This article explains the main forms of indirect tax used in international e-commerce — VAT, GST, and sales tax — and how each affects cross-border transactions.
Taxation methods
The taxes covered in this article are all indirect taxes — collected at various stages of the supply chain and remitted to the government, typically included in the purchase price of goods or services.
VAT
Most countries use value-added tax (VAT) as their primary taxation method. VAT is applied at each stage of a product's production, distribution, and consumption — charged whenever value is added, from raw materials through to the final consumer purchase. Each business in the chain remits the VAT it collects to the government. Ultimately, the end consumer bears the full VAT cost.
GST
Goods and Services Tax (GST) is the term used instead of VAT in some countries, including Australia, New Zealand, Canada, Singapore, Papua New Guinea, and India. It functions identically to VAT.
Sales tax
The United States uses state sales tax rather than VAT or GST. Sales tax is a one-time tax applied only at the point of purchase — the consumer pays it to the retailer, who remits it to the relevant state. Manufacturers and retailers buying goods for resale are exempt.
U.S. state sales tax and nexus
Sales tax rates, rules, and exemptions are set at the state and local level. Retailers are not required to collect or remit sales tax on interstate online sales unless they have a business presence (nexus) in the buyer's state.
Nexus is established through:
Physical presence — buildings, employees, or salesperson visits in the state
Economic presence — exceeding the sales thresholds set by each state
U.S. import sales tax: The U.S. does not have a national sales tax on imports. International sellers are only required to collect and remit sales tax when they have nexus in the destination state.
Comparing VAT/GST and sales tax
VAT and GST
Who pays? Tax is paid at every stage of a product's lifecycle — production, distribution, and final sale.
When is it collected? At each stage of production, distribution, and consumption.
Invoicing — The tax is included in the total purchase price (inclusive). A VAT invoice must typically be issued within 15 days after the end of the month in which goods or services were supplied.
Who reports and remits? VAT and GST are typically reported with the assistance of a tax authority. In countries with low-value tax schemes (UK, EU, Australia), cross-border VAT is usually collected by customs for standard-value shipments; international low-value taxes (ILVT) are generally self-reported.
Cross-border collection — Traditionally collected by customs, though newer regulations increasingly require sellers to collect VAT directly.
Sales tax
Who pays? Only the end consumer, at the point of sale.
When is it collected? Once, at the time of purchase.
Invoicing — Calculated based on the products or services on the invoice. Invoice timing is not legislated; businesses should retain B2B and B2C invoices for seven years.
Who reports and remits? Self-reported by businesses periodically — monthly, quarterly, or annually, depending on sales volume.
Cross-border collection — Never collected by customs. Sellers remit directly to applicable states if they have nexus or exceed state thresholds.