When selling products internationally, US-based ecommerce brands must understand how value-added tax (VAT) applies to cross-border transactions. VAT is a consumption tax paid by the end customer, but in most cases, businesses are responsible for collecting, reporting, and remitting it to local tax authorities.
In many markets, this also means determining when VAT registration is required, based on country-specific VAT registration thresholds and sales activity.
Once a business crosses a VAT threshold, it may be required to register for VAT and begin ongoing VAT compliance, including tax collection and filing.
VAT rules vary by country and often depend on factors like product value, customer location, and local regulations. Failing to meet value-added tax registration requirements can lead to delays, penalties, or poor customer experience at delivery.
In this guide, we’ll explain how VAT works in ecommerce, outline key rules for major markets, and share strategies to simplify international tax compliance.
Understanding VAT in International Ecommerce
In the context of international e-commerce, value-added tax (VAT) is a tax levied by certain countries on the final consumption of goods and services. Although it’s ultimately paid by end customers, businesses typically collect VAT at the point of sale and then remit the collected amounts to the governing authority in the consumer’s destination country.
Company VAT Registration & Payment Obligations
Knowing your tax responsibilities as a US-based company is crucial when engaging in cross-border transactions, as this significantly affects the landed cost of your products. Value-added taxes can be assessed any time you sell to consumers abroad – no matter where your business is located – and every country has its own unique VAT e-commerce guidelines. This includes varying tax rates, de minimis exemptions, and distance selling thresholds that require registration once exceeded.
Therefore, it’s important for brands to familiarize themselves with the VAT rules in each market they serve to properly understand payment obligations. Upon registering for VAT, merchants must often start collecting this tax at the point of sale and subsequently filing returns with the relevant tax authority.
Failing to meet VAT registration and compliance obligations can result in delays, penalties, or poor customer experience at delivery.
Below are examples of VAT e-commerce rules in key global markets:
European Union (EU)
- The EU mandates VAT on all imported products, with standard rates across member states ranging from 17% to 27% (averaging around 21%).
For orders up to €150, the EU provides a streamlined clearance program called IOSS, where merchants collect VAT at checkout and remit it monthly. For shipments valued over €150, VAT is settled during customs clearance.
United Kingdom (UK)
The UK requires VAT payment on all imported goods, applying a standard rate of 20%. For orders up to £135, merchants must register for VAT, collect the tax at checkout, and remit it quarterly. For shipments valued over £135, VAT is settled during customs clearance.
Norway (NO)
In Norway, all imports are subject to a standard VAT rate of 25%. Merchants must register for VAT if they import over 50,000 NOK of low-value goods (items below 3,000 NOK) within a 12-month period. For these low-value products, Norway offers a simplified tax registration program known as VOEC, where merchants are required to collect VAT at checkout and remit it quarterly. For goods valued above 3,000 NOK, or for those not enrolled in VOEC, VAT is settled during customs clearance.
Compliance Solutions for VAT E-Commerce Requirements
Managing VAT registration and ongoing VAT compliance across multiple countries can be complex for US ecommerce brands selling internationally. Passport® helps simplify this process by providing solutions designed to reduce the burden of global tax requirements.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.
Passport Seller of Record® (SOR) offers an easier way to handle value-added tax registration and compliance without requiring brands to manage registrations and filings in each market. Through the SOR model, businesses use Passport’s tax IDs to clear shipments, helping avoid the need to independently register for VAT in multiple countries.
As a merchant, you continue to collect VAT at checkout while Passport manages the rest — including tax filings, remittance to local authorities, and monitoring VAT registration thresholds to ensure ongoing compliance.
Passport currently provides Seller of Record solutions in the following markets:
- 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 exploring ways to simplify VAT compliance or need help determining when to register for VAT, reach out to our team to learn more about the Seller of Record® (SOR) solution. Reach out to us here.
Authored by Thomas Taggart
Head of Global Trade | Passport
Thomas Taggart is a cross-border commerce leader with more than 20 years of experience in international shipping and regulatory affairs. As the Head of Global Trade, Thomas helps ecommerce brands go global by simplifying international trade, tax, and product compliance issues. Prior to Passport, he brought international shipping solutions to market through multiple roles in UPS’s product development organization.
Frequently Asked Questions
What is VAT in e-commerce?
VAT registration is the process of officially registering your business with a country’s tax authority so you can collect, report, and remit value-added tax (VAT) on sales.
How does VAT work for ecommerce?
For orders shipped under DDP billing terms, VAT is typically paid at the time of customs clearance. However, in some countries, e-commerce merchants are required to register for a tax ID and manage VAT payments separately from the import process.
Who pays VAT?
While VAT is ultimately paid by end customers, businesses may need to collect and remit VAT depending on the tax regulations set in the consumer’s destination country.
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.
Do US companies have to pay VAT?
While VAT is ultimately paid by end customers, US companies may need to collect and remit VAT depending on the tax regulations set in the consumer’s destination country.
Is VAT the same as GST?
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 come from the unique regulations each market imposes, including factors like tax rates, items that are tax-exempt, and registration requirements.
