The Global VAT/GST Landscape for E-commerce

Amazon, eBay, Alibaba, Pinduoduo, Shopify, and Walmart are just some of the most well-known e-commerce companies in the world. However, the success of these companies also depends on the number and success of individual e-commerce sellers and small to medium-sized businesses. 

With an estimated market growth of up to USD 6.9 trillion in the retail e-commerce sector for 2025, and with more than 30 million online stores worldwide, the size and significance of e-commerce are more than apparent. Adding the fact that 52% of online shoppers report shopping internationally shows how consumer behaviour is shifting.

However, what comes as a commodity for consumers brings a complex web of indirect tax rules for e-commerce sellers and businesses. From registration thresholds to new liabilities for marketplace and platforms, governments are actively reshaping the tax rules to keep pace with the global surge in e-commerce and digital transformation.

Point of Supply and Tax Jurisdiction

In cross-border supply, the central point of the VAT and GST system is the concept of the place of supply, which is a legal determination of the country that has the right to tax a transaction. Consequently, that is the country where the e-commerce seller must charge, collect, and pay VAT or GST.

When answering the question where the transaction is taxed, the key is determining which principle applies, the origin-based or destination-based principle. If origin-based principles apply, then the country where the goods or services originate is the country where the tax is due. In contrast, if the destination-based principle applies, the country where the goods or services are supplied to, meaning the country where the consumer resides, is where the transaction is taxable.

VAT and GST are typically destination-based systems, meaning the tax is levied where the consumer resides or consumes services. This means that e-commerce sellers must implement a system to gather reliable information to identify customer locations, such as IP addresses, billing addresses, or other types of data. For example, businesses selling to EU consumers need two non-conflicting evidence to determine a buyer's location for B2C digital services.

Therefore, e-commerce businesses or sellers that make international supplies may find themselves subject to local VAT or GST rules and regulations in multiple countries or jurisdictions.

VAT/GST Registration Requirements

One of the most immediate implications of being subject to VAT or GST rules and regulations for foreign e-commerce sellers is to register for VAT/GST in the consumer's jurisdiction. In the past, many sellers avoided these responsibilities and obligations by operating below the domestic threshold or by exporting through intermediaries. 

However, with the expansion of e-commerce, especially in the COVID-19 and post-COVID-19 era, and the digital economy, Tax Authorities around the world responded by either lowering registration thresholds or removing them entirely for non-resident or foreign suppliers.

Therefore, for individual sellers or businesses, it became much easier to become subject to VAT and GST rules and become liable for collecting and remitting taxes in the country where the consumers are located. Thus, meeting registration requirements became a new normal for international sellers.

Nevertheless, with mechanisms such as the EU One Stop Shop (OSS) and Import One Stop Shop (IOSS) schemes, or deemed supplier and marketplace facilitator, governments aim to simplify VAT and GST compliance for those operating in the e-commerce sector.

In any case, e-commerce businesses, whether operating independently or through online marketplaces, must assess their registration obligations, even if they do not have a physical presence, and determine whether they are responsible for collecting and remitting taxes or if this responsibility lies with the digital platform.

However, registering for VAT or GST is only the beginning of the compliance process and its associated obligations, which include applying the correct VAT/GST rate to taxable transactions, maintaining accurate records, bookkeeping, filing regular VAT/GST returns, and making timely tax payments.

Cross-Border Shipping and Customs

VAT and GST compliance is directly related to customs and import procedures, especially for cross-border supply of goods. Low-value goods imported by consumers were traditionally exempt from VAT in many jurisdictions. However, with the rapid expansion of direct-to-consumer e-commerce, these rules were exploited as loopholes by sellers, which ultimately led to stricter regulation.

For example, in 2021, the EU abolished the EUR 22 threshold for low-value goods and established an Import One Stop Shop (IOSS) to simplify the declaration and payment of VAT for distance sales of low-value goods not exceeding EUR 150. In New Zealand, low-value goods refer to physical goods whose value does not exceed NZD 1,000 (approximately USD 600), excluding any GST, shipping, and insurance costs. In the UK, customs duties are charged on imported goods valued at more than GBP 135 (approximately USD 170).

Therefore, in addition to determining taxability and collecting the VAT or GST upfront, e-commerce sellers must also ensure smooth customs clearance through proper labeling and documentation.

Another layer of complexity may arise from Incoterms, such as Delivered Duty Paid (DDP) and Delivered Duty Unpaid (DDU), also known as Delivered at Place (DAP) in the latest Incoterms. While under the DDP, the seller is liable for paying all costs, including VAT/GST and customs duties. In contrast, the DDU or DAP places additional burdens on the consumer at the time of delivery. From the consumer's perspective, DDP is more preferable, but it is more demanding for e-commerce sellers.

Current Global VAT/GST Trends in E-commerce

One of the most notable trends is the imposition of additional responsibilities on digital platforms and online marketplaces for VAT and GST-related matters, treating them as deemed suppliers responsible for tax collection and reporting. 

Even though this might be a relief for individual sellers or businesses selling through online marketplaces, they still need to track and monitor their sales and transactions in countries where such rules are not yet implemented.

Another notable trend is the emergence of more centralized filing and digital reporting systems, such as the EU's OSS or IOSS, or Norway’s simplified VAT regime, which reduce administrative burdens. Nevertheless, even with such systems in place, rules tend to change, as evidenced by the latest EU decision to adopt a new approach to VAT for e-commerce imports, simplifying trade and compliance, and updating IOSS rules.

Real-time reporting and e-invoicing are gaining momentum, with an increasing number of governments introducing or announcing the introduction of such systems and requirements for B2C, B2B, and B2G transactions. Again, one notable example is the EU's VAT in the Digital Age (ViDA) initiative.

While countries such as Brazil are undergoing a significant tax reform, which will undoubtedly impact the e-commerce sector in the country, e-commerce sellers and businesses must also pay close attention to Asian and African countries that are rapidly enacting indirect tax rules for the digital economy.

Conclusion

This article aimed to offer a foundational overview of how VAT and GST rules intersect with the e-commerce sector. With more than half of online consumers engaging in cross-border transactions, Tax Authorities worldwide are compelled to adjust their regulations to reflect modern trade dynamics, raise more revenue, and simplify the entire compliance process for all relevant parties.

Since this is the first article, many of the issues and topics introduced, such as the role of the marketplace in tax collection, OSS, IOSS, and EU VAT e-commerce rules, as well as digital and other reporting requirements, will be discussed in depth in upcoming pieces. 

FAQ

Source: European Commission, Government of Canada, VATabout - Amazon Sellers: EU VAT Compliance Guide for Remote Vendor, Australian Taxation Office, VATabout - Tariffs as Indirect Taxes: How Incoterms & Strategies Impact International Trade, UK Government, VATabout - EU VAT Rules for Low-Value Goods, New Zealand Inland Revenue, Forbes, VATabout - EU - Concept and Taxability Rules for VAT on Digital Services and Electronically Supplied Services (ESS)