Growing Export Scale of Overseas Online Platforms... "Be Careful with VAT"

Different VAT Policies by Country Require Prior Understanding
KOTRA Provides Key Information on VAT Imposition and Exemption on Website

[Asia Economy Reporter Lee Hyeyoung] As the scale of exports linked to overseas online platforms by domestic companies increases, closely examining the VAT policies of each country has emerged as one of the key tasks.

KOTRA announced on the 22nd that, noting the rapid growth of the global e-commerce market, it will organize and provide information on the VAT policies of each country when using major online platforms such as Amazon on its website.

According to the Korea Customs Service and others, the e-commerce export amount by Korean companies surged from about $409 million last year to $685 million as of October this year. The export amount up to October this year has already surpassed the entire amount of the previous year.

KOTRA emphasized that in this situation of increasing export scale, companies must preemptively understand changes in VAT provisions related to overseas direct purchases by country to minimize their tax burden.

In particular, major markets such as the European Union (EU), the United Kingdom, and Australia have recently abolished the VAT exemption for small-value overseas direct purchase transactions. Governments of each country are strengthening VAT policies on cross-border B2C transactions, citing discrimination between domestic companies and overseas sellers (companies).

According to KOTRA, Australia is showing the fastest movement regarding the revision of VAT exemption provisions. Australia abolished the VAT exemption benefit for small-value goods under 1,000 Australian dollars as of July 1, 2018. Therefore, even for B2C sales of small imported goods, a 10% tax called the Goods and Services Tax (GST) must be paid. Overseas companies without a legal entity in Australia must register for the GST system if their annual sales to Australia exceed 75,000 Australian dollars, and registration is recommended even if annual sales are below 75,000 Australian dollars.

However, when imported goods not registered in the GST system clear customs, the Australian Customs Service charges 10% VAT to the Australian buyer after customs clearance. If the Australian buyer does not pay the VAT, the goods are returned to the sender, and all related costs must be borne by the sender. Therefore, regardless of annual sales volume, overseas companies wishing to trade with Australia should register in the GST system through a local tax agent before starting sales on online platforms to prevent damage in advance.

The United Kingdom abolished the VAT exemption policy for B2C transactions of goods under 135 pounds as of January 1 this year. All sellers selling products under 135 pounds must regularly pay VAT to the UK tax authority (HMRC). Overseas sellers must obtain a customs number and VAT number from HMRC before B2C sales. Using the VAT number, sellers must pay VAT quarterly to HMRC and keep invoices including VAT details to submit immediately if requested by the tax authority.

The EU, which has a massive e-commerce market worth 700 billion euros, implemented the revised EU e-commerce VAT law (VAT e-commerce package) as of July 1 this year. The revision includes △abolishing the VAT exemption for small-value imported goods under 22 euros △strengthening the responsibility of online platform operators for VAT payment management of sellers △introducing the One-Stop Shop (IOSS) system for VAT reporting.

Of particular note is the IOSS. Goods priced at 150 euros or less (including shipping) must have VAT reported and paid through IOSS. Non-EU sellers who register in this system receive an IOSS number valid across all 27 EU member countries, and the VAT rate applied is that of the individual member country. Non-EU sellers must submit VAT returns online monthly or quarterly to the country where the IOSS number is registered. However, tax numbers, VAT numbers, and customs numbers must be obtained in advance according to the regulations of each member country to register for IOSS.

Additionally, countries such as Singapore, Belarus, and Kazakhstan are expected to introduce VAT on small-value B2C sales within 1 to 2 years.

Lee Gilbeom, head of KOTRA's Europe Regional Headquarters, said, “With the revision of regulations imposing VAT even on small-value goods, managing local tax risks has become important. KOTRA will strengthen monitoring related to e-commerce to resolve risks for Korean companies exporting online and support introducing excellent local tax partners to companies.”

This content was produced with the assistance of AI translation services.