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VAT taxes and international commerce – What you need to know


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Growing your business sometimes means taking it across international borders. This is an exciting step for your business, but one that is accompanied by a few challenges. One of these challenges can be figuring out all the rules and regulations related to selling abroad. The most important one to note is handling the Value Added Taxes (VAT) that over 160 countries require to be collected and submitted.

What are VAT taxes vs. US-based taxes?

In the US, sales taxes are only charged to the end consumer. The rest of the supply chain is exempt from collecting and paying these taxes. Throughout the rest of the world, taxes are collected at each point in the supply chain. Each organization will pay taxes on their purchases and collect taxes on their sales. They get a credit for the taxes paid against the taxes collected, only remitting the difference. For the same tax rate (10%), taxes under both methods will end up the same, but the process can be very different.

How do you know if you should be collecting and paying VAT taxes?

It is a bit complicated and based on many factors, including:

  • Where you have Nexis (sufficient presence to require the collection of taxes)

  • Where your customers are located

  • What type of customer, consumer, or business will be using the product

  • What you are selling

  • How you are delivering your product or service

  • The amount of your sales

Each country will have different rules and regulations on who needs to collect and pay, so you will need to do a bit of research. Tax consultants can help!

A simple solution for VAT taxes

The process of calculating VAT and sales taxes can be daunting without an accounting system that can handle both kinds of tax. Gravity Software® (Gravity) can help. Gravity’s cloud-based accounting software is written on the Microsoft Power Platform (aka Dynamics 365), a proven platform that hosts over four million users worldwide. Schedule your online demo of Gravity to automate your VAT calculations!

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