Avalara that specializes in compliance with taxes and customs duties.

Four areas that require in-depth expertise are:

  • Properly classifying goods for import
  • Understanding national restrictions on imports
  • Registering with each country, obtaining tax ID numbers, and filing regularly
  • Correctly calculating customs duties and taxes owed on cross-border sales

This section will provide examples of common issues that arise in these four areas and explain how Avalara helps retailers clear these hurdles.

Cracking the harmonized system codes

Retailers selling cross-border must master the country-specific codes that identify the products being shipped. These are commonly referred to as HS codes, which is actually a misnomer. HS codes are six digits long, but all countries append additional digits to the codes that determine what tariffs will be charged. The U.K. uses a 10-digit code and Japan uses a nine-digit code, for example. There are also different names for these codes, with the U.S. calling them “HTS” codes while in the EU they’re referred to as “TARIC” codes.

Many retailers make the mistake of using the same code for every country, which can result in paying higher tariffs than necessary. If a retailer assigns the generic six-digit code to a product instead of the 8- to 10-digit code the country requires, the carrier will assign it to the highest tariff level.

The previously cited real-world example of the bicycle manufacturer paying tens of thousands of dollars in extra import duties came about because the company’s supplier in Vietnam used the wrong code on the documents that accompanied its shipments to the U.S. Once Avalara corrected the error, the import duties fell sharply — and the U.S. company was able to begin recovering some of its overpayments.

The World Trade Organization administers the 6-digit HS code system so customs officials all over the world can get a general understanding of what is being imported by reading the HS number on an import document. In all, there are more than 40,000 HS codes in use and many, many more country-level 8–10-digit codes.

There are so many codes because each one can describe a product in great detail. Is the dress made of cotton or silk? Does the hem drop below the knee? Many seemingly slight changes in a product can require a different code.

Getting the HS code right is important because it determines the tariff and taxes that may be charged: A particular country may charge a 30% tariff on silk blouses but only 5% on cotton blouses. And if the import documents use a 6-digit HS code that’s open to interpretation, such as a generic code for women’s blouses, the customs agency will invariably charge the highest tariff.

Relying on a freight forwarder — or in the case of the bicycle maker, its supplier — to fill out the customs documents can lead to expensive errors.

... Getting the HS code right is important because a country may charge a 30% tariff on silk blouses but only 5% on cotton blouses. When in doubt, the customs agency will charge the highest tariff.

New and complex products

Certain products can be especially complex to import. For example, importing a luxury watch into certain countries may require separate HS codes for the watch itself, its strap, and its battery.

And then there are new products. When the Fitbit came along, some countries classified it as a health product and others as a fitness item. Similarly, drones can be categorized in many ways, and it’s important for drone retailers to get the HS code right for each country they’re selling into.

Not only can mistakes lead to paying higher tariffs, but they can also lead to underpaying customs duties or taxes. Underpaying can be a painful mistake, as governments can typically go back seven years to collect unpaid duties and taxes.

How Avalara helps: Avalara maintains a comprehensive database of country-specific HS codes. It sources its information directly from the customs agencies of each country and continually keeps the database up to date so that customers don’t have to take on that responsibility.

Can this product be shipped to this country?

Each country makes its own rules on which products can be brought into the country, and they vary considerably from one to another.

For example, India bans parcels containing drones and e-cigarettes. You can’t ship most knives into Japan, or jewelry valued at over $500. Germany bans imports of lithium batteries, as well as the dietary supplement melatonin.

If customs officials spot prohibited items in imported parcels, they will likely seize the products and could impose fines. In any case, the consumer who made the purchase is sure to be disappointed.

Some online retailers automatically detect the IP address of visitors to their sites and only display items that can be shipped into the shopper’s country. That’s a best practice, as it helps to ensure the consumer won’t be disappointed, but it requires the online retailer to have accurate information about which products are prohibited by which countries.

How Avalara helps: Avalara tracks product restrictions by country and provides that data to online retailers so they can avoid selling items that can’t be shipped to a customer’s address.

Registering and filing with tax authorities — harder than it looks

Stuart Cohen thought he could handle filing for a tax ID in the U.K. on his own. “You can do it online, it’s in English, and it’s only eight lines, so I thought I’d take a run at it,” says Cohen, founder of Invisible World, a U.S.-based online retailer of apparel such as alpaca sweaters from South America and cashmere garments from China.

“It quickly became a mess — and that was in English,” he says. “If you’re going to sell in other countries you need someone to help you.”

Cohen engaged an accounting firm to help him remit taxes and file needed documents in the seven European countries where he sells — and ran into numerous problems. For example, it took a year to get registered in Spain, which led to a fine of more than 1,000 euros for not filing tax documents on time.

But the biggest problem was in Germany. His accounting firm filed required monthly and quarterly reports but neglected to file a required annual report. That, and other factors, led the government to notify Invisible World that it owed more than 25,000 euros in back taxes and fines — Cohen says in the end it turned out he owed 1,800 — and it quickly notified marketplaces like Amazon that the retailer was not in compliance.

One such complaint from the German tax authorities led to Invisible World being kicked off Amazon’s German marketplace for several weeks and another blocked the retailer from all of Amazon’s marketplaces for 13 days. “It can definitely happen,” he says.

And resolving these problems isn’t easy. The German government sent a letter in German that was in the form of an image, which meant Cohen couldn’t copy the text into an online translation tool to understand what it said. Cohen says he spent more than 100 hours resolving his problems in Germany, and that dealing with foreign tax authorities is always difficult.

“You’ll spend dozens or hundreds of hours straightening out problems with people who don’t answer the phone, aren’t in your time zone, and don’t speak English,” he says.

“ ... Resolving filing issues can be a nightmare. ‘You’ll spend dozens or hundreds of hours straightening out problems with people who don’t answer the phone, aren’t in your time zone, and don’t speak English,’ says Stuart Cohen of online retailer Invisible World .”

Sticklers for details

Kevin Mahoney, president and founder of online retailer FindTape.com, also recently encountered problems with Germany. He had been shipping his adhesives to an Amazon.com Inc. warehouse in the U.K. that would fulfill his orders throughout Europe, but Brexit forced him to choose a warehouse in a country that was still in the EU. He chose Germany.

To ship products in bulk into Germany required a different kind of registration, and that forced Mahoney to send German authorities a screenshot of every product he was selling on Amazon.de, Amazon’s German marketplace, showing each price. “But we change prices every day, and we got an email saying our prices didn’t match up,” Mahoney says.

After his first shipment to Germany was sent back, Mahoney switched to sending products to a warehouse in France. “France is a bit easier,” he says.

As Invisible World and FindTape.com found, just registering and filing properly can be challenging. Many countries require online retailers shipping to their residents to get a tax ID number so they can remit sales taxes or VAT. In addition, a retailer selling to consumers in the European Union has to obtain an EORI number — that stands for Economic Operators Registration and Identification number — to do business in the EU.

Then there are the requirements for filing, which vary by country in terms of timing and what information must be provided. If you don’t think it can be daunting for the uninitiated, just ask Stuart Cohen and Kevin Mahoney.

How Avalara helps: Avalara provides customers with detailed help on how to register and provides assistance in ensuring retailers file necessary tax documents and remittances on time to avoid penalties. That allows retailers to manage these tasks internally, and not rely on other companies who may make costly mistakes.

Letting shoppers know how much they will owe in duties and taxes

An important decision for each retailer selling across borders is whether to collect applicable duties and taxes when the customer checks out, or leave it to the shopper to pay those fees when the package is delivered. How retailers handle this choice is evolving.

Before governments began paying such close attention to cross-border online shopping, many retailers and consumers took their chances. Frequently, the retailer would not collect duties and taxes, and shoppers hoped the parcel would escape inspection and they would avoid paying those fees.

But as customs enforcement became stricter, more cross-border shoppers found themselves facing demands from their own governments for payment of duty and tax when the parcel arrived — which led many shoppers to refuse the parcel or at least complain to the retailer. Clearly, it was not an excellent customer experience.

This has prompted more and more web merchants to collect duty and tax when the customer checks out on the ecommerce site so the customer need not pay anything when the parcel arrives. This option is called DDP, Delivered Duty Paid, in international shipping jargon. The alternative of leaving it to the recipient to pay is known as DAP, Delivered at Place.

In a 2018 survey of retailers with $10 million or more in annual sales, 95% said they were collecting duty and tax when consumers check out, or were planning to do so. That study of 141 retailers was conducted by NAPCO Research for Avalara.

A better customer experience

In some cases, collecting duty and tax in advance is becoming mandatory. Some online marketplaces are requiring sellers to go the DDP route and collect all fees in advance so their customers are not disappointed. Amazon’s U.K. marketplace, for example, is requiring DDP on sales to customers in the European Union.

Some venture capitalists insist the digitally native brands they’re investing in adopt DDP, says Kent Allen, co-founder of the Global ecommerce Leaders Forum (GELF), an organization devoted to international online sales. By digital natives, he’s referring to companies that design their own products and that sold initially online, although some may now operate stores.

“The venture capitalists are pretty much requiring their companies to ship DDP because DDU can be a bad customer experience,” Allen says. “The post-order experience is what’s driving the smart money in this direction.”

He says this approach is particularly important for these born-on-the-web brands because many of them rely on social media to gain attention, which allows them to reach consumers all over the world who use networks like Facebook, Instagram, and Pinterest. As social networks increasingly enable direct sales by retailers to their users, social media becomes a bigger part of cross-border ecommerce, Allen says. Thus, it makes increasing sense to avoid hitting these consumers with unexpected fees upon delivery, since many will vent their frustration on social media where it’s amplified globally.

Kevin Mahoney, the president of FindTape.com, has seen for himself the difference in customer response when he collects duties and taxes in advance versus when he does not. Mahoney, who sells a wide variety of adhesive tapes and sprays, says he ships 90% of his orders through a freight consolidator, and all of those are DDP — with fees collected in advance. However, when customers opt for expedited shipment, he ships DAP because the express carrier’s fees for handling duty and taxes are high.

His checkout page made clear that the buyer choosing fast delivery would be responsible for duty and tax payment, and yet those DAP shipments still produced many complaints. In response, FindTape.com added a requirement that buyers choosing expedited shipping initial a statement accepting responsibility for those fees. “After adding that acknowledgement, I haven’t had any issues,” Mahoney says.

Bottom line: Consumers aren’t going to be happy to learn they have to pay additional fees upon receipt of an online order. Online retailers that charge duty and tax upfront may take a small hit on conversion from the higher price, but they are more likely to turn international customers into repeat buyers.

How Avalara helps: For an online retailer to include duties and taxes on the checkout page it must have accurate data and rates for every country it ships to, and must know the correct HS code to use to get the correct tariff. Avalara continuously updates its content data related to those fees with information directly from governments around the world. And it has large, dedicated teams of researchers and engineers who create stable pipelines of content and make that content machine readable for Avalara’s rate engines.

And, if a retailer decides to ship DAP, leaving the recipient to pay any fees, Avalara can offer up the correct duty and tax so the customer knows what to expect.

The venture capitalists are pretty much requiring their companies to ship DDP because DAP
is a bad customer experience,” says Kent Allen, co-founder of the Global ecommerce Leaders Forum. 

Conclusion: A bigger opportunity than ever before

In a sense, cross-border ecommerce is a marketer’s dream: More shoppers around the world want to go online to buy North American products, and half of the retailers and brands that compete for that business domestically are not competing for those international sales. Thus, the opportunity becomes more appealing.

There are complexities to be sure, but the growth of cross-border ecommerce has led technology providers, fulfillment services, online marketplaces, accountants, and advisory firms to beef up their services for retailers selling globally.

Avalara can handle all your company’s tax, duty, and regulatory compliance issues. And it integrates with the most common ecommerce platforms and financial systems.

The coronavirus pandemic caused a surge in online shopping worldwide. Now is the time for retailers to get started selling to these hundreds of millions of international online consumers, or for those already selling cross-border to reach into new markets.

For many retailers, selling internationally may represent their biggest opportunity to quickly drive revenue growth — and service providers like Avalara are ready to help you succeed.

For many retailers, international may represent their biggest opportunity to quickly drive revenue growth.  

Avalara international tax solutions

Avalara helps businesses of all sizes scale globally and get tax compliance right. With international tax solutions from Avalara, businesses can manage duties and cross-border tariffs, calculate VAT and GST, automate item classification for shipments, obtain registrations, and manage returns so they can grow globally and serve customers around the world. Headquartered in Seattle, Avalara has offices across the U.S., and in Brazil, Europe, and India. Learn more about our solutions for international selling.