The explosion of
e-commerce in the last 15 years has made it easier than ever to
manage the logistics of doing business in multiple countries. The
global reach it creates, though, has spawned a litany of tax
questions. You need to determine which jurisdictions have the
authority to tax you and your business activity and what taxes
apply. Your physical location and your end-customer locations can
impact what you pay to whom, but other factors might also apply.
Managing this process is critical to your continued e-commerce
Where to Tax Income
The issue of the jurisdiction to
tax e-commerce is a complicated one, which many countries have
yet to resolve. In 2016, the Israeli tax authority laid down
guidelines on taxation for companies involved in e-commerce
business in Israel. A company will owe taxes to Israel for
e-commerce income if it either has a physical presence or a
significant economic / digital presence in Israel. Thus, even if
you do not have a physical presence within Israel, Israeli tax
liability may still be triggered on account of various non-physical
factors, which usually are not common in determining tax
Value-Added Tax for E-Commerce
Value-added tax (VAT) presents its own concerns. Do you pay this
tax to the location where the customer is located, or where you
have your base or a physical presence? Part of this depends on what
you are selling. In the EU, for example, payment of VAT on physical
goods goes to the seller's location. Electronic services, on
the other hand, are charged VAT where the end consumer is
In Israel, Section 60 of the VAT Act requires foreign companies
that have business or activities in Israel to register a
representative in the country within 30 days of beginning to
operate in Israel. This registration helps ensure that sales
completed in Israel allow for identification and collection of VAT
liability. Here, too, the guidelines issued by the Israeli tax
authority allow for creating VAT liability solely on the basis of a
significant economic presence in Israel.
How to Collect Taxes on E-Commerce
Your business can collect these taxes much more effectively by
building multinational tax rates into its e-commerce platform.
Applications that identify recipients by IP address or other
indicators of the customers' locations can connect to current
VAT tables to identify what to charge. Similarly, income taxes can
be calculated by sorting where sales occur and where the economic
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The VATA contains provisions which appear to support both the cash and accrual basis of accounting for VAT.
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