Cross-border glossary

Selling internationally is a huge step for many businesses. Back in 2015, experts boldly projected $1.672 trillion in global ecommerce sales for the year. That’s nothing to sneeze at, but yearly estimates are now hitting an astonishing $7 trillion by 2025.

Fueled in part by the COVID-19 pandemic, increasing connectivity of international markets, and a desire to maximize market potential, more and more businesses consider selling beyond their borders. Even small businesses are seeing a favorable reward-to-risk calculus in going global.

But with literally billions of potential new customers comes a host of additional tax responsibilities — and quite a bit of new compliance vernacular. As you research whether it’s time for your business to test the global waters, this glossary of terms can help you make sense of this brave new world … of ecommerce.

customs duties

Customs duties, or simply duties, are tariffs customers are required to pay on imported goods; they're essentially an import tax. They can be charged at the point of purchase and remitted by the seller through customs brokers and/or parcel carriers or paid by the customer directly to the delivery agent before a parcel is released for delivery. "Duties" and "tariffs" are interchangeable terms.

de minimis

A de minimis threshold is the minimum declared value a shipment must have for it to be subject to a country’s customs duty and/or tax. Each country sets its own rules for what value triggers each kind of levy. Countries are increasingly using different levels of de minimis for each type of import charge.

Delivered At Place (DAP)

DAP is a terrm of sale in which import costs are assessed upon delivery of a purchase. The buyer must pay any applicable duties and taxes directly to customs in order for the package to be released for final delivery. This is typically done through payment to the carrier delivering the goods.

Delivered Duty Paid (DDP)

DDP is a term of sale in which import charges are assessed at the point of purchase. The seller collects import duty and tax amounts on behalf of the buyer and remits them to the proper customs authority. This is typically done through either a customs broker or a parcel carrier.

fiscal representative

A fiscal representative is a local entity that enables foreign sellers to legally register for value-added tax (VAT) in some European Union (EU) member states. Most EU countries don’t allow foreign businesses to register directly for VAT; nonresident businesses must appoint a fiscal representative to represent the nonresident company in VAT matters.

goods and services tax (GST)

GST is a transaction tax used in many countries around the world, including Australia, Canada, and India. It’s similar to sales tax in that a buyer pays tax to the seller and the seller remits tax to the government. However, unlike sales tax, which is paid only by the end user of a product, GST is assessed at each stage of goods production, from sourcing material, through manufacturing and distribution, to the end user.

Harmonized System (HS) codes

Harmonized System codes are universal classification codes that must be applied to all international shipments. Each product is assigned a six-digit identification code. Each country further classifies products by appending additional digits to the base code (typically four but up to six). HS codes are the means by which customs authorities identify products. They are used to assess duties and taxes, flag prohibited and restricted goods, and facilitate import/export reporting.

Import One-Stop Shop (IOSS)

IOSS is an electronic portal designed to simplify VAT compliance requirements for non-EU sellers shipping goods valued below €150 into the EU. All 27 EU member states participate in the IOSS scheme. Participation for businesses is voluntary and requires sellers to collect VAT at the point of sale rather than upon import.

import tax

Import tax or import tariffs is another generic way of describing the combination of taxes and duties imposed at the border upon import of physical goods from outside the country.

item classification

Item classification is the process of assigning tariff codes (see HS codes) to products based on the qualities or features of the product and which country it’s being shipped to.

landed cost

Landed cost is the total cost of getting goods from a seller to the buyer, including VAT or GST, insurance, shipping, tariffs, customs duties, and delivery.

reporting

Reporting is the VAT or GST equivalent of filing returns and remitting sales tax in the United States.

tariff code

A tariff code, also referred to as a Harmonized Tariff code or Harmonized System code, is a product-specific classification code that must be applied to all international shipments. Each product has the same six-digit identification code for all countries in the HS code program. Each country further classifies products by appending additional digits to the base code. The codes are used to determine tariffs and customs duties for each imported product.

tariff

A tariff is a duty or tax on an imported good. Each country imposes a unique tariff on every product shipped that enters its borders, based on government treaties and domestic laws and commerce priorities. "Duties" and "tariffs" are interchangeable terms.

value-added tax (VAT)

VAT is a transaction tax used in many countries around the world, including Egypt and the United Kingdom. It’s similar to sales tax in that a buyer pays tax to the seller and the seller remits tax to the government. However, unlike sales tax, which is paid only by the end user of a product, VAT is assessed at each stage of goods production, from sourcing material, through manufacturing and distribution, to the end user.

The global market is no longer just the purview of big business. Avalara helps small businesses comply with changing international tax requirements.