Global Tax Compliance for Small- and Medium-Size Businesses

Tax Law and News Colleagues having a meeting in the boardroom, using digital tablet, copy space

Going global is no longer just for big companies. According to a recent USForex survey, more than 50 percent of U.S. small businesses already have international customers, and nearly all see international expansion as an imperative, rather than an option. With 3 billion potential customers already connected to the internet, and the B2C cross-border ecommerce market expected to reach $1 trillion by 2020, it’s no wonder small businesses want a piece of that action.

Yet, if global growth is imperative for small companies, so is the need to understand the risks associated with doing business worldwide. Tax and accounting professionals can facilitate their clients’ expansion by helping them understand the tax implications of international growth.

Several taxes and fees may be assessed when transporting products from a supplier to a customer. The process is surprisingly complex and must be accurately navigated in order to ensure global tax compliance. Three particularly problematic areas are customs duty and import tax, shipping costs, and landed cost.

  1. Customs Duty and Import Tax. It can be extremely difficult to correctly estimate import duties and taxes. These charges vary by destination country, and there is little uniformity between nations. Products are categorized for different customs duty and tax rates by the expansive Harmonized Tariff Schedule, which spans more than 17,000 unique tariff codes in the United States alone, and every country has its own version of the tariff schedule. Each product in a shipment must have a tariff code assigned.
  1. Shipping. Complications frequently arise during the shipping process, including damaged or looted merchandise, unreliable delivery services, mishandled shipping documents, and unexpected delays. Failure to properly handle all the costs associated with shipping across borders can even result in the shipping company asking the customer to sort out the tax – a situation to be avoided at all costs.
  1. Landed Cost. The total cost involved in getting a product from the seller’s facility in one country to the buyer’s door in another is known as landed cost. Typically used to describe global sales, landed cost includes the cost of the order, all shipping and insurance costs, and all estimated customs duties and import taxes. Accurately determining landed cost for each transaction involves sorting through the maze of tariff codes, duty rates and rules to determine which ones apply to each product sold in each country. Since no two countries share the same tax laws, this can be incredibly time consuming. Large companies typically devote entire departments to managing international tax compliance, but small businesses generally lack those resources. As a result, problems with customs clearance can lead to unexpected costs, disgruntled customers and reduced profit margins.

Never have small businesses been so well positioned to take advantage of the worldwide market. Tax and accounting professionals can better advise their clients on global expansion by helping them navigate the often complicated marketplace.