Handling taxes for shipments when shipping internationally can be confusing if you are new to shipping worldwide. Below you will find a break down of two terms you may not be familiar with but will be very important when shipping internationally.
What is GST Tax?
Goods & Services Tax. This tax is charged in stages, then reimbursed to everyone except the end buyer. It differs from VAT in that it’s a flat-rate percentage of the total transaction, instead of a percentage of value-added.
What is VAT Tax?
Value-Added Tax (VAT) is just one version of a consumption tax, a tax charged to consumers when they buy any good or service. The idea with VAT is that it’s taxing the value added to the item at each stage of production, from raw materials to manufacturing to wholesale to final sale.
Business owners charge and collect VAT from their customers, then later pay it forward to the government when filing taxes. So, as a business owner, you can think of yourself as a VAT middleman. You’re just passing it from consumer to tax agency.
The VAT model exists throughout the EU, as well as many other countries around the world (about 120 others). Though the EU shares uniform VAT rules, each member state has its own specific rates. For example, Germany’s VAT rate is 19% while France’s is 20%. In general, EU VAT rates range from 17% to 27%. But the rate also depends on the type of goods you sell. For example, books are ‘zero-rated’ in the UK and Ireland, meaning no VAT is applied at all. There are a lot of factors to consider.