VAT vs. GST comes down to geography more than mechanics: VAT (Value-Added Tax) is the term used across the EU, UK, and Norway, while GST (Goods and Services Tax) is the term used in Australia, New Zealand, Singapore, and Canada — but both work the same way. For international ecommerce, either tax may be collected at checkout, at customs, or both, depending on shipment value, customer location, and whether the seller has crossed a local registration threshold.
Selling internationally means navigating more than shipping rates and customs paperwork. Ecommerce merchants must also understand the consumption taxes that apply when products are sold to customers in another country.
Understanding these rules is essential for avoiding compliance problems, customs delays, surprise delivery charges, and a poor customer experience.
Key Takeaways
- VAT and GST are consumption taxes charged on goods and services in markets around the world.
- Despite their different names, VAT and GST generally follow the same basic credit-invoice model.
- VAT or GST may be collected at checkout, at import, or through a combination of both processes.
- A tax registration threshold is different from a customs de minimis threshold.
- Selling through a marketplace may shift the tax collection obligation from the merchant to the platform.
- Collecting applicable taxes and duties upfront can create a more predictable customer experience than requiring payment at delivery.
- Tax rates, thresholds, exemptions, and filing obligations vary significantly by country
What Is VAT?
Value-Added Tax is an indirect consumption tax applied to goods and services. It is used throughout the European Union, the United Kingdom, Norway, Switzerland, and many other global markets.
VAT is generally charged at multiple points in the supply chain. Each participating business collects VAT on its taxable sales and may deduct eligible VAT paid on its business purchases.
Consider a simplified example:
- A manufacturer sells a product to a distributor and charges VAT.
- The distributor sells the product to a retailer and charges VAT on the new sale price.
- The retailer sells the product to the final customer and charges VAT again.
- Each registered business generally deducts eligible VAT it previously paid and remits the difference to the tax authority.
The final consumer ultimately bears the economic cost because consumers normally cannot reclaim VAT.
For ecommerce merchants, VAT can arise in two distinct contexts:
- Import VAT, assessed when products enter a country
- Sales or supply VAT, collected by the seller or marketplace when the product is sold
Depending on the destination, shipment value, fulfillment model, and seller’s registration status, VAT may be collected at checkout instead of at the border.
What Is GST?
Goods and Services Tax is also an indirect consumption tax applied to taxable goods and services. Countries including Australia, New Zealand, Singapore, and Canada use the term GST.
GST is sometimes described as fundamentally different from VAT, but that distinction can be misleading. In most GST systems, businesses charge GST on taxable sales and claim credits for eligible GST paid on business inputs, much like businesses operating under a VAT system.
The main difference is usually terminology and local administration—not the basic economic structure of the tax.
Different GST markets may still have very different rules.
For example:
- Australia applies GST to qualifying low-value imported goods sold to consumers.
- New Zealand requires certain overseas sellers to collect GST after exceeding a local sales threshold.
- Singapore uses an Overseas Vendor Registration regime for qualifying low-value goods and remote services.
- Canada combines federal GST with provincial sales taxes or Harmonized Sales Tax, depending on the customer’s location.
Merchants should therefore avoid treating “GST markets” as a single compliance category.
VAT vs. GST: Where They Actually Differ
What actually changes your compliance work is how each region administers the tax:
For ecommerce businesses selling internationally, VAT and GST compliance involves much more than understanding local terminology. Merchants must determine whether a sale is taxable, whether VAT or GST registration is required, which party is responsible for collecting the tax, what rate applies, when the tax must be charged at checkout, and how it should be reported and remitted to the relevant tax authority.
For a broader overview, merchants can review Passport’s guide to international ecommerce taxes for U.S. merchants.
VAT and GST are generally collected throughout the supply chain. Registered businesses charge tax on their sales and may claim credits for eligible tax paid on purchases.
For cross-border ecommerce, VAT and GST obligations can also arise without a traditional physical presence. Some countries require foreign merchants to register after exceeding a sales threshold or when selling certain low-value goods directly to local consumers.
This means a U.S. merchant may have no office, employees, or warehouse in a country and still become responsible for collecting and remitting that country’s VAT or GST.
When Do VAT and GST Apply to International Orders?
VAT or GST may apply at several points in an international transaction.
At checkout
Some countries require foreign sellers or online marketplaces to collect VAT or GST when the customer places the order.
Some countries require foreign sellers or online marketplaces to collect VAT or GST when the customer places the order.
This is common under low-value goods regimes, including:
- EU IOSS: consignments up to €150
- UK: qualifying consignments valued at £135 or less
- Australia: low-value imported goods up to A$1,000
- New Zealand: low-value imported goods up to NZ$1,000
- Norway VOEC: goods below NOK 3,000 per item
- Singapore OVR: low-value goods valued at S$400 or less
During customs clearance
When tax is not collected at checkout, import VAT or GST may be assessed when the shipment enters the destination country.
Depending on the shipping model, the amount may be paid by:
- The merchant
- The importer of record
- A customs broker acting on behalf of the importer
- The carrier
- The customer at or before delivery
After the sale through a tax return
A merchant registered for VAT or GST may need to report taxable sales and remit the collected tax through monthly, quarterly, or other periodic returns. For example, a US merchant shipping to Canada as a non-resident importer pays the 5% GST on import and the balance of taxes owed through domestic tax returns.
The filing schedule, currency, documentation requirements, and available deductions vary by jurisdiction.
Import VAT/GST vs. Sales VAT/GST
One of the most important distinctions for merchants is the difference between tax charged at import and tax charged on the underlying sale.
Import VAT or GST
Import VAT or GST is assessed because goods are entering a market. It is usually calculated during customs clearance. The taxable base may include the customs value of the merchandise, freight, insurance, customs duties, and other import charges.
Sales VAT or GST
Sales VAT or GST is charged because a taxable sale has been made to a customer in the destination country.
For low-value e-commerce transactions, some countries move tax collection away from the border and require the seller or marketplace to collect it at checkout.
Avoiding double taxation
When tax is collected at checkout, the seller must transmit the correct registration number and shipment data through the carrier and customs process.
For example, an IOSS or VOEC shipment that is not electronically identified correctly may be assessed tax again at import. In other words, if a merchant does not include the IOSS number in the electronic shipment data, then tax may be collected again at import. That creates a double-charge situation and a poor customer experience.
Accurate data exchange among the merchant, e-commerce platform, logistics provider, marketplace, and customs authority is therefore a core part of VAT and GST compliance.
Tax De Minimis Thresholds vs. Registration Thresholds
Merchants frequently confuse two very different types of thresholds.
What is a de minimis threshold?
A customs or tax de minimis threshold is a shipment-value limit used to determine whether an imported order qualifies for simplified treatment or an exemption from particular duties or taxes.
A country may have a separate duty threshold, tax threshold, and postal-vs-courier threshold — and falling below the duty threshold doesn’t automatically mean the shipment is VAT/GST-exempt.
For example, the EU removed its €22 import VAT exemption in 2021, making imported commercial goods subject to VAT regardless of value. As of July 1, 2026, the EU also abolished the €150 customs duty exemption and introduced a temporary €3 customs duty for qualifying low-value distance sales under the applicable rules.
Read more in our De Minimis Tariff Exemption Explained: What Ecommerce Brands Need to Know
What is a registration threshold?
A registration threshold is typically based on the merchant’s taxable sales or turnover over a defined period.
Once a seller exceeds the threshold, it may be required to:
- Register for VAT or GST
- Collect the appropriate tax
- Issue compliant transaction records
- File periodic returns
- Remit the tax collected
- Maintain supporting records
Registration thresholds may be based on:
- Sales into one country
- Worldwide turnover
- Local taxable turnover
- A rolling 12-month period
- The current or projected tax year
Some markets have no meaningful registration threshold for certain foreign sellers or transaction types.
Passport’s guide to distance selling thresholds and VAT registration explains how these obligations differ across major e-commerce markets.
Who Is Responsible for Collecting VAT or GST?
Responsibility may fall on different parties depending on the transaction.
The merchant
The merchant may be responsible when it sells directly to the customer, exceeds a registration threshold, holds local inventory, or participates in a low-value goods collection regime.
The online marketplace
Many countries apply “deemed supplier” or marketplace-facilitator rules.
When these rules apply, a marketplace may be responsible for:
- Calculating the tax
- Collecting it from the customer
- Reporting the transaction
- Remitting the tax
- Providing tax-related data to the underlying merchant
Merchants should not assume that every marketplace collects every tax. Responsibility can depend on the value of the goods, their location at the time of sale, the customer type, and the marketplace’s role in the transaction.
The importer of record
For taxes assessed at import, the importer of record is generally responsible for the accuracy of the customs declaration and the payment of import duties and taxes. This reduces the seller’s upfront burden but increases the risk of refused parcels and abandoned purchases.
Identifying the importer of record is essential because it can affect customs liability, tax recovery rights, documentation, and the customer’s delivery experience.
The customer
Under a Delivered Duty Unpaid arrangement, the customer may be required to pay VAT, GST, customs duties, and carrier fees before receiving the shipment.
Although this can reduce the seller’s immediate import-payment responsibility, it creates a greater risk of delivery surprises, refused parcels, support inquiries, and abandoned international purchases.
How Are Import VAT and GST Calculated?
Import VAT or GST is not always calculated using only the product’s retail price. In fact, most countries follow a “CIF” model: cost, insurance, freight.
A common calculation is:
Import VAT or GST = Applicable tax rate × Taxable import base
Depending on the destination country, the taxable import base may include:
- Customs value of the merchandise
- International freight
- Insurance
- Customs duties
- Excise taxes
- Other customs charges
Example
Assume an order has:
- Product customs value: $100
- Shipping and insurance: $20
- Customs duty: $8
- VAT rate: 20%
If all three amounts form part of the VAT base:
Taxable base = $100 + $20 + $8 = $128
VAT = $128 × 20% = $25.60
The total border cost may therefore include both the $8 duty and $25.60 VAT, plus any carrier or customs-processing fees.
The exact formula varies by jurisdiction. Merchants should use destination-specific calculation logic rather than applying one universal landed-cost formula.
What about Customs Duties?
VAT and GST are taxes on consumption. Customs duties are tariffs imposed on imported products. Passport’s guide to import customs duties and taxes explains how classification, origin, customs value, duties, and consumption taxes interact.
How VAT and GST Affect Ecommerce Pricing
VAT and GST should be incorporated into market-entry and pricing strategy before a merchant launches in a new country.
Tax-inclusive vs. tax-exclusive pricing
Many international consumers expect displayed prices to include VAT or GST. In some markets, consumer-protection or price-display laws require tax-inclusive pricing.
A U.S. merchant accustomed to adding sales tax at checkout may need to adjust its storefront so the displayed international price already includes tax.
For example, if a product’s tax-inclusive selling price is €120 and the VAT rate is 20%:
VAT portion = €120 × 20 ÷ 120 = €20
Net revenue before VAT = €100
The merchant should not assume that a €120 international selling price produces €120 in merchandise revenue.
Margin planning
Before setting local prices, model VAT/GST, customs duties, freight, insurance, brokerage, carrier advancement fees, currency-conversion costs, returns, filing costs, marketplace commissions, and compliance-provider fees. A product that looks profitable at the US retail price may carry a much thinner margin once these are added.
A product that appears profitable based only on the U.S. retail price may produce a significantly smaller margin after international taxes and logistics costs are included.
What Happens to VAT and GST on Returns and Refunds?
When an international customer returns a product, the merchant may need to address two separate amounts:
- VAT or GST collected on the sale
- Duties and import taxes paid during customs clearance
Refunding checkout tax
If VAT or GST was collected at checkout, the merchant or marketplace may need to adjust the original taxable sale and reduce the amount reported on a future return.
The process may require:
- A credit note
- A refund record tied to the original transaction
- Evidence that the sale was canceled or returned
- Adjustments in the merchant’s tax filing system
Recovering import duties and taxes
Customs duties and import taxes are not automatically refunded when the customer sends the product back.
Recovery may depend on:
- Whether the goods physically leave the country
- Who acted as importer of record
- Whether the original entry can be identified
- Whether export evidence is available
- Whether the return occurred within the permitted period
- Whether the value and product data can be matched
- Whether the market allows the relevant refund or drawback procedure
Merchants should design their return process around recovery requirements rather than attempting to reconstruct documentation after the fact.
Passport’s guide to recovering duties and taxes on international returns explains the documentation and data matching these claims generally require.
Common VAT and GST Mistakes
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Treating VAT and GST as customs duties
VAT and GST are consumption taxes. Duties are tariffs based on customs classification, origin, and value. An order can be exempt from duty while remaining taxable for VAT or GST.
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Assuming there is no obligation without a physical presence
Foreign-seller and low-value goods rules can create registration and collection obligations even when a merchant has no office or employees in the destination country.
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Confusing the shipment threshold with the registration threshold
A shipment-value threshold determines the treatment of a particular import. A registration threshold is generally based on the merchant’s cumulative sales.
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Applying one tax rate to an entire region
The EU does not have a single VAT rate. Canada’s total consumption tax varies by province. Products may also qualify for standard, reduced, zero, or exempt treatment. For example, books, food, medicines, and medical services may receive different treatment depending on the jurisdiction. In Canada, basic groceries are zero-rated, snack foods are taxable, and many medical services are exempt.
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Failing to identify marketplace responsibility
A marketplace may be responsible for tax on one transaction while the merchant remains responsible for another.
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Collecting tax without transmitting the registration number
When an IOSS, VOEC, or similar identifier is missing from electronic customs data, the customer may be charged tax a second time.
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Undervaluing discounted or promotional goods
Promotions do not automatically permit a zero or nominal customs value. Merchants need a defensible valuation method.
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Assuming DDP solves every tax issue
DDP can improve the delivery experience, but it does not replace VAT registration, reporting, invoicing, or recordkeeping obligations.
How Passport Can Help Manage VAT and GST Compliance
Passport helps ecommerce brands simplify the operational complexity of selling across borders by bringing international tax calculation, landed-cost visibility, customs compliance, and shipping execution into a more connected experience.
With destination-specific duty and tax calculations at checkout, support for DDP delivery, product classification, customs documentation, and market-specific compliance requirements, Passport helps merchants reduce unexpected fees, minimize clearance delays, and give customers a more predictable delivery experience.
Passport can also help brands evaluate their expansion model, understand when local registration or in-country support may be required, and build a scalable international strategy that protects both customer experience and margins.
Ready to simplify VAT, GST, and international expansion? Talk to Passport to learn how your brand can create a more transparent, compliant, and customer-friendly cross-border experience.
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 does VAT stand for?
Value-Added Tax — a consumption tax on goods and services, used in the EU, UK, Norway, Switzerland, and other markets.
What does GST stand for?
Goods and Services Tax — the term used for consumption tax in Australia, New Zealand, Singapore, and Canada.
VAT vs. GST: what’s the actual difference?
The names and country rules differ, but both use the same credit-invoice model: businesses collect tax on sales, claim credit for tax paid on inputs, and the final consumer bears the cost.
Do US companies have to pay VAT or GST?
Potentially yes, even without a physical presence. It depends on local rules, sales volume, shipment value, inventory location, customer type, and marketplace involvement.
Is VAT charged on shipping?
Often. Many countries include freight and insurance in the taxable base — the exact treatment depends on the jurisdiction and whether tax is calculated at sale or at import.
Is VAT calculated before or after customs duty?
Usually after — the taxable base often includes the customs value, freight, insurance, and any duty already assessed. Country-specific rules determine the exact base.
Does IOSS cover customs duties?
No. IOSS is a VAT collection and reporting mechanism only. Following the EU’s July 1, 2026 changes, goods can remain IOSS-eligible while still being assessed the applicable €3 temporary customs duty.
Does DDP mean the merchant is VAT-registered?
Not necessarily. DDP describes how import charges are split between buyer and seller — VAT registration is a separate legal determination.
Can VAT or GST be refunded when an order is returned?
Tax collected at sale can generally be adjusted with a properly documented refund. Import duties and taxes are a separate customs process requiring proof of export and entry-level matching.
Who collects VAT when a product is sold through a marketplace?
Often the marketplace, under deemed-supplier rules — but the merchant may still be responsible for sales that fall outside the marketplace or don’t meet those rules.
What’s the difference between a de minimis threshold and a registration threshold?
De minimis is based on a single shipment’s value and affects customs treatment. Registration threshold is based on cumulative sales over time and triggers tax obligations.
Can an order be duty-exempt but still VAT/GST-taxable?
Yes — duty and tax thresholds are separate. A shipment can fall below the duty threshold and still owe VAT or GST.
How can merchants avoid customers being charged twice?
Transmit the correct IOSS/VOEC registration number and shipment data electronically through the carrier and customs process. Missing data is the most common cause of double charges.