What Ecommerce Businesses Should Know About Goods and Services Tax (GST)
If you’re running an e-commerce business, you need to understand how Goods and Services Tax (GST) works. Whether you sell physical goods, digital services, or both, GST can have an impact on how you price, invoice, report, and expand.
While businesses in Canada are accustomed to handling Canadian sales taxes, many other countries use a consumption-based tax known as the Goods and Services Tax, or GST. As your business horizons expand beyond domestic borders and you set your sights on the global marketplace, a thorough understanding of GST is essential for ensuring your brand’s smooth and effective international expansion, as well as providing seamless purchasing and shipping experiences for your customers internationally.
This article delves into the intricacies of GST, clarifying its definition and providing actionable insights into effectively managing GST obligations for your online business.
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What Ecommerce Businesses Should Know About Goods and Services Tax (GST)
What is GST (Goods and Services Tax)?
Goods and Services Tax (GST) is a value-added tax levied on the supply of goods and services consumed within a specific country or jurisdiction. They are typically imposed at the point of retail sale.
GST operates at multiple stages of the supply chain, with businesses generally able to claim credits for the GST they have already paid on their inputs. This mechanism aims to avoid the cascading effect of taxes, where the same tax is applied multiple times as goods and services move through production and distribution.
Most countries require e-commerce businesses to register for GST once they cross a certain revenue threshold. In Canada, for example, registration is currently required for all e-commerce vendors who generate $30,000 CAD in gross income in a 12-month period; they must register for a GST/HST number and begin charging the tax. In other nations, such as Australia, the threshold might be AU$75,000 annually.
While some businesses may choose to incorporate GST into the final product price, effectively treating it as a sales tax collected from the customer at the point of purchase, the ultimate responsibility for remitting this tax to the government rests with the e-commerce seller.
Types of Goods and Services Taxes
GST compliance is a fundamental requirement for e-commerce businesses engaging with customers in the following countries:
Canada
Australia
New Zealand
Singapore
India
Maldives
Papua New Guinea
While the majority of countries implement a unified GST system with a standard rate applicable across all taxable goods and services, certain nations, such as India, employ a more nuanced approach with different types of GST depending on the nature and location of the transaction.
Federal vs. State/Provincial GST
Where it applies: Countries like Canada and Australia
Canada’s sales tax system is complicated since it’s a combination of federal and provincial taxes. Depending on where your customer is located, you might be charging just the federal GST, a provincial sales tax (PST), or a combined tax called HST.
Canada has three types of taxes:
- GST (Federal Goods and Services Tax—5%)
- PST (provincial sales tax, in some provinces; see notes below)
- HST (a combined version of GST + PST used in others)
Notes: Some provinces have merged their provincial sales tax with the federal GST to form the HST, a single blended tax collected by the federal government.
HST Provinces (and total rates):
- Ontario—13%
- New Brunswick—15%
- Nova Scotia—15%
- Prince Edward Island—15%
- Newfoundland and Labrador—15%
If you sell to customers in these provinces, you charge the full HST and remit it to the CRA. You don’t deal with the province directly. However, Québec runs its own separate system (QST-14.975%), and you need to register with Revenu Québec if you’re doing business with Québec customers.
Federal vs. State/Provincial GST Applies to:
- Online and offline sales of goods
- Services (including digital)
- Imports
Australia has a single national GST rate (currently 10%) collected by the federal government.
Value-Added Tax (VAT)
Where it applies: European Union, UK, and many other countries
VAT is similar to GST in principle — a consumption tax applied at each stage of the supply chain — but it’s structured slightly differently. It’s similar to GST, but the key distinction is that it’s handled differently from country to country in the EU, even though they follow a shared framework. In some countries, the terms GST and VAT are used interchangeably, but technically they follow different models of tax credit flow.
VAT is Required for Ecommerce Sales:
In the EU, each country sets its own VAT rate and rules for registration, invoicing, and filing. If you’re selling physical goods or digital services to consumers (B2C) in the EU, you almost always need to:
- Register for VAT in one or more EU countries (or use a central scheme like OSS)
- Collect VAT at the correct local rate based on your customer’s location
- Report and remit the tax to the relevant tax authority
You’ll need to register if:
- You’re an EU business making B2C sales across borders and exceed the €10,000 threshold in total cross-border sales
- You’re a non-EU business selling to EU consumers
- You store inventory in an EU country (e.g., using Amazon FBA in Germany or Poland)
- You sell digital services to EU consumers (regardless of revenue)
CGST
Where it applies: India
The Central Goods and Services Tax (CGST) is a component of GST levied by India’s central government. It applies to transactions involving the sale and purchase of products or services within the same state, sometimes known as “intra-state” transactions.
It is important to remember that CGST is nearly always accompanied by State Goods and Services Tax (SGST) in intrastate transactions.
SGST
Where it applies: India
The State Goods and Services Tax (SGST) is a percentage of GST collected by each state government in India. This state-level tax is charged in combination with the CGST on intra-state transactions, ensuring that both the central and state governments share the tax money earned by such sales.
Consider an e-commerce company established in Mumbai that sells its products to a consumer who also lives in Mumbai. In this scenario, both CGST (at a rate of 6%) and SGST (at 6%) would apply to the items. As a result, the seller would charge a total of 12% GST and be liable for depositing CGST money with the central government and SGST revenue with the Maharashtra state government.
IGST
Where it applies: India
The Integrated Goods and Services Tax (IGST) is a simplified tax mechanism in India designed for inter-state transactions involving the supply and purchase of goods or services from different states within the country.
Furthermore, the IGST applies to products and services imported into India from other nations. This means that when a buyer in India acquires products from a seller in another nation, IGST will be imposed on the transaction.
The revenue earned by IGST is split between the central and state governments. Although exports are legally subject to IGST, they are typically classed as “zero-rated supplies,” which means that the seller bears no GST duty for exported items.
Digital Services Taxes (DSTs)
Where it applies: EU, UK, India, and others
Some countries apply special GST/VAT rules or flat-rate digital services taxes to overseas providers like Netflix, Google, or Spotify. If you’re selling digital goods across borders, these can apply to your business too.
How to Handle GST as an Ecommerce Business
GST is not an insignificant concern that e-commerce businesses can afford to overlook. It carries significant implications that can directly impact various facets of your international operations. Here are some key areas where GST plays a crucial role:
Failure to adhere to GST regulations, including the accurate collection, timely remittance, and proper filing of GST returns, can lead to substantial financial penalties and fines. In cases of severe or intentional GST non-compliance, businesses may even face legal repercussions, such as fraud charges.
A thorough comprehension of the applicable GST rules in each target market is required to ensure compliance. This knowledge helps to prevent unintended tax evasion and guarantees that tax returns are filed accurately and on time. By complying with these legal duties while shipping overseas, your company can avoid costly penalties and possible legal complications.
Impact on Pricing and Profitability
Keep in mind that GST can have a direct impact on your product pricing strategy, affecting your company’s profitability and bottom line.
When GST is calculated and added as a separate charge at the checkout stage, customers may be surprised by the additional cost. This unexpected increase can lead to cart abandonment, as customers may be hesitant to pay more than their initially anticipated total. To mitigate this “sticker shock,” many brands opt to incorporate the GST into the listed price of their products. However, this approach can make your products appear more expensive upfront compared to competitors who may not have included GST in their initial pricing, potentially discouraging budget-conscious customers.
Neither approach is without its drawbacks. Navigating the implementation of GST effectively requires a careful balancing act to minimize its impact on the customer journey. A thorough evaluation of your brand’s demand levels, historical sales patterns, and overall financial structure is crucial in developing a pricing strategy that accommodates GST while remaining competitive and profitable.
Documentation and Tax Calculations
GST registration and filing require detailed documentation, such as trade licenses and customs clearance certificates. As a result, online businesses that participate in foreign sales must stay up to date on all essential documentation and carefully manage all relevant transactions for accurate tax reporting in the future.
GST calculation can be quite complicated, especially for organizations that handle a large amount of foreign sales. Offering a diverse range of products can further complicate this process, especially if different goods fall under varying GST rate categories. Additional costs, such as import duties and shipping fees, only add to the complexity of accurate tax calculation.
Using specialized tax and e-invoicing tools can provide significant assistance in managing all your GST-related documents and multichannel transactions in a centralized platform. Many of these tools also offer intelligent product classification features, enabling accurate and real-time tax calculations, thereby reducing the risk of errors and ensuring compliance.
GST Registration Process
The specific procedures for GST registration vary depending on the country to which you are selling. Each country has a unique GST registration process and set of regulations that businesses must fulfill.
Generally, most countries will require some form of identification proof for the business owners or directors, along with official documents that verify the legal existence and legitimacy of the business entity. Each country will also typically have a dedicated government website or portal where businesses can complete their GST registration online.
To provide a clearer understanding, here are some of the general requirements and registration portals based on official government sources for the countries listed earlier:
Canada
Requirements:
Business number (BN) issued by the Canada Revenue Agency (CRA)
Effective date of GST/HST (Harmonized Sales Tax, which includes GST in some provinces) registration
Fiscal year for GST/HST purposes
Total annual revenue of the business
Basic business information, including legal name and address
How to Register:
Businesses can register for GST/HST online through the CRA’s My Business Account portal or by mail using Form RC1, Request for a Business Number (BN).
Australia
Requirements:
Australian Business Number (ABN)
Proof of identity of the business owner(s) or directors
Details regarding the business structure (e.g., sole trader, partnership, company)
Comprehensive details of the business’s activities and any associated entities
How to Register:
You can register for GST in Australia through the Australian Business Register (ABR) website or via the Business Registration Service portal.
New Zealand
Requirements:
IRD number (Inland Revenue Department number)
Business industry classification (BIC) code
Bank account number for GST refunds (if applicable)
Business turnover in the last 12 months
Expected business turnover in the next 12 months
How to Register:
GST registration in New Zealand can be completed online through the Inland Revenue’s myIR Secure Online Services portal.
EU
Requirements:
Business registration certificate
Passport or government-issued ID of the business owner or director
Proof of business address (e.g. utility bill, lease agreement)
Description of business activities (what you sell and where)
Valid email address and phone number for communication
Bank account details (EU or international, depending on country)
How to Register:
VAT registration in the EU can be completed online:
Ireland (Revenue Commissioners OSS portal): https://www.revenue.ie
Netherlands (Belastingdienst): https://belastingdienst.nl
Germany (BZSt OSS portal): https://www.bzst.de
France (Impots OSS/IOSS): https://www.impots.gouv.fr
Indian
Requirements:
PAN card of the business or owner
Aadhaar card of the owner
Email ID and mobile number (for OTP verification)
Business name and type (sole proprietor, partnership, company, etc.)
State where the business is located
How to Register:
Go to the GST Portal for registration: https://www.gst.gov.in
Please note that this is a limited list, and specific requirements can change. Always consult the official government tax authorities of the respective countries for the most up-to-date and detailed information on GST registration.
GST Collection
Once your business has been successfully registered for GST in a certain country, you are responsible for collecting the applicable GST on all taxable goods and services sold to customers in that jurisdiction.The specific GST rate will vary depending on the country and, in some cases, the type of goods or services being sold.
It is crucial to implement systems and processes that accurately calculate and apply the correct GST rate at the point of sale. This often involves integrating your e-commerce platform with tax calculation software or plugins that can automatically determine the applicable GST based on the customer’s location and the nature of the products being purchased.
Transparency with your customers regarding GST is also essential. Clearly indicating whether the displayed product prices include GST or if it will be added at checkout can help avoid confusion and unexpected costs for the buyer, potentially reducing cart abandonment rates.
GST Payment (Remittance)
After collecting GST from your customers, you are obligated to remit these collected taxes to the relevant government tax authority within the specified timeframes. The frequency of GST payments (e.g., monthly, quarterly, annually) will depend on the specific regulations of the country in question and often on the size and turnover of your business.
Maintaining accurate records of all sales transactions and the GST collected is paramount for ensuring accurate and timely payments. Utilizing accounting software or tax management tools can significantly simplify this process by tracking GST liabilities and generating the necessary reports for remittance.
GST Filing
In addition to making GST payments, businesses are also required to file GST returns with the relevant tax authorities. These returns provide a detailed account of your sales, GST collected, and any input tax credits you may be eligible to claim. Once you’re registered, you’ll need to report your sales, input credits, and tax collected through regular filings — usually monthly or quarterly. The filing frequency and the specific forms required will vary depending on the country’s regulations.
Accurate and timely filing of GST returns is crucial for maintaining compliance and avoiding penalties. Many countries have moved towards electronic filing systems, requiring businesses to submit their returns online via specific government portals.
Leveraging tax automation software can greatly assist in the GST filing process by automatically populating tax forms with the necessary data extracted from your sales records. These tools can also help ensure that you are claiming all eligible input tax credits, potentially reducing your overall GST liability.
By carefully handling each of these four stages—registration, collection, payment, and filing—every e-commerce company can navigate the complexities of GST compliance effectively and ensure smooth international operations. Remember that mastering the complexities of GST in each target market is not only a legal responsibility but also a strategic imperative for long-term worldwide expansion.
Read more:
Shift From In-House To Outsourced Fulfillment – When it’s Better & How to Do it Right
How Third-party Logistics Services Can Ensure E-Commerce Growth?
The Top 6 Reasons For Outsourcing in Supply Chain Management For Your eCommerce Business
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