If you own a business, or you’re a director one, then it’s your legal responsibility to make sure your business is paying the right amount of tax, not just in your home country but sometimes also overseas.
For E-commerce businesses and online sellers, trade can be virtually borderless and the chances are that you have customers and suppliers all over the world. So you could be shipping products or supplying your services more than just one country.
If you are growing fast, then it can be hard to keep up with all the red tape from just one tax office, let alone if you suddenly have to deal with 20 tax offices!
Now you might think that you can just hand all your accounting and tax worries over to your accountant. And yes you should be able to do that.
But, first here’s something you need to know about accountants before you do that.
We accountants spend years and years of our early lives in lectures swallowing text book after text book and studying into the night for loads of exams. And then we train for years working with other accountants. But at the end of all that, we start our careers as fairly general practitioners with a broad knowledge of all the main finance and tax issues in our home countries (or our home state if you happen to be in the USA!)
Some accountants then go on to specialise in a specific industry or technicality, but a great many remain in general practice with a pretty broad or localised client base. And for most local businesses that works very well.
But here at Rocket Accounts we specialise in businesses which sell online, and often trade across international lines. And because of this we’ve built up specialist knowledge and experience of managing taxes in online and international businesses which more generalist accountants do not get exposed to.
So, here I am going to share with you our tax basics for online sellers, and at the end if you like you can ask us for our diagnostic tax test to highlight any areas of concern or opportunities to lower your tax.
1. Employee Taxes
It’s pretty much a given that if you are employing people you have employee taxes to pay. If you’re reading this in the UK then you will no doubt be familiar with PAYE and National Insurance. And every country has their own version of this.
These days it is pretty easy to outsource your payroll to your accountant and deal with all of this online and we do recommend you outsource it to an accountant who works with the same accounting software that you use e.g. a QuickBooks or Xero partner and one who knows the local tax laws. And be sure to check with your accountant before going ahead and employing someone overseas.
2. Corporation Tax
If you have a Limited Company then you need to do a corporation tax return once a year. Again each country has their own version of this and you generally need someone with expertise in that country’s business taxes to make sure you are filling it in correctly and on time and making best use of any deductions you can take.
For example you want to make sure that you are thinking about useful savings like Research and Development Tax Credits which can really help reduce your tax bill.
But if you are expanding overseas, then it really is worth speaking to an accountant with international experience first to make sure that they can advise you when it comes to issues that may trigger local taxes overseas and how to manage or avoid them… don’t just forge ahead and open that overseas store or factory without getting some tax advice first! It’s a false economy to skimp on getting the right advice.
3. Sales Taxes (or VAT!)
This is a big issue for fast growing E-commerce businesses and online traders and it’s not uncommon for new businesses who have grown quickly and found themselves shipping all over the world to then find that they have fallen foul of local laws in lots of different countries.
For example if you are shipping goods to Europe in the tens or hundreds of thousands, then you may well have sales tax liabilities in multiple countries.
And you might even be charging your customers the wrong tax rate if you are still using 20% UK Vat for a country that has say 23% Vat. And if you have to then retrospectively pay 23% instead of 20% then that’s a hit to your margins, so it pays to be on the front foot with sales taxes.
Most EU countries have a €100k threshold but some have lower limits. And not every country charges the same rate of VAT on the same categories of goods and services!
And if you are selling via Amazon FBA and storing your goods in their warehouses, this can create a tax presence for you in another country even if you don’t have staff or a company set up there!
By now you might be thinking that it’s nigh on impossible to manage dozens of taxes in multiple countries. But thankfully you can get some great software to do the legwork, and an accountant who is familiar with businesses trading internationally and online can help you make sure that you are on top of all the tax registrations and filings and taxes you need to pay.
And finally, a word of caution: tax, and sales tax in particular, is not something to ignore and fall behind on, as sorting it out later will only cost you more and cause you more stress.
But, fear not, most tax issues are black and white issues, and so it’s usually possible to fix honest mistakes and get the right systems and processes in place to keep on top of it all.
At Rocket Accounts, we are used to working with fast-growing e-commerce businesses and international Amazon or FBA sellers. With our e-commerce accounting experience and our focused network of experts with localised in country knowledge we can help you simplify all your tax headaches and make your tax easy and stress-free!