An overview on taxation for companies with online sales.
Last Published: 10/20/2016

Taxation is as relevant to online merchants as to brick-and-mortar businesses. In general, for most overseas markets, a company must have a permanent establishment in a foreign country before that country can subject the company to its general tax jurisdiction. Thus, an American online vendor of digitally or physically delivered goods that does not have equipment or personnel in Japan would not be subject to Japanese taxation. However, there are important exceptions to this general rule. On July 1, 2003, the European Union (EU) member states began taxing sales of electronically supplied goods and services from non-EU companies to customers located in the European Union. Non- EU providers of electronic goods and services are now required to register with a tax authority in the member state of their choosing and to collect and remit value-added tax (VAT) at the VAT rate of the member state in which their customer is located. Although the EU countries have been the first to move toward a system of taxing electronic sales according to customer location (regardless of where the vendor is established), other countries may soon follow suit. Therefore, if your company exports online, you must know about the tax requirements of your target market.  More information can be found at the SBA https://www.sba.gov/managing-business/running-business/sales/international-online-sales

Tax collection can seem daunting, but remember that your e-commerce provider and the U.S. Commercial Service may know about tools and assistance to help streamline collection and disbursement.


Other Important Sales Considerations
Establishing an international website calls for the consideration of a number of additional factors, particularly as they relate to foreign legal and regulatory requirements.

Privacy
U.S. organizations that collect personally identifiable information online should display their privacy policies prominently and offer their data subjects (e.g., customers, employees, and other business contacts) options regarding the use of their personal information. Customers should have the opportunity to refuse having their personal information shared with others or used for promotional purposes. Many countries have privacy laws, and organizations should take care to comply or they may face prosecution. For example, the European Union prohibits the transfer of personal data to non-EU nations that do not meet the EU “adequacy” standard for privacy protection. The U.S. Department of Commerce, in consultation with the European Commission and the private sector, has developed a safe-harbor framework that provides U.S. organizations with a streamlined means to comply with the EU requirements. Companies may self-certify to the safe harbor at http://2016.export.gov/safeHarbor/

Security
Consumers often cite security concerns as a reason for not placing orders over the Internet. Compared with other forms of consumer purchasing, the Internet is safe—as long as the online merchant takes prudent business precautions. If your company operates a transactional website as part of its exporting business, you should post a security statement to reassure customers.

Electronic Signatures
In legal terms, an online sale is an enforceable contract, a valid and binding agreement. However, in some overseas markets, a contract is enforceable only if it is signed “in writing.” Such jurisdictions do not recognize electronic signatures and, in the event of a dispute, would not enforce an agreement made by e-mail or through a website. Although many countries have modified their laws to recognize electronic signatures, online exporters should check to be sure their target markets accept electronic signatures. If they do, the next step is to determine which, if any, signatures are restricted and which technologies are legally valid.

Unsolicited Commercial E-mail
Unsolicited commercial e-mail (UCE), also known as unsolicited bulk e-mails (UBE) or spam, is relevant to international e-commerce because its use is controversial. Many businesses see UCE as a quick and cheap way to promote goods and services to a broad range of potential customers. However, UCE costs individuals and businesses significant amounts of time, money, equipment, and productivity. Many domestic and international jurisdictions have laws about UCE, and violation may result in penalties. In addition, many e-mail service providers, such as America Online and Yahoo!, have
rules of conduct that forbid using their service to send UCE. For more guidance on UCE, please visit https://thedma.org/marketing-education/marketing-courses/email-marketing

Advertising Content
Most countries have laws about advertising content, which may be applied to websites, banner ads, and marketing e-mails sent from the United States. Online exporters should research the advertising laws of their target market before initiating a marketing campaign. If you are an exporter of heavily regulated products and services, such as pharmaceuticals or insurance, you may anticipate disclosure requirements and limitations on
claims. Companies should avoid: 

  • Use of comparative advertising (i.e., comparing your company’s goods or services with those of a competitor)

  • Use of advertising aimed at children

  • Use of images or sounds that may be considered intellectual property and may require the permission of the artist

  • Use of lotteries, competitions, contests, games, and betting as part of a promotional offer


The International Chamber of Commerce has guidelines on advertising and marketing on the Internet that are available at http://www.iccwbo.org/advocacy-codes-and-rules/areas-of-work/marketing-and-advertising/

Jurisdiction
Online exporters must be aware that they are doing business in a foreign jurisdiction, which means the laws and regulations of the target market apply to the goods and services being sold. For example, an online exporter of medical equipment should ensure that the equipment has been approved for use in the foreign market. Companies should also be aware that the transaction itself may be under the jurisdiction of the foreign market. In other words, the foreign market’s laws regarding contracts may apply.

Good Faith
Dealing in good faith is perhaps more important for online businesses than for brick-and-mortar operations because customers rely heavily on reputation. Moreover, it is illegal in most countries to behave otherwise. If you engage in online business, your company must:

  • Use fair business, advertising, and marketing practices

  • Provide accurate, clear, and easily accessible information about the company and its goods and services

  • Disclose full information about the terms, conditions, and costs of the transaction

  • Ensure that consumers know they are making a commitment before closing the deal

  • Address consumer complaints and difficulties quickly and fairly


For more guidance on online good-faith commerce, see the Federal Trade Commission’s guide for business at https://www.ftc.gov/tips-advice/business-center/guidance/advertising-faqs-guide-small-business

eCommerce Marketplaces
You can, of course, sell exclusively through third-party e-commerce platforms, such as eBay, Amazon, Alibaba, and others. You can use their payment systems and shipping and logistics services. Third-party platforms all provide web-based tools to help you manage sales and costs. Or, you can experiment with a combination of channels: multiple distributors, your own e-commerce site, and third-party e-commerce sites. Over time, the sales figures will help you determine which options provide the best benefit for your company.




eCommerce Industry Taxes