Sales Tax: A Guide for Those Who wants Their Business to be a Global Player

Everyone knows that as your enterprise grows and reaches foreign markets, it must navigate through the complex network of tax regulations. This mind-cracking and hectic task requires touching such entities as sales taxation, in particular when your company starts to operate internationally.

How can we define the Sales Tax?

As it follows from its name, Sales Tax is a tax that is imposed on your sales, whether these are goods or services. Since different local economies differ from one another, the very same thing occurs with the Sales Taxes, which are different from country to country. Even in the very same countries, different rates may be applied for different goods and services, all depending upon the local government’s economic policies.

Let's Talk

For instance, in the US there are two different kinds of Sales Taxes:

  • The General
  • And the Local ones

While 45 states and the District of Columbia impose the General Sales Tax, six more states impose Local taxation on specific goods, such as alcohol and gasoline. It results in different Sales Tax rates, ranging from 0% in Alaska up to 7.25 in California. On the other hand in Europe and Israel, they use a Value-Added Tax (VAT), which is levied on the value added to the goods and services being sold to customers at each stage of production and distribution. If you follow the latest OECD reports, you will notice that the average global Sales Tax rate stands at 14.7%. With the highest tax rate of 27% in the case of Hungary and the 0% rate in the case of the United Arab Emirates, it appears to be quite a complicated subject for international companies to handle.


What does Sales Tax serve?

Sales Tax appears to be a noticeable source of revenue for state governments and fundraising for the provision of essential services including education and healthcare. That is why non-compliance with Sales Tax regulations may pose a significant threat to the businesses due to the potential penalties.

Enterprises that fail to report and pay Sales Tax may be summoned to the Superior Court to deal with harsh conditions of managing both endless trials and the expanding business framework. Moreover, businesses may be subject to criminal prosecution that may well demolish their reputation and drive their customers away.


Tips for Sales Tax Compliance

The company whose managers aim at global presence must comply with sales tax regulations in every country they operate. It is advisable to conduct thorough research before entering a new market. Your best resource for this information would be the websites of government tax authorities. Once you have an understanding of the local tax laws, try to officially register for sales tax collection.

Hence it is your job to collect taxes from your customers and to apply the appropriate sales tax rate to every customer and order. If you still feel uncertain, consider taking advice from firms specializing in sales taxation globally.