- December 11, 2017
- Posted by: r0m3@dm1
- Category: News
Conducting business online presents many unique procedural, legal, and tax challenges that affect a business owner’s ability to conduct business internationally and process cross-border payments. Additionally, a lack of uniformity and predictability among nations in their regulatory schemes challenge online sellers to efficiently process international payments while navigating the rules and regulations that apply to each international transaction.
As it stands, cross-border payment processing is both costly and inefficient for businesses, which is due, in large part, to a large number of payment systems that are based on local laws and practices within national banking structures. Because there has yet to emerge a single, globalized, and standardized system the ability to efficiently pass data from bank to another is impeded by the differences in the rules applicable to an originating and receiving party. This leaves online business owners with a prolonged period of payment processing spanning transaction initiation to completion.
Legal and Regulatory Concerns
The impact of assorted international rules and regulations reaches far beyond delayed payment processing. National rules and regulations vary greatly, including the regulations governing the labeling and packaging of products, product return policies, taxation, and data retention. Broadly speaking, a merchant conducting business in China will find a generally favorable and facilitative Chinese regulatory scheme for online business and internet-related issues because the internet is viewed as a means for improving the country’s economy and economic competitiveness. Conversely, a merchant conducting business in Russia will find laws and regulations less accommodating as they provide for greater government control over online content, platforms that obtain personal data, and taxes pertaining to certain online transactions.
Different tests are applied by courts to determine which whether an originating or receiving country has jurisdiction for online transactions and disputes, and making the proper determination may require the assistant of an attorney. However, it is in a merchant’s best interest to identify which regulatory bodies are responsible for ecommerce and data protection as it applies to their business, and to become familiar with what legislation governs their business on the internet.
Another looming question for online merchants is “how are domestic internet sales taxed?” And, more specifically, “when and where should companies register for value added tax (VAT) or other sales taxes?” In over 140 countries worldwide, VAT is the preferred transactional tax model and is the equivalent of a sales tax in the United States. However, the way in which a VAT is applied is not consistent in every jurisdiction, and factors such as how a merchant distributes goods to consumers may have VAT implications.
eCommerce in the Future
Fortunately for online merchants, the cross-border payment landscape is shaping up more and more positively for online transactions. Many governments are leading initiatives to influence how payments are made and what fees can be paid, payment systems are becoming better at mitigating risk and reducing costs, and transnational payment systems are emerging that will reduce the reliance on localized rules and regulations. Though there are many challenges and considerations surrounding cross-border payment processing in the present, merchants who can overcome these challenges today can look forward to favorable changes in the near future.