Seller of Record: An Easier Solution to International Tax Compliance for Ecommerce

April 23, 2024 
|  Passport

Navigating international markets presents unique fiscal compliance challenges for US ecommerce brands. Traditional solutions like Merchant of Record (MOR) offer outsourced indirect tax management but not without significant drawbacks. Moreover, as platforms like Shopify offer native fraud protection functionalities, the need for an MOR to handle payment processing has diminished. In 2021, Passport Seller of Record™ launched as an innovative alternative to help businesses streamline their international growth strategy and easily manage tax compliance, all while remaining in control of their cash flow and customer experience.

In this article, we’ll delve into the details of Seller of Record and highlight how it empowers brands to navigate global commerce with confidence.

Understanding Seller of Record in Ecommerce

Seller of Record stands out as a smarter compliance solution for ecommerce expansion, offering a more flexible and strategic approach to the original Merchant of Record framework. The SOR model enables brands to outsource the complexities of international taxes, such as the collection, reconciliation, and remittance of indirect taxes, to a third-party expert without sacrificing control over their cash flow, store experience, and customer data. 

SOR Definition:

A Seller of Record (SOR) is the entity that legally owns products at the time of purchase, assuming responsibility for indirect tax compliance. Through a subsale transaction, ownership transitions from the merchant to the SOR at the point of sale, ultimately transferring to the consumer. This positions the SOR as the owner and seller of the products and the party accountable for tax obligations.

Seller of Record vs. Merchant of Record:

Unlike a Merchant of Record, Seller of Record uniquely positions itself by not interfering in financial transactions with customers but focuses solely on ensuring tax requirements are met. This key distinction allows brands the freedom to select their preferred payment platform, ensuring merchants receive funds directly. [Learn more about the differences between SOR vs. MOR]

Using an SOR provides brands with the perfect balance of adaptability and regulatory compliance. This combination facilitates smoother sales in international markets, making it an attractive option for brands looking to expand their global presence without compromising control.

Benefits of a Seller of Record:

  • Direct Access to Sales Funds – SOR allows brands to directly receive payments from customers, facilitating immediate access to revenue without intermediary delays. This setup ensures quicker cash flow, crucial for maintaining and scaling operations.
  • Control Over Pricing Strategy – With the SOR model, brands retain the ability to set their own pricing strategies and profit margins. This autonomy aids in accurately forecasting revenue and managing international costs, enhancing financial planning and profit optimization without external constraints.
  • Streamlined Tax Compliance – SOR simplifies the complex landscape of international tax compliance by managing tax registration, collection, reporting, and remittance in accordance with local laws. This alleviates the regulatory burden on brands, allowing them to focus on growth without the hassle of extensive tax management tasks.
  • Optimized Tax Payment – The SOR structure applies taxes based on sales thresholds specific to each country, ensuring taxes are only paid when necessary. This approach allows brands to benefit from threshold exemptions, optimizing tax payments in line with actual sales volumes.
  • Market Flexibility – By using the SOR model selectively in key markets where it’s required, brands can strategically tailor their international expansion strategies. This targeted approach streamlines market entry and customs processes in essential regions, enhancing the efficiency of global growth.
  • Ownership of Customer Experience & Data – Merchants operating under the SOR model maintain complete control over their consumer data and online store. This enables brands to tailor the customer journey, implement timely changes, and improve satisfaction without interference, ensuring a seamless and transparent buyer experience.

International Tax Compliance Requirements

When expanding into global markets, grasping tax registration requirements is essential. Various countries set sales thresholds, known as distance selling thresholds, for products sold by non-resident businesses. Exceeding these limits triggers the need for your brand to register for local taxes such as value-added tax (VAT). This includes applying proper tax charges to transactions within that country and adhering to local regulations for reporting and submitting these taxes to the appropriate authorities.

Countries Requiring Tax Registration for Ecommerce:

  • Australia (AU) – GST registration is required when a merchant imports over $75,000 AUD (~$48k USD) within a 12-month period to Australia.
  • European Union (EU) – 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) – SST registration is required when a merchant imports over RM500,000 (~$107k USD) of low-value goods within a 12-month period to Malaysia. Low-value goods are orders under RM500 (~$107 USD).
  • New Zealand (NZ) – GST registration is required when a merchant imports over $60,000 NZD (~$36k USD) within a 12-month period to New Zealand.
  • Norway (NO) – All Norway imports are subject to VAT. VAT registration is required when a merchant imports over NOK 50,000 (~$4.6k USD) of low-value goods within a 12-month period to Norway. Low-value goods 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.
  • Singapore (SG) – GST registration is required when a merchant imports over $100,000 SGD (~$73k USD) of low-value goods within a 12-month period to Singapore and sells more than $1M SGD globally. Low-value goods are orders under $400 SGD (~$290 USD).
  • Switzerland (CH) – VAT registration is required when a merchant imports over $100,000 CHF (~$110k USD) of low-value goods within a 12-month period to Switzerland. Low-value goods are orders with VAT under $5 CHF. 
  • United Kingdom (UK) – 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.

By leveraging a Seller of Record solution, businesses can navigate these complex international tax regulations with ease. Additionally, unlike a Merchant of Record model, which requires immediate tax payment due to ownership of all client sales, the SOR strategy allows for taxes to be paid only after surpassing country-specific thresholds. This means brands can expand into new regions without the immediate burden of tax obligations in every market.

Example of a Seller of Record Partnership

To demonstrate a Seller of Record partnership in action, let’s detail the experience of a US-based supplement brand as it ventures into Australia, choosing to collaborate with an SOR over an MOR. In this market, non-resident businesses are only required to start collecting GST once their sales in Australia exceed $75,000 AUD within a 12-month period. This means imports valued under the tax de minimis of $1,000 AUD are not subject to the 10% GST until the threshold is surpassed.

By partnering with a Seller of Record, the supplement brand can initially benefit from Australia’s generous de minimis rule, leading to significant savings since their typical order values fall within this exemption. Once they cross the sales threshold, taxes are efficiently collected at checkout, with the SOR handling all the necessary tax compliance responsibilities. This solution alleviates the brand from the burden of GST registration and remittance, as these tasks are fully managed by the SOR. Additionally, with direct payment processing, the brand enjoys the advantage of directly receiving sales revenue, all while retaining complete control over its customer data and store experience.

On the other hand, by opting for a Merchant of Record, the same supplement brand is required to immediately collect the 10% GST on Australian transactions since MORs surpass the tax registration threshold with their clients’ collective sales volume. This choice also introduces a delay in accessibility to funds, as the MOR manages payment processing. Revenue from customers is disbursed to the brand weeks or months later after necessary deductions are made. Moreover, the brand loses control over its store and data, as the MOR handles these components.

This example clearly illustrates how utilizing a Seller of Record vs. Merchant of Record empowers brands to navigate international markets more efficiently while still ensuring compliance with tax regulations.

Seller of Record Solution for Global Brands

Here at Passport, we understand the challenges that come with selling products globally. That’s why we created Seller of Record, a solution designed to give businesses a simpler way to handle international tax compliance with a quick and seamless enrollment process. This service allows you to skip the middleman, speed up clearance, and stay in control of your store and cash flow.

How the Passport Seller of Record Program Works:

  1. Enrollment – Your brand enrolls in Passport’s SOR program once it surpasses a market’s specific sales threshold. Passport even provides threshold monitoring to alert you when nearing the registration requirement.
  2. Customer Purchase – When a customer makes a purchase on your website, your brand collects payments for the products along with any duties, taxes, and shipping fees at checkout. Passport offers landed-cost solutions to ensure accurate duty and tax calculations are displayed real-time in cart.
  3. Official Seller Designation – Passport purchases the items from your brand through a “flash sale” or subsale, becoming the legal seller. 
  4. Customs Clearance – Passport’s tax ID is utilized for clearing shipments through customs in the consumer’s destination country. 
  5. Tax Management – Passport manages the filing of tax returns with the appropriate authorities and engages with local tax offices to handle any inquiries or resolve issues.
  6. Invoicing – Passport invoices your brand for taxes paid, plus a nominal program fee.

To further support international growth, Passport Global offers brands a streamlined solution for compliance and cross-border shipping. This comprehensive bundle pairs Passport Shipping with additional localization options and growth advisory, as well as a full suite of compliance services – including Seller of Record – for complete end-to-end support. Our strategy integrates expert advice with tech-driven tools to ensure your products reach customers around the world. With Passport Global, navigating the complexities of global trade becomes seamless, allowing you to focus on growing your business.

Schedule a call with our team today to see how Passport can accelerate your international success.

Frequently Asked Questions:

What is the definition of a Seller of Record in ecommerce?

A Seller of Record is an entity that legally owns products at the time of purchase and assumes responsibility for complying with indirect tax regulations. It facilitates international expansion for ecommerce brands by handling tax collection, reconciliation, and remittance on their behalf, allowing businesses to maintain control over cash flow and customer experience.

What is an example of a Seller of Record in an ecommerce transaction?

An example of a Seller of Record (SOR) in an ecommerce transaction is when a company sells products globally through its website and utilizes a specialized partner to handle tax compliance. This SOR partner is responsible for collecting, reporting, and remitting the necessary taxes for international sales, allowing the brand to receive customer payments directly. Unlike in the Merchant of Record (MOR) model, the business maintains control over payment processes while the SOR ensures tax regulations are met across different markets.

What are the responsibilities of a Seller of Record?

The responsibilities of a Seller of Record (SOR) include managing and ensuring compliance with international tax laws for ecommerce transactions. This involves reporting these taxes to the appropriate authorities and remitting the collected charges. The SOR also provides support for tax-related inquiries and resolves any issues, making the global sales process smoother.

What benefits does a Seller of Record offer?

A Seller of Record provides direct access to sales funds, allowing brands to receive payments from customers, which is crucial for maintaining and scaling operations. It also gives merchants control over pricing strategies and ensures compliance with international regulations without the need to register or remit taxes themselves. Additionally, it enables businesses to maintain ownership of their buyer data and store experience.

How does a Seller of Record differ from a Merchant of Record?

Unlike a Merchant of Record, which gets involved in customer financial transactions and handles tax obligations as part of its service, a Seller of Record does not partake in financial transactions with customers. This distinction allows brands to choose their preferred payment platforms and receive funds directly, offering more flexibility and control over business operations.

What is Passport’s Seller of Record (SOR) program?

Passport Seller of Record™ (SOR) is a solution designed to give brands an easier way to handle VAT/GST compliance with a quick and seamless enrollment process. Under the SOR program, companies will use Passport’s tax IDs to clear shipments, avoiding complex registrations and filings. As a merchant, you’ll simply collect VAT/GST at checkout, and Passport will manage the rest, including tax returns with the proper authorities and even monitoring sales thresholds that apply to certain countries.

What markets does Passport offer a Seller of Record program for?

Passport currently offers SOR solutions in the following markets: