GUEST COMMENT Lost in translation
Considering going global? The internet makes it easier for businesses to sell to customers worldwide without a physical presence. But, says Laurent Doggett, senior VAT consultant at Accordance VAT, beware of the regulation that goes hand-in-hand with cross border transactions and make sure your website is geared up for the business you seek.
According to recent figures, global ecommerce sales will hit $3.5 trillion in 2014 (E-marketer, February 2014). While this is great news for the global economy, ecommerce certainly presents challenges for e-tailers. Not least, a host of regulations which must be adhered to before a business can fully realise the benefits of cross border trade.
The internet is universal, crosses boundaries and allows a business to have a virtual presence even when a physical presence is not practical, which means that ecommerce businesses have the potential to become international businesses very early on. But, and here’s the rub, business owners must be aware of the regulatory requirements associated with cross-border trade.Distance selling
VAT, for example, is one of the first taxes encountered when a business begins to trade cross border and the EU‘s distance selling regulations set out the VAT treatment for e-commerce transactions. Distance selling, which applies when a VAT-registered business in one EU member state sells goods to a non-registered individual in another member state, impacts all e-commerce and mail order transactions.
Every EU member state has its own VAT threshold, rate of VAT and reporting requirements, making it imperative that any business selling to more than one member state is aware of the legislation. The distance selling threshold in Germany, for example, is currently €100,000 (although this can be subject to change). So, if a UK business sells more than €100,000 worth of goods to Germany, it must register for VAT in Germany and start to charge the local rate of VAT (the standard rate of which is 19% at present, although this, too, can be subject to change). In addition, the business must begin to submit local VAT returns and intrastate reports.Quality of translations
Once your sales have reached a level at which you have to register for VAT, demand is probably so great it is possible that people are browsing in your language rather than their own. At this stage, it is advisable to expand and make the most of your VAT registration by translating your website into the language of the country you are targeting. After all, winning sales abroad is all about gaining foreign buyers’ trust and you can only do this with a quality online presence.
If, like most e-tailers, you use a software programme to list the items offered by your company, it is important to make sure that all the information has been translated properly within the listing tool. Further, it is important to consider that items for sale will need to be associated with specific phrases and key words to get noticed. And, although there are low cost solutions to machine-translate your listings, incorrect translation can lead to negative feedback or damage your brand. Currency options
If you display your prices in local currency, then this is the ideal opportunity to consider differential pricing. Differential pricing allows a business to take into account the customer’s VAT rate so that profit margins are unaffected when selling to a country with a higher rate of VAT. An alternative is to use a composite VAT rate for all sales, which means taking a hit in some countries where the VAT rate is high and making a larger profit in countries with a lower VAT rate, thus spreading the average.Sizing options
To maximise potential sales, it is best to size your items according to local market specifications. For example, a size 37 t-shirt in the United States is sized differently in Europe. Customers buying your products need the reassurance that they will get the correct size when they order your goods. Further, incorrectly sized garments can lead to returned items and a reduced interest in your website and products in the future.Search terms
When your business moves into another country, your search terms are arguably the most important of your listings and successful e-tailers ensure customers reach their products by using specific search terms. For example, an American customer looking for ‘pants’ will miss ‘trousers’. If your customers are able to view your products in their own language, it is the first step towards finding and buying your goods.Item specifics
Item specifics, product characteristics like size and colour, are used to filter a large number of goods including shoes or clothes. Most sellers tend to use English to translate the item specifics word for word and, in so doing, exclude their products from foreign buyers who are clicking item specifics in a native language. If you choose item specifics properly, it can help to raise your listings above those of the competition. It is important, therefore, that the individual qualities of your product are converted to match the search criteria of target buyers if you want them to pick your products ahead of others.
There are no two ways about it, translation, localisation and tax management need to be handled by professionals. Even if you have native speakers of your target country in your team, they will not necessarily have the expertise you need and you could end up wasting time and money. To reap the benefits of e-tail, be sure to enlist the help of e-commerce experts and seek professional tax advice every step of the way.
Tips for success
• Be aware of VAT regulations. Find out the VAT threshold, rate of VAT and reporting requirements of your chosen markets.
• Enlist the help of e-commerce professionals and translate your website into the language of your customers.
• Consider differential pricing to spread the cost of VAT.
• Size your items properly and match local market requirements.
• Make sure item specifics are translated accurately so as not to alienate potential customers.