Navigating distance selling thresholds is essential for e-commerce brands shipping globally. These regulations not only specify when a business is required to register for a local tax ID, but also play a vital role in adhering to international tax laws, streamlining shipping operations, and accurately calculating landed cost. In this article, we’ll break down the complexities of varying types of sales thresholds, providing valuable insights on how to ensure compliance.
What are Distance Selling Thresholds?
Distance selling thresholds refer to specific limits set by countries on the value of goods sold remotely by non-resident businesses, typically through e-commerce transactions. When a brand exceeds this threshold in a particular market, they must register for VAT or GST and comply with local tax laws. These thresholds are established to regulate the fiscal obligations of companies engaging in cross-border sales and ensure fair competition among local and foreign businesses.
Low-Value Goods:
Oftentimes, VAT registration thresholds take into account low-value goods (LVGs), which are items priced below a certain value. The definition of “low value” varies from country to country, with each setting its own monetary limit. LVGs are significant because they’re often subject to specific tax rules and exemptions designed to streamline and encourage international trade. For example, in countries like Australia and New Zealand, value-added taxes are not collected on imports of low-value goods unless the cumulative distance selling threshold is surpassed.
Value-Added Tax Registration Requirements
Being aware of VAT registration requirements is crucial for US e-commerce brands selling products internationally. If your company exceeds a distance selling threshold, you may be required to register for taxes in that market. This process involves charging VAT on eligible transactions to consumers located within the country as well as regularly reporting and remitting the collected VAT to local tax authorities.
Precise regulations, sales thresholds, and tax rates can differ significantly between countries. We’ve put together this table to help you keep track of top global markets that enforce distance selling thresholds.
Distance Selling Thresholds for VAT Registration:
| Market | Tax Rates | VAT Threshold | Tax Regulations |
|---|---|---|---|
|
(AU) 🇦🇺 |
10% GST |
$75,000 AUD in sales within a 12-month period (~$48k USD) |
GST registration is required when a merchant imports over $75,000 AUD within a 12-month period to Australia. Imports below $1,000 AUD (~$645 USD) are exempt from GST unless the registration threshold is exceeded. |
|
(CA) 🇨🇦 |
5% GST 13% – 15% HST 6% – 9.975% PST |
N/A for DTC shipments from the US |
Imports over $40 CAD (~$29 USD) are liable for GST, PST, and HST as applicable, based on the destination province. GST/HST registration is required when a merchant sells over $30,000 CAD in a calendar year to Canada, but only if they hold inventory in Canada, their place of sale is Canada, or they are a Canadian corporation. |
|
(EU) 🇪🇺 |
17% – 27% VAT (21% Avg.) |
€0 |
All EU imports are subject to VAT. For orders up to €150, the EU offers a simplified VAT registration option through the IOSS program. |
|
Malaysia (MY) 🇲🇾 |
10% SST |
RM500,000 in LVG sales within a 12-month period (~$107k USD) |
SST registration is required when a merchant imports over RM500,000 of low-value goods (orders under RM500) within a 12-month period to Malaysia. Imports below RM500 (~$107 USD) are exempt from SST unless the registration threshold is exceeded. |
|
(NZ) 🇳🇿 |
15% GST |
$60,000 NZD in sales within a 12-month period (~$36k USD) |
GST registration is required when a merchant imports over $60,000 NZD within a 12-month period to New Zealand. Imports below $1,000 NZD (~$600 USD) are exempt from GST unless the registration threshold is exceeded. |
|
(NO) 🇳🇴 |
25% VAT |
NOK 50,000 in LVG sales with a 12-month period (~$4.6k USD) |
All NO imports are subject to VAT. VAT registration (VOEC) is required when a merchant imports over NOK 50,000 of low-value goods within a 12-month period to Norway. LVGs are items valued under NOK 3,000 (~$275 USD), meaning a shipment’s total value can exceed this threshold as long as no individual item within it surpasses the limit. |
|
(SG) 🇸🇬 |
9% GST |
$100,000 SGD in LVG sales within a 12-month period (~$73k USD) + $1M SGD in sales globally |
GST registration is required when a merchant imports over $100,000 SGD of low-value goods (orders under $400 SGD) within a 12-month period to Singapore and sells more than $1M SGD globally. Imports below $400 SGD (~$290 USD) are exempt from GST unless the registration threshold is exceeded. |
|
Switzerland (CH) 🇨🇭 |
8.1% General VAT 2.6% Reduced VAT (for food, supplements, books) |
$100,000 CHF in LVG sales within a 12-month period (~$110k USD) |
VAT registration is required when a merchant imports over $100,000 CHF of low-value goods (orders with VAT under $5 CHF) within a 12-month period to Switzerland. If VAT is below $5 CHF, it’s not required to be paid unless the registration threshold is exceeded. |
|
(UK) 🇬🇧 |
20% VAT | £0 |
All UK imports are subject to VAT. For orders less than or equal to £135, merchants are required to collect VAT at the point-of-sale. |
* For more detailed information about each market, click on the country names in the table above.
Strategies for International VAT Compliance
Here at Passport, we understand the intricacies of distance selling thresholds and VAT registration requirements for global e-commerce. Our expertise in international taxes extends beyond that of a typical shipping carrier; we’re a knowledgeable internationalization partner, equipping brands with the tools they need for global growth. That’s why we created our Seller of Record (SOR) solution – an easier way to handle VAT compliance with a quick and seamless enrollment process. Through the SOR program, businesses utilize Passport’s tax IDs to clear shipments, avoiding the need for complex registrations and filings. As a merchant, you’ll simply collect VAT at checkout, and we’ll manage the rest, including tax returns with the proper authorities and even monitoring sales thresholds.
Passport currently provides SOR solutions in the following markets:
- European Union (EU)
- United Kingdom (UK)
- Australia (AU)
- New Zealand (NZ)
- Norway (NO)
- Singapore (SG)
- Switzerland (CH)
For countries outside of these offerings, our in-house compliance experts are ready to help guide you through any challenging regulations and get your products to customers around the world. If you’re interested in Passport’s Seller of Record program or have additional questions about registering for VAT, reach out to us here.
Frequently Asked Questions
What is a distance selling threshold?
A distance selling threshold is a specific limit set by countries on the value of goods sold remotely by non-resident businesses, often through e-commerce transactions. When this threshold is exceeded, businesses must register for VAT and comply with local tax laws.
What is a VAT Threshold?
A VAT threshold refers to the volume of sales, usually within a defined time period, beyond which a business is required to register for value-added tax in a particular country. This entails collecting and remitting VAT on eligible transactions as well as complying with local tax regulations.
Do US companies need to register for VAT?
US companies may need to register for VAT in certain countries if they exceed the distance selling threshold in those markets.
Is GST the same as VAT?
VAT and GST generally refer to the same type of consumption tax. VAT is the term commonly used in Europe, while other countries like Australia and New Zealand refer to it as GST. The variations between these taxes comes from the unique regulations each market imposes, including factors like tax rates, items that are tax-exempt, and registration requirements.
What is the GST threshold in Australia?
In Australia, businesses with imports exceeding $75,000 AUD within any given 12-month period are required to register for GST.
What is the GST/HST threshold in Canada?
In Canada, GST/HST registration is required when a business sells over $30,000 CAD in a calendar year, but only if they hold inventory in Canada, their place of sale is Canada, or they are a Canadian corporation.
What is the VAT threshold in the EU?
In the EU, all imports are subject to VAT. For orders up to €150, there is a simplified VAT registration option through the IOSS program.
What is the SST threshold in Malaysia?
In Malaysia, SST registration is required when a merchant imports over RM500,000 of low-value goods (orders under RM500) within a 12-month period.
What is the GST threshold in New Zealand?
In New Zealand, businesses with imports exceeding $60,000 NZD within any given 12-month period are required to register for GST.
What is the VAT threshold in Norway?
In Norway, VAT registration (VOEC) is required when a merchant imports over NOK 50,000 of low-value goods within a 12-month period. Low-value goods are items valued under NOK 3,000, meaning a shipment’s total value can exceed this threshold as long as no individual item within it surpasses the limit.
What is the GST threshold in Singapore?
In Singapore, GST registration is required when a merchant imports over $100,000 SGD of low-value goods (orders under $400 SGD) within a 12-month period and sells more than $1M SGD globally.
What is the VAT threshold in Switzerland?
In Switzerland, VAT registration is required when a merchant imports over $100,000 CHF of low-value goods (orders with VAT under $5 CHF) within a 12-month period.
What is the VAT threshold in the UK?
In the UK, all imports are subject to VAT. For orders less than or equal to £135, merchants are required to collect VAT at the point-of-sale.
