[IMGCAP(1)]Global shipping and international trade have been reserved historically for big companies with the resources required to manage the disparate steps involved in moving shipments worldwide. After managing “big trade” for some of the largest companies in the world, I believe the real global trade opportunity is with small and midsize businesses. But SMBs are likely flying blind (and under your radar); they need your help.
SMBs looking to expand internationally deserve full attention and advisory skills from the accounting profession because, let’s face it, they’re likely to become your next big clients.
And for good reason. According to a recent Accenture-Alibaba research report, the global B2C cross-border ecommerce market will balloon to $1 trillion in 2020, and this growth will likely be fueled by previously marginalized participants in global trade: SMBs, entrepreneurs and individual consumers.
Here’s how you can help them demystify global trade:
1. Determine the setup for their supply chain. This will look different for every client, depending on their business goals.
For example, for large B2B cargo transactions, the buyer coordinates every part of the cross-border supply chain—from loading the shipment at the seller’s location, all the way to the destination. For global e-commerce B2C transactions (known as “delivered duty unpaid”), the seller is likely to arrange everything except import customs clearance.
The structure of your client’s supply chain is important because it will tell you where to focus. By mapping out the supply chain from origin to destination (loading, export, international shipping, import customs and delivery), you’ll see if you need to investigate shipping costs or understand import customs obligations. The supply chain matters and will evolve as you learn what works for your client.
2. Identify and classify the products being shipped. In addition to your client’s supply chain, cross-border success is also based on classifying products being shipped. Every physical good traded across a national border for commercial purposes has its own tax code—also referred to as Harmonized Tariff codes, HS codes, HTC or HTS classifications—that corresponds to an associated duty rate. These codes are regulated by the customs authorities in each country.
Another common pitfall of global trade is not knowing what product information is needed to derive the right tariff code early enough in the transaction. Tariff code classification is tricky: obtuse details are needed, every country is different, and there are other import taxes and fees that may apply depending on the country and commodity.
3. Understand the landed cost. Landed cost represents the total cost of getting a physical product across borders, from point A to B. Typically, landed cost comprises the:
• Cost of goods +
• Total door-to-door shipping costs, including insurance +
• All export/import customs duties and taxes
By calculating an estimated landed cost before anything ships, you can help a client uncover both overt and hidden costs associated with a cross-border transaction, so there are no painful surprises when the shipment arrives at its destination.
While seemingly straightforward, additional factors such as VAT (value-added tax) or other forms of consumption tax and/or other fees must also be considered. Therefore, you should calculate landed cost using a few different supply chain scenarios, so you can evaluate which cost and responsibility mix is best for your client’s business.
4. Know your compliance obligations. In most countries, your client’s business must be registered and have the necessary authority before they can import and pay customs duty and tax. To help determine whether or not it makes sense for their business to register, here are a few questions to consider:
• Does your client want to control door-to-door service to customers?
• Do they conduct a lot of predictable business in country X?
• Are they willing and able to fulfill country X’s compliance obligations?
Answers to these questions will help you determine which supply chain scenario is most appropriate for your client, and—depending on the outcome—whether or not they should register in-country.
5. Don’t wait, calculate! It’s no surprise that your SMB clients are struggling to make informed decisions about sourcing and profitability while selling globally, without understanding landed cost.
That’s because SMB businesses typically don’t have the capacity to determine landed cost. The product tariff code data might not be readily available. They may lack access to the right tools. They might not have the time to do the research, or they may be unsure how to apply it.
Since many online retailers are not global trade experts, they typically don’t know how to calculate these taxes and are likely not communicating adequately with their customers. When the goods finally arrive in the customer’s country, the recipient may face the unwelcome requirement to remit additional costs before the shipment can be delivered. This can either engender a bad customer experience, or (worse) expose both parties to non-compliance risks.
While compliance with customs laws can be complex for SMB clients who engage in cross-border commerce, they need your help, along with technology. Automating compliance will not only help your clients save time, money and frustration, it will create an overall competitive advantage.
Amy Morgan manages landed cost at Avalara. Her background includes global trade compliance roles at Amazon, Costco Wholesale, Nordstrom and Microsoft. She’s on a mission to use her ‘big trade’ background to eliminate cross-border bureaucracy for everyone. Amy is a featured speaker at CRUSH 2016, a national conference providing an up-close understanding of all things tax compliance.
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