I am with a software company based in Canada. We plan to sell
software primarily to other companies in roughly sixty countries,
although predominantly to the U.S. and Europe. The average selling
price for one seat (one seat = one user) of our software is $400, and
the average order consists of 5 seats.
When we receive an order (either via the web of via fax) for our
software, we deliver it in one of two ways:
1) We have the customer download the software from our web site.
2) We ship a CD. Even if the customer orders several seats, we only ship one CD.
I want to know:
A) For both cases 1 and 2 above, what sales taxes do I need to charge
my customers when they order software? Canadian PST and GST? What
about local sales taxes in their own countries and/or states?
B) For case 2 above, are the CDs that I ship subject to customs duties
and taxes? What documentation do I need to ship with each CD? Do I
need to use a customs broker?
A great answer would include a schedule of applicable taxes and
duties, specific to software sales, for all (or most) countries in the
world. |
Request for Question Clarification by
hummer-ga
on
25 May 2004 18:22 PDT
Hi ronklopfe,
If you could answer four questions for me, I'll be able to tailor my
answer to fit your needs better.
1) In what province is your business located?
2) Do you already have tax business numbers?
3) What is on your CDs? (I'm assuming you buy blanks and burn them).
4) Will the actual value of the declared goods be more or less than C$2000?
I've begun working on your question but I probably won't be able to
finish it until Wednesday - there's alot to consider.
Regards,
hummer
|
Clarification of Question by
ronklopfer-ga
on
25 May 2004 23:04 PDT
Hello hummer -
Thanks for your interest in this question.
Responses to your questions:
1) We are located in BC.
2) We already have tax numbers.
3) We burn a copy of our software application and documentation in PDF
format onto each CD.
4) It depends. We sell each license of our software for $400. If a
customer buys 10 licenses (for 10 separate users), they will receive
one CD, and 10 activation codes via email. So, I am not sure what the
declared value should be. There is only one "copy" of the software on
the CD ($400?), yet that CD can be potentially be used to install many
times over. Of course, we should aim to minimize the declared value,
within the limits of any applicable law. I'll sweeten the deal by $10
if you happen across an interpretation of what the correct legal
"declared value" is for software under this scenario!
|
Clarification of Question by
ronklopfer-ga
on
25 May 2004 23:17 PDT
I suppose the cost of materials, or replacement value ($1 for the CD
itself) is another possible declared value.
|
Request for Question Clarification by
hummer-ga
on
26 May 2004 09:16 PDT
Hi again ronklopfer,
"A great answer would include a schedule of applicable taxes and
duties, specific to software sales, for all (or most) countries in the
world."
Why do you want to know this? All local taxes and duties are the
responsibility of the buyer.
hummer
|
Hi ronklopfe,
Here you go -
1) GST / PST:
There are only two scenarios when you'll charge PST and/or GST:
1) GST only: any sale within Canada
2) GST & PST: any sale within BC
Never charge GST or PST when an order originates from and is sent to
another country.
Never charge PST when an order originates from and is sent to any
province other than BC.
Canada Business Service Centres: E-Business Info-Guide:
"In general, all existing tax rules apply equally in an electronic
environment, and no new taxes have been created specifically for
electronic commerce."
http://www.cbsc.org/english/search/display.cfm?code=2842&Coll=FE_FEDSBIS_E
Goods and Services Tax and Harmonized Sales Tax - GST/HST:
http://www.cbsc.org/english/search/display.cfm?docid=/Regional/federal/fedbis.nsf/894580d8458979828525641b006acb81/b662e0066d89172785256508004daf4b?OpenDocument
2) LOCAL TAXES
There are no hard and fast rules as to whether local taxes in other
countries will be charged or not, however, your customers are
responsible for paying any VAT (Value Added Tax) charge when they
receive the package, unless you make other arrangements. You will
notice that when you type an international shipment in, for example
Canada Post's Shipping Software, no VAT or customs duties are added
because that will be done in the destination country and separately
charged to the customer from there.
3) CUSTOMS DUTIES
"Are the CDs that I ship subject to customs duties and taxes?"
It will all depend on the destination and whether the parcel gets
stopped at customs or not. Any custom duties (as are the VATs) are the
responsibility of the buyer and you don't need to worry about them.
"What documentation do I need to ship with each CD?"
A normal "Customs Declaration" - the shipper will supply the documents.
"Do I need to use a customs broker?"
No, a broker is not necessary.
>>>>>>>>>>>
4) SHIPPING
I have experience shipping internationally and have given thought as
to what would be the best way for you to ship your CDs. Although I'm
sure you'll want to check out all of your shipping options, I'd like
to put a plug in for Canada Post. They have been working hard to get
small businesses to use their services and have added some interesting
options. Getting a business account with them does take a couple of
months, but a VentureOne Card would help to tide you over until your
account is activated. One big advantage to using Canada Post is you
don't have to worry that your buyer is going to be stuck with
brokerage fees. Shipping couriers, such as UPS, are happy to clear
your package through customs, however they charge a significant
brokerage fee for this service in addition to the custom's fees. There
are no brokerage fees using Canada Post.
Canada Post VentureOne Card:
"As a VentureOne cardholder, you can choose the shipping speed you
need, plus enjoy the special Small Business Rate of 5%* on the Canada
Post shipping services indicated below, whenever you present your
VentureOne card at your local Post Office."
Phone 1-877-262-5762 or ask at your post office for an application.
http://www.canadapost.ca/business/intsol/sb/ventureone/benefits-e.asp
>>>>>>>>>>>>>
WITHIN CANADA:
XPRESSPOST:
"Xpresspost is the Shipping and Delivery Service that provides speedy
and guaranteed delivery."
http://www.canadapost.ca/textonly/tools/pg/manual/c03-e.asp
VENTUREONE SMALL BUSINESS VALUE PACK:
"You can now get 4 Xpresspost Prepaid shipping envelopes in one
convenient value pack - and for 5% less than if you bought them
individually!"
Regional Letter Size (241 mm x 318 mm) $24.80/4 Prepaids (1 to 2 days guaranteed)
National Letter Size (241 mm x 318 mm) $36.00/4 Prepaids (2 days guaranteed)
http://www.canadapost.ca/textonly/business/intsol/sb/ventureone/xpresspost-e.asp
>>>>>>>>>>>>>
CANADA POST BUSINESS ACCOUNT:
Canada Post Business Account:
Business customers who electronically transmit their order and apply
to their mail items the bar-coded label generated by the shipping
system can benefit from a 2% discount.
Phone 1 866-511-0546
http://www.canadapost.ca/business/obc/default-e.asp
"To establish an Account with Canada Post, Customers need to complete
the applicable documentation as required by Canada Post."
http://www.canadapost.ca/textonly/business/obc/how_to_pay-e.asp
"To get your ID and password call 1-866-511-0546.
http://www.canadapost.ca/business/obc/tools-e.asp
ELECTRONIC SHIPPING TOOLS: online vs desktop:
http://www.canadapost.ca/textonly/offerings/eship_tools/us/desktop-e.asp
2% Automation Discount:
http://www.canadapost.ca/textonly/business/discount/default-e.asp
>>>>>>>>>>>>
UNITED STATES
(unfortunately, the prepaid Xpresspost USA is only available for documents)
EXPEDITED PARCEL (5 to 9 business days)
(buy 241 mm x 152 mm bubble packs at local office supply store)
$100 insurance included, $1.20 per $100 additional available.
Up to 500g: about $10.00 depending on zone.
Available to Canada Post contracted customers using the Sell On-Line
Shipping Module or Electronic Shipping Tools. (Surcharge applies)
http://www.canadapost.ca/textonly/business/offerings/expedited_parcel/us/default-e.asp
XPRESSPOST USA (3 to 5 business days guaranteed)
(buy 241 mm x 152 mm bubble packs at local office supply store)
$100 insurance included, $1.20 per $100 additional available.
Up to 500g: about $15.00 - $16.50 depending on zone.
http://www.canadapost.ca/textonly/business/offerings/xpresspost/us/about_specifications-e.asp
>>>>>>>>>>>>>
INTERNATIONAL
(Unfortunately, the prepaid Xpresspost International is only available
for documents.)
XPRESSPOST INTERNATIONAL (4 to 7 business days guaranteed):
Available to Australia, Austria, Belgium, China, Denmark, Fiji,
France, Germany, Great Britain, Greece, Hong Kong, Ireland, Italy,
Japan, S. Korea, Luxembourg, Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland and Taiwan.
(buy 241 mm x 152 mm bubble packs at local office supply store)
Xpresspost Int'l: $39.61 including $400 insurance
http://www.canadapost.ca/tools/pg/manual/d04-e.asp
Other countries: Airmail
$23.05 - $48.00 + insurance
For example, a 500g Airmail parcel to South Africa would cost:
$43.30 + $5.88 = $49.18 including $400 insurance
Unfortunately, insurance isn't available for "Small Packets". Airmail
would cost $12.20 for a 500g parcel but if it got lost in the mail,
you would have no recourse.
>>>>>>>>>>>>>
Additional Link:
Download a PDF copy of your Rate Code Look-up Table:
http://www.canadapost.ca/business/rates/rate_code/get_copy-e.asp
I hope this helps. If you have any questions, or if this hasn't
satisfied your request, please post a clarification request before
closing/rating my answer and I'll be happy to respond as I want you to
be completely satisfied. Even though you won't be charging taxes on
International orders, I did try to find a country list for you - I was
unsuccessful. If you would like me to have another look, please let me
know.
Thank you,
hummer
Google Search Terms Used:
vat zones international shipping
vat international shipping european union
international shipping vat countries
ups canada vat
international shipping vat
canada shipping international gst
custom duties countries "compact disks"
canada international shipping
etc.
I also used my own reference material in regards to Canada Post and
also searched the Canada Post website. |
Request for Answer Clarification by
ronklopfer-ga
on
26 May 2004 13:51 PDT
Thanks Hummer!
Do you have any info on what an appropriate declared value is for a CD
containing software?
|
Clarification of Answer by
hummer-ga
on
26 May 2004 15:05 PDT
Hi ronklopfe (interesting name!),
Oh, I'm sorry, I see that I somehow omitted a portion of my answer - here it is:
The "Declared Value" is generally the selling price of the item. Your
CD is sold for C$400, therefore that is the value you would declare -
any extra licenses are emailed and are not included in the parcel so
you wouldn't add them into the Declared Value. $400 is also the amount
that you would want to insure them for. Xpresspost and Expedited
Parcel include $100 insurance, so you would just have to purchase an
extra $300 ($3.60).
Declared Value for Customs
The selling price or cost as determined by other valuation methods, of
an international shipment's contents.
http://www.fedex.com/ca_english/shippingguide/glossary.html?link=2
There's something else I meant to mention - if you buy the cardboard
Xpresspost prepaids for Canada, put some bubblewrap (the small bubble
kind) around your CD - that cardboard doesn't offer much protection.
If you have any other questions, please let me know -
hummer
|
Request for Answer Clarification by
ronklopfer-ga
on
26 May 2004 17:58 PDT
Hummer, the only area of your answer that I find to be somewhat vague
is on the question of local sales taxes. You say that "There are no
hard and fast rules as to whether local taxes in other countries will
be charged or not." I have some other information that says that in
California, for example, there are a set of criteria that determine if
state sales tax muist be collected. One of the criteria is whether or
not you have a local presence (business office or staff).
|
Clarification of Answer by
hummer-ga
on
26 May 2004 19:07 PDT
Hi ronklopfe,
Yes, I guess I worded that poorly. What I meant was this -
1) You don't have to worry about it because you don't have to collect
any local tax (called VAT overseas, Sales Tax in the US).
2) It's like here. I'm sure you've ordered things from the US or
elsewhere - sometimes they get stopped at the border and sometimes not
- you never know for sure what will happen until your package arrives.
Yes, countries have their rules, but not all parcels are stopped at
the border. If they do get taxed, the bill will go to the receiver,
not the sender (you). Just like parcels you order - who pays the GST
on those? You do, not the sender.
3) You are only responsible for paying the cost of shipping and any
tax on that cost (you can get that tax refunded to you) - that's it,
that's all. Any additional costs (brokerage fees, taxes, duties) will
be billed to your customer (by the billing party, not by you). I have
never paid any of those fees (except when I ordered something myself)
and I have shipped all over the world. Actually, I have never heard
back from anyone complaining of any fees or taxes - usually people
know what to expect when they order something (just like you wouldn't
be surprised to get a GST bill on something you ordered, and you
wouldn't have expected the sender to pay the GST, right?). To be on
the safe side, you could mention on your website that all customs
duties and taxes are the responsibility of the receiver - I know many
websites do include that type of message.
Is that any better? I'm very tired and probably am having a tendency
to ramble on a bit - I'll be more coherent in the morning. Don't be
afraid to post as many clarifications as you want to - I'll make some
strong coffee when I get up and be all set for you. hummer
|
Request for Answer Clarification by
ronklopfer-ga
on
26 May 2004 21:20 PDT
Hummer, thanks for that.
I'm still concerned about a scenario like this: we ship to a customer
in California. The software arrives at the U.S. border, and it is
waved through because software is covered by the free trade agreement
(NAFTA). The federal authorities at the U.S. Customs office don't
know or care about state sales tax. But, some time later, the state
of California realises that we are doing business in California but
not paying sales tax. They decide to come after us. We are a
sizeable, reputable company (even though this software business is
new), and we need to play by the rules.
Anyway, you have worked hard, and I promise to post no more
clarifications! I will give your response a high rating in the
morning.
Ron
|
Clarification of Answer by
hummer-ga
on
27 May 2004 06:50 PDT
Good morning, Ron -
Briefly, your business, or a business representative, would have to be
physically in California to be considered engaging in business there -
you are engaged in business in BC, not in Califorinia. Just as
someone in Toronto won't pay PST for your CD, a person in California
won't pay state tax on your CD.
Below is a link that talks about out-of-state businesses, however, you
are not only out-of-state but you are actually out-of-country!
6. Why would an out-of-state company charge me California sales or use tax?
"Any out-of-state company that is "engaged in business" in the State
of California must register with the Board of Equalization to collect
use tax on their retail sales of tangible personal property to
California customers.
"Engaged in business" can include:
* A permanent or temporary office, distribution center, sales or
sample room, warehouse, or other place of business in California.
* Having a representative in California who makes sales, takes
orders, installs merchandise, trains customers, or makes deliveries.
* Receiving rental payments from the lease of tangible personal
property that is located in California.
There are many out-of-state companies not physically "engaged in
business" in the State of California that make retail sales to
California consumers. These companies usually solicit orders via the
Internet or through mail order. Their only connection to California is
shipping merchandise by U.S. mail or other common carrier to
California customers.
Some out-of-state companies with no physical presence voluntarily
register with the Board of Equalization as a courtesy to their
California customers. They collect the California use tax from their
California customers. This relieves California customers of their use
tax liability, if they retain proof of their payment of use tax to the
vendor. Once registered with the Board of Equalization the
out-of-state company is legally obligated to collect the use tax.
California consumers are advised to review their receipts from
out-of-state companies to determine if they were charged California
use tax. It is also important for customers to determine if they were
charged the proper rate of tax for the area where they use, store or
consume the merchandise. For example, if an Alameda County consumer
was only charged 7.25 percent use tax on taxable merchandise, he/she
would be liable for the remaining 1.00 percent tax on the purchase
because Alameda County has an 8.25 percent sales and use tax rate."
7. Can the Board of Equalization require out-of-state companies to
register to collect California use tax?
"It depends. If an out-of-state company is "engaged in business" in
California they must register with the Board of Equalization to
collect use tax on their retail sales of tangible personal property to
California customers. However, if an out-of-state company is not
"engaged in business" in California, U. S. Supreme Court cases have
been interpreted to mean that the Board of Equalization is prohibited
from requiring these companies to register to collect California use
tax from their customers."
http://www.boe.ca.gov/sutax/faqusetax.htm#six
I think what you are talking about is the contentious issue of
"Internet Sales Tax". But don't forget, Ron - you don't fall under the
jurisdiction of the United States.
"And looming much larger for e-commerce is a greater Net sales tax
worry: Legislation is pending in Congress that would authorize states
to require sales tax collection on Internet purchases, provided those
states adopt simplified sales tax regulations. (But merchants with
less than $5 million in remote sales would be exempt.) In other words,
if the legislation passes many e-tailers will need to collect sales
tax from most of their customers, even if they are out of state."
http://www.smallbusinesscomputing.com/emarketing/article.php/3294821
>>>>>>>>>>
Just a note on a different topic: if you have Canadian credit card
business accounts, all transactions on the cards are deposited in
Canadian dollars - the credit card companies will exchange the amounts
automatically into the currency of the buyer on their monthly bill.
Not to worry about the number of clarifications - I would prefer that
we nail this one for you rather than letting you go away feeling
slightly uneasy.
Regards,
hummer
|
Request for Answer Clarification by
ronklopfer-ga
on
27 May 2004 10:38 PDT
Super, thank you.
We do indeed have a sales rep in California (I should have mentioned
this at the outset, but it didn't occur to me that a sales rep would
be a determining factor in sales tax liability). We also have a rep
in New York, and London, UK. So, I guess we eill have to register in
some of those jurisdictions. I wonder if a sales rep in California
means that you have to collect and pay sales tax in states other than
California? What a can of worms!
|
Clarification of Answer by
hummer-ga
on
27 May 2004 11:30 PDT
Whoops - posted this under comments by mistake.
Dear Ron,
Thank you for your nice note, rating, and tip - I'm happy you are happy.
Yes, I agree, it would've been helpful to have more of the specifics.
8-) Clearly, you will need a CA tax number but I don't see why that
would effect other states - you need only worry about the states where
you have a sales rep, eh?
CA Seller's Permit: directions & printable application:
http://www.boe.ca.gov/info/reg.htm#sales
NY Business Taxpayer Page:
http://www.tax.state.ny.us/sbc/
Taxes?States?Sales Tax: links to all of the states:
http://www.aicpa.org/yellow/yptstax.htm
UK Customs and Excise:
http://www.hmce.gov.uk/business/
Best of luck in your new venture,
Thanks again,
hummer
|
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