What is Value Added Tax (VAT)?

Let’s talk about something boring (but painfully necessary): taxes. The advent of eCommerce has made it easy for sellers to reach a global audience, and has opened up international sales channels for countless entrepreneurs. However, hocking items to international customers isn’t all rainbows and butterflies. On top of coping with tricky addresses, sellers also need to prepare to pay taxes to the customs departments of whichever countries their products end up in. Theses fees are called Value Added Tax, or “VAT,” for short. If you have sold, or plan on selling internationally, these fees are something you need to be aware of.

Who Pays the Value Added Tax, the Shipper or the Recipient?

In shipping, Value Added Tax most often applies to items of low value (think a couple of hundreds bucks or less). That said, whether the shipper or the recipient pays the VAT varies from country to country. Most often, the seller is the one responsible for declaring the item’s value and paying the corresponding taxes to the destination country’s customs department.

If you’re about to ship a package internationally, a simple way to check if you’re responsible is to do a quick Google search. For example, let’s say you’re shipping a pair of shoes to the UK, valued at $200. Google “UK VAT fees” and you’ll find plenty of information at your disposal.

Speaking of the UK: one of the biggest economies to apply VAT to incoming low-value goods is the United Kingdom. Under the new UK VAT scheme, sellers are responsible for paying VAT fees beginning on January 1, 2021. The VAT that sellers must pay to the UK customs department (HMRC) applies to goods valued at or below £135. With the current exchange rate, that comes out to roughly $175 USD.

Have any more questions about VAT? Check out this Investopedia blog post for some more technical definitions and examples.