International low-value tax scheme registration explained
November 30, 2022
International low-value tax scheme registration explained
If you sell across borders, international low-value tax (ILVT) schemes can be a compliance obstacle for you. Therefore, you need to be aware of these tax schemes and when to register to stay compliant with customs laws. This blog will discuss the nature and purpose of these tax schemes, which countries have implemented them, how each one works, and when registration is necessary and recommended.
International low-value tax (ILVT) schemes are a way for governments to collect taxes on small package imports more efficiently.
Australia released its ILVT scheme, called “simplified goods and services tax (GST),” in 2018, and it was unique (at the time). Now, this concept is spreading globally as other countries and regions, such as the UK, EU, New Zealand, and Norway, have adopted low-value tax schemes. Beginning in January 2023, Singapore is joining the fun by enacting its own ILVT scheme. As you can see, the idea is catching on.
These schemes mainly apply to imported goods of low-value and affect the foreign businesses selling them into the country. While these ILVT laws make cross-border tax operations smoother for the country’s tax authorities, it can be difficult for the affected business to navigate these laws, especially when it comes to knowing when to register for a tax ID.
Let’s use Australia as an example to better understand ILVT schemes in a real-life scenario. Before Australia implemented their ILVT scheme, now called Simplified GST, low-value imported packages (valued less than A$1,000) were never charged an import tax. However, the government wanted to collect taxes without bogging down the border.
Here’s what Australia came up with: If a retailer outside of Australia sells more than A$75K into Australia in 12 months (actual or forecasted), then they are required to register for an Australian GST number and remit to the Australian tax authority.
Imagine a Justin Bieber t-shirt that costs $10 USD, for example. Would the small amount of tax collected from this t-shirt justify the time it would take for a customs official to assess this tax? Requiring retailers who meet the $75k AUD threshold to self-remit to the Australian tax authority is a win-win for Australian customs. They get to collect the tax on these items without it being a tedious, time-consuming process at the border.
The scheme was a hit!
Though Australia may have been the first to implement a low-value scheme, they are not the only country that has struggled with the low-value package bottlenecks, which is why it makes sense that other countries have created their own ILVT schemes. More and more countries are implementing ILVT schemes, and they aren’t likely to stop anytime soon.
Although countries are following suit and creating these tax schemes for the same purpose, each country’s scheme regulations are slightly different, and savvy retailers maximize the benefits of being compliant.
If you sell low-value goods to a country with an ILVT scheme and do not follow the regulations of that scheme, your packages will be delayed or rejected by customs altogether. Your business could also face additional penalties for non-compliance, such as fines or being banned from selling into the country, so keep reading to learn when you need to register your business for these tax schemes.
Australia and New Zealand
The Australian and New Zealand laws are very similar and this same guideline can be followed for both: If you do not exceed the threshold, do not register! If you register unnecessarily, you are taxing your customers on low-value products for no reason. If you don’t register, low-value orders are duty and tax-free, and your shoppers will be more likely to buy your products and less likely to abandon their carts!
Australia If you sell or are predicted to sell over A$75k within 12 months, you need to register.
Tip for predicting if you will exceed the threshold: If your current month and trailing 11 months of sales combined were equivalent to or greater than A$65K, you should register.
New Zealand If you sell, or if you are predicted to sell, over NZ$60k worth of low-value items (valued under $1k NZD) within 12 months, you need to register.
NOTE: If you meet the threshold for either country, you must register or you risk noncompliance penalties.
Norway and European Union countries
Norway If you sell goods into Norway at all, you should register—even if you don’t legally have to! Packages under the de minimis are taxed through customs either way. You save nothing by avoiding registration. Additionally, registration in Norway is relatively simple, and doing so could speed up your average delivery time.
European Union You only have to register for a tax ID in the EU if you choose the IOSS method of collecting VAT on low-value goods. Although the EU does require you to pay for a fiscal representative if you register for IOSS, you will be able to avoid carrier fees and streamline customs clearance by registering and remitting because the carrier does not have to forward the tax for you and customs will allow the package to pass through once they see the IOSS number.
The United Kingdom If you sell goods into the UK, you must register—no if’s, and’s, or but’s. By law, everyone who ships anything under £135 to Great Britain must register for a UK VAT number and remit the taxes to His Majesty’s Revenue and Customs (HMRC). While the packages will likely clear, you may suffer penalties if you didn’t remit the appropriate taxes.
To learn how the UK plans to enforce this new law, watch for a future blog post—or you can always reach out to Zonos!
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