Cross-border e-commerce (E-commerce) has expanded worldwide with Amazon, eBay, Shopify, and Corona Vortex, and is now the focus of attention for all companies. Cross-border e-commerce is often introduced as a good thing, with sales starting within minutes of creating a site and new sales opportunities from markets around the world. On the other hand, local taxes and various other costs are not shared much: local taxes such as VAT are levied and collected by the seller on the local buyer, but even in the case of cross-border e-commerce, there are cases of taxation, collection, and reporting.
Tax accountants, lawyers, and various other domestic professionals do not necessarily have knowledge of overseas tax and legal affairs.
IN THIS COLUMN, OPTI CORPORATION, WHICH HAS EXTENSIVE EXPERIENCE IN THE TAX ASPECTS OF CROSS-BORDER EC, PROVIDES A "CROSS-BORDER EC TAX NAVIGATOR" IN A Q&A FORMAT.
WE HOPE THAT OUR EC TAX NAVIGATOR WILL BE OF HELP TO VARIOUS COMPANIES CONSIDERING CROSS-BORDER EC.
Q, I am currently selling on AmazonUS. I also heard that Amazon Germany and France can earn higher gross margins than Amazon US, so I tried to register for VAT on overseas sites. However, I could not get any answers to my questions, and in the end, even after one year, I still could not get a VAT number. What are the characteristics of people who fail to register for VAT? What are the characteristics of people who fail to register for VAT and what should I pay attention to in order to get a VAT number smoothly?
A. MANY PEOPLE TAKE A LONG TIME TO REGISTER FOR VAT, NOT ONLY FOR CROSS-BORDER EC, AND THE CHARACTERISTICS OF PEOPLE WHO FAIL IN VAT REGISTRATION ARE DESCRIBED BELOW. PLEASE TAKE A LOOK AT IT FOR YOUR REFERENCE.
1. THOSE WHO THINK THAT VAT REGISTRATION SHOULD BE LEFT TO THE CONTRACTORS
- VAT REGISTRATION IS A MORE DIFFICULT PROCESS THAN INCORPORATION
- Understand that your company must take the initiative to move forward.
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2. the person in charge who later says important facts or business flow changes just before submitting documents
- VAT REGISTRATION DOCUMENTS ARE REVISED AND THE IMPRESSION OF THE TAX AUTHORITIES IS WORSENED.
- One small fact can change the entire taxation relationship and the absence of a taxable act.
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3. the person in charge who later says important facts or business flow changes after submitting documents
- Considerable deterioration in the impression of the tax authorities
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(4) Persons in charge trying to reduce the number of required documents as much as possible
- To prepare the necessary documents, major companies even sign the president of the company.
- UNDERSTAND THAT VAT REGISTRATION IS MORE DIFFICULT THAN INCORPORATION AND HAS A LOWER PROBABILITY OF SUCCESS
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5. who ignore the fact that there is a deadline for submitting documents
- VAT REGISTRATION IS A MORE DIFFICULT PROCESS THAN INCORPORATION
- Understand that your company must take the initiative to move forward.
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5. the person in charge asking the same question over and over again
- VAT REGISTRATION IS A MORE DIFFICULT PROCESS THAN INCORPORATION
- Understand that your company must take the initiative to move forward.
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6. people in charge who cannot or will not manage their schedules
- VAT REGISTRATION IS A MORE DIFFICULT PROCESS THAN INCORPORATION
- Understand that your company must take the initiative to move forward.
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7. A PERSON IN CHARGE OF VAT REGISTRATION WHO IS OPTIMISTIC THAT IF 100 PEOPLE SUBMIT, 90 WILL BE TAKEN
- VAT REGISTRATION IS A MORE DIFFICULT PROCESS THAN INCORPORATION
- Understand that your company must take the initiative to move forward.
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8. personnel who mistakenly believe that examples from other companies apply to their own company
- VAT REGISTRATION IS A MORE DIFFICULT PROCESS THAN INCORPORATION
- Understand that your company must take the initiative to move forward.
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9. companies that do not invest human, material, and financial resources
- VAT REGISTRATION IS A MORE DIFFICULT PROCESS THAN INCORPORATION
- Understand that your company must take the initiative to move forward.
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10. companies that are not tax-conscious, or simply for the purpose of opening an Amazon account
- VAT REGISTRATION IS A MORE DIFFICULT PROCESS THAN INCORPORATION
- Understand that your company must take the initiative to move forward.
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11. companies without quantitative goals or dreams
- VAT REGISTRATION IS A MORE DIFFICULT PROCESS THAN INCORPORATION
- Understand that your company must take the initiative to move forward.
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＜Steps to follow
1. identify the current status of your company
- Is it a Japanese individual or a corporation?
- Have you established a corporation in the United States?
- Have you sold on Amazon USA or Indiegogo in the past? If so, did you ship directly or use a warehouse?
- Is there on-site warehouse use, and are there people under your direction and supervision or conducting business activities?
- Is crowdfunding (1) sales-type, (2) equity-type, or (3) donation-type? Which one do you think it falls under?
2. what do you want to be or do in the future?
- To what extent do you want to increase sales?
- For this purpose, do you sell direct or use a warehouse?
- What level of assets will be invested for warehouse use?
- Do you want to sell through your own website, such as Shopify or BASE, or even through a marketplace such as Amazon? If so, where is your warehouse location?
- If you have made a number of sales in the past and the activity was taxable under the local tax system, do you take advantage of voluntary disclosure reductions and other measures to pay the past taxes, or do you just sit tight and be prepared to pay the delinquent taxes?
3. tax system check
- What tax categories you would like to investigate (federal corporate income tax, state corporate income tax, state sales tax, state property tax, etc.).
- DO YOU WANT TO INVESTIGATE PE ANALYSIS, ETC.?
- What approach would you take for a tax audit?
(paid research, free site search, check with fellow sellers in the same industry, etc.)
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First, identify your company's current situation. Then, clarify how you would like to sell your products in the future. Then, it is necessary to confirm the applicable local taxation systems, Japan-U.S. tax treaties, etc.
We have numerous types of clients who contact us. I think the main intention of many small and medium-sized companies in Japan is that they do not want to pay taxes that they do not understand.
Also, many think that if there is no problem with the current situation, or if other sellers are not dealing with it, then it is fine as it is.
On the other hand, there are many cases where not only sales tax nexus but also state corporate income tax and property tax nexus are applicable under the local tax system. We have done this many times by filing past tax returns based on sales data from the past several years of e-commerce sales.
summary
- Even in the case of U.S. Indiegogo sales, sales tax nexus is expected to occur in the state of warehouse use.
- That it would be difficult to think of Indiegogo as a marketplace facilitator.
- Other U.S. taxes (federal corporate income tax, state corporate income tax, state sales tax, state property tax, etc.) should be noted.
- Regarding the decisions on this blog, the business conditions for each individual company must be verified before making a taxable decision. Keep in mind that even one different condition can lead to completely different taxation results.
We provide U.S. sales tax advisory services and have advised and filed sales tax returns for numerous Japanese companies. We also analyze the risks associated with voluntary disclosure of past sales amounts, and provide actual voluntary disclosure.
Please contact us for details.
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The explanations in this blog are only general observations at the time of writing this blog. Tax advice in the U.S. is very complex. We can only provide a solution after asking about many conditions such as contract details, inventory location, product type, sales destination, whether or not a platform is used, point of sale, etc., and after checking the applicable provisions in each state. This also involves checking with attorneys and accountants in the U.S. Whether it is the definition of platform or the definition of inventory, it varies from state to state. Please note that we are not responsible for any business decisions based on the information provided in this blog. If you need more accurate advice, please consider our paid tax advisory services.