Everything You Need to Know about International Sales Tax

Businesses often assume they don't owe taxes there if they don’t have a physical presence in a country. However, tax authorities care more about where your customers are than where your office is. 

That’s where international sales tax steps in.

Whether you are selling software services, eCommerce products, or services, global tax rules impact: 

• Where you must register and file returns 
• How do you price your products (with or without tax) 
• Whether platforms like Amazon hold your revenue for non-compliance. 

In this article, we’ll cover :

• International sales taxes: VAT, GST, and sales tax, how they differ and where they apply. 
• Registration Triggers: Physical presence vs. economic nexus (e.g., U.S. Wayfair ruling). 
• Digital Goods & SaaS: Why most countries tax them, and how to avoid double charges.

Let’s first start with international sales tax.

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What Is International Sales Tax?

International sales tax is a consumption-based tax imposed by a country on goods and services involved in cross-border transactions. It is applied to items entering or sold within the country’s jurisdiction as per its tax laws.

The taxes imposed depend on these key areas:

• Imports are taxed by the importing country on goods entering its jurisdiction, based on value, type, and origin.
• Digital Services are subject to tax in the buyer’s country on cross-border transactions.
• Jurisdiction covers goods and services entering or sold within a country or region as per local tax laws.
• Compliance ensures that businesses collect tax revenue and remit it to the buyer’s country. 
• Exemptions on low-value imports and trade agreements eliminate international sales tax.

Domestic tax is restricted to the seller's home country. These taxes apply to transactions where both the seller and the buyer are within the same country. In contrast, international sales tax involves multiple jurisdictions, each with its own tax rates, thresholds, and compliance requirements.

The form of the international sales tax varies across countries. In Europe, VAT(Value Added Tax) is imposed on imports, and GST (Goods and Services Tax) is imposed in Australia. Customs duties are based on the value and type of goods. 

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What are Sales Tax, VAT, and GST?

Sales Tax, VAT, and GST fall under the umbrella of International Sales Tax; they differ only in their structure, stages, and application. 

Here are the key differences among them:

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When Are You Required to Register for VAT or GST in Another Country?

 You must register for VAT/GST when sales trigger nexus in a customer’s country.

Here we have listed country-specific rules

Suppose you are a US-based SaaS company selling subscriptions to German consumers (B2C), you must register for EU VAT from the first sale and charge 19% VAT to the consumers. You should update the checkout to collect VAT, file quarterly returns, and track customer locations to ensure accurate tax collection.

Unlike B2C, selling to a VAT-registered German business (B2B) causes a reverse charge mechanism that eliminates the need to register for EU VAT or charge VAT. 

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How Tax Jurisdictions Apply Rules Based on Customer Location

Tax rules depend on the customer’s location, primarily through:

• Destination-Based Taxation: Taxes (VAT, GST, sales tax) apply at the buyer’s location, ensuring revenue goes to the consuming jurisdiction (e.g., 8.25% tax for a Texas customer). Most countries use this for cross-border sales.
• Origin-Based Taxation: Taxes apply at the seller’s location (e.g., Arizona’s 5.6% rate), used in some U.S. states, but is rare globally.

Destination-based taxation dominates, requiring sellers to verify customer location and charge local rates. On the other hand, origin-based taxation allows businesses to benefit from low-tax jurisdictions but complicates compliance for buyers elsewhere.

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Tax Rules for Digital Goods and SaaS Across Borders

Most countries have adopted rules for selling digital services as intangible goods, which are taxed according to the customer's location.

Here we have listed some countries that impose taxes on digital services:

• U.S. (0%-10.5% sales tax): Most states have nexus; it varies by state and is taxable in New York, not California.
• European Union (17%-27% VAT): Taxed at the customer’s country rate ( 19% in Germany). Non-EU sellers need to register from the first B2C sale.
• India (18% GST): Taxed from the first sale, no threshold for non-residents.
• Australia (10% GST): Taxed when sales exceed AUD $75,000.

i) B2C vs. B2B Taxation

The taxation and compliance rules for international sellers are completely different for selling to consumers and businesses.  

Here we listed the differences in selling digital products for a B2B vs B2C:

ii) Physical and Economic Nexus

Sales tax nexus is a connection to a U.S. state that triggers tax collection duties. International sellers must understand the physical and economic nexus, the Wayfair ruling, and registration requirements

Let’s continue by knowing the types of Sales tax Nexus:

• Physical Nexus:  based on physical presence 
• Economic Nexus:  Based on sales volume or transactions

Each jurisdiction has rules for registering for sales tax; some restrict registration to registering before your first sale, while others have sales thresholds. 

If you are a business selling digital services globally, you must register for taxes in the customer’s country, considering the overall sales tax nexus.

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What are Marketplace Facilitator Laws and Their Impact on Global Sellers

Marketplace facilitator laws require online platforms like Amazon to collect and remit sales tax, VAT, or GST on behalf of third-party sellers for transactions made through their platforms. These laws target platforms that facilitate sales by connecting buyers and sellers.

Shifting of Tax Collection to Platforms

These laws transfer the responsibility of calculating, collecting, and remitting taxes from sellers to platforms, reducing the compliance burden for international sellers.

Here’s how it works

• Handles Taxes: Platforms collect U.S. sales tax and VAT/GST for marketplace sales.
• Uses Buyer Location: Taxes are calculated based on the buyer’s address or IP.
• Adds to Price: Taxes are included in the checkout price 
• Pays Authorities: Platforms remit taxes directly to U.S. states or specific tax jurisdictions.
• Reduces Seller Work: Sellers don’t collect or file taxes for marketplace sales.

While handing over most of the tax burden, you still have the primary responsibilities in your control. 

Global sellers still retain the power of : 

•     Registering for sales tax 
•     Direct Sale outside the platform   
•     Filing regular tax returns 
•     Keeping a record of sales and invoices 

How Tax Treaties Work and When They Apply

Tax Treaties are agreements between two countries to decide how taxes work when you earn money across borders, so you don’t pay more than you should.

Tax treaties act like a saviour when two countries tax the same sales. These treaties help when you:

•    Earn in one country but run a business in another
•    Have physical presence in another country
•    Get payments from different countries

These treaties define clear rules to prevent double taxation and promote fair tax treatment for businesses operating globally.

Here’s how you will benefit: 

• Tax Credits: Your country gives you credit for taxes paid abroad
• No Tax: One country agrees not to tax the revenue 
• Lower Rates: Reduces taxes on cross-border payments 

Why They Cover Income Taxes, Not Sales Tax or VAT

Sales taxes, VAT, and GST are transaction-based and charged when a customer buys something. These taxes are on sales, not income, and each country has its own rules.

For instance, when you sell a $100 shirt in Texas, you add 8.25% sales tax ($8.25) at checkout, which goes to the state. This tax isn’t your income, so tax treaties don’t cover it. Treaties only help with income taxes, like profits taxed in two countries.

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Record-Keeping and Documentation for International Tax Compliance

Having a record of these critical documents will help you prove transactions, customer locations, and tax obligations:

1. Invoices: Show sales and purchases, including supplier and customer details, VAT/GST rates, dates, and amounts 
2. Location Proofs: Verify customer locations through address or IP for VAT and sales tax 
3. VAT Numbers: Validate B2B transactions to apply reverse charge 
4. Export Documents: Prove cross-border sales

Different Tax Jurisdictions require businesses to maintain tax records in specific formats. This prevents businesses from avoiding legal issues, reclaiming taxes, and proving compliance with tax rules.

Here we have discussed these formats for some tax jurisdictions:

Cloud-based bookkeeping practices streamline international tax compliance and make your business audit-ready every time.

Software providing cloud-based bookkeeping helps you : 

•  Access records anywhere and anytime with global tax standards
•  Automate sales tax calculations, and alert regularly to reduce errors
•  Store securely with IRS standards
•  Easily integrate with invoicing tools 

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Finally, How to Determine Whether to Charge VAT or Sales Tax to International Customers

If you are a global seller, deciding whether to charge VAT or sales tax to international customers can be tricky. It depends on the customer’s location, product type, and buyer status.

To help you decide whether to charge VAT or sales tax, you should follow these steps:

1. Identify customer location: Use the billing address or IP to confirm the buyer’s location for destination-based taxes. 
2. Determine Product Type: classify products as digital, physical or sold at the marketplace, as they are taxed accordingly.
3. Check Buyer Status: Collect VAT/GST/sales tax for B2C; use reverse charge for B2B with validated VAT numbers 
4. Apply Nexus and Sales Threshold Rules: Register for sales tax in the U.S as nexus or in the EU for sales thresholds
5. Update Checkout: Include the sales taxes in invoices for B2C, while in B2B, buyers do the taxation

Reverse charge shifts the responsibility for reporting and paying VAT from the supplier to the buyer, preventing tax evasion and simplifying compliance for suppliers who don’t have a taxable presence in the buyer’s country

For example:

Let’s imagine a SaaS company in Germany, selling digital subscriptions to VAT-registered businesses in the United States. Before, they struggled with a 10-day process to handle taxes every three months, their small team worked weekends, they got fined €2,000 for tax mistakes, and they worried about extra costs to follow U.S. tax rules.

By implementing the reverse charge mechanism with six simple changes, they made tax work easier:

1. Updating Invoices: Modify the invoicing to send tax-free invoices to U.S. clients
2. Check Clients: Used a tool to confirm U.S. clients don’t need German taxes
3. Auto Tax Reports: Got software to handle their German tax forms correctly.
4. Save Records: Kept digital copies of invoices and client info for 10 years.

Results:

• Month 1: Compliance cut to 7 days, saving 12 hours.
• Month 3: Reduced to 5 days, no weekend work.
• Accuracy: No penalties, perfect filings for two quarters.
• Savings: Avoided €8,000/year in U.S. sales tax compliance costs.

Finally, begin by automating tax processes, standardising VAT/GST and sales tax policies, and adopting automation tools like Inkle to reduce errors and save time.

Book a demo with Inkle today and manage your global tax obligations.

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Frequently Asked Questions (FAQS)

1. Do I need to register for VAT or GST even if I don’t have a physical office in that country?

Yes. Many countries now enforce registration for non-resident businesses, especially for digital goods and SaaS. The requirement is usually based on where your customers are located, not where your company operates from.

2. What’s the difference between VAT and sales tax?

Sales tax is typically collected only at the final point of sale (like in the U.S.), while VAT is applied at multiple supply chain stages with input tax credits. Both are consumption taxes, but operate differently.

3. Do I need to charge tax on digital products sold internationally?

Yes, often. Many countries require foreign sellers of digital products (including SaaS, ebooks, courses, etc.) to collect VAT or GST from local customers—even without a local presence.

4. Are tax treaties applicable for sales tax compliance?

No. Tax treaties generally cover income tax and withholding tax, not sales tax, VAT, or GST. You’ll still need to comply with each country’s consumption tax rules independently.

5. What happens if I don’t comply with international tax regulations?

You may face fines, interest, blocked payments, or even be restricted from selling in certain countries. Non-compliance can also damage your business’s credibility with partners and platforms.