Selling your products and services online is an increasingly lucrative way to run your business. And with e-commerce platforms like Jumpseller, it has never been easier to get started. Before you do, though, there are some things you need to know.
As the world of e-commerce grows, so too do the rules, regulations, and taxes around selling online.
To give you a headstart, we’ve outlined a few of the key laws you need to know, regarding some of the major trading countries across the globe.
United States
The United States has an exhaustive list of e-commerce regulations at both state and federal levels. Some states have tighter regulations than others, so it pays to check their local laws.
With that said, the federal government has imposed several blanket regulations on online sellers. For example, you will need to register your online business to make it a distinct legal entity.
Federal privacy law
The Federal Trade Commission Act (FTC Act) enforces privacy laws to protect consumers from “deceptive trade practices”.
To avoid actions against your business, you must comply with the following privacy regulations:
- Publish a privacy policy.
- Maintain reasonable data security measures.
- Do not mislead consumers with inaccurate privacy policies.
- Do not engage in false advertising.
As well as federal laws, US Attorneys General oversee state data privacy laws that monitor the collection, storage and safeguarding of their resident’s data.
Many states are now following California Consumer Privacy Act (CCPA) and enforcing comprehensive data privacy legislation.
Sales Tax
There is no national sales tax rate. The state-decided sales tax rates range from 2.9% in Colorado to 7.25% in California.
Sales tax is a percentage rate tacked on to the original price. There are five states where sales tax is not required for internet-based businesses, including Alaska, Delaware, Montana, Oregon and New Hampshire.
Corporate Tax
The USA imposes federal income tax at a rate that varies depending on your entity.
The highest corporate tax rate is 21%, and the lowest rate is 13.3%, which is typically used for sole proprietorship entities.
China
China has tightened its online trading regulations in the past two years to clear up several issues in the online marketplace and protect the rights of consumers.
To sell online in China on an established platform or your own website, you need to:
- Register as a market entity.
- Maintain accurate transaction records.
- Sell goods that comply with China’s personal safety standards.
- Pay taxes.
- Display your business licence and inform the public 30 days before closing your business.
- Protect consumer information and IP address.
- Provide comprehensive and accurate descriptions of products.
- Clearly define the company’s refund policy.
State Administration for Market Regulation (SAMR)
In a recent bid to rein in China’s loose online marketplace, SAMR is cracking down on illegal pricing activities.
This prevents online sellers, including e-commerce giants such as Alibaba, from setting different prices based on consumers’ purchasing trends and ensures platforms set the same price for the same offering.
Violating this regulation will result in the suspension of operations and a fine of 0.1% to 0.5% of the annual sales.
Value Added Tax (VAT)
China has three VAT rates: 6%, 9% and 13%, depending on the type of goods or services sold.
For goods sold online, 13% is the VAT rate tacked on to the product’s original sale price.
Individual Income Tax
Business income comes under China’s Individual Income Tax (IIT) rate. The rate is a percentage of total annual earnings, ranging from 3% to 45%.
The amount of IIT you pay depends on your annual income, i.e. the more you earn, the more tax you pay.
Australia
Australia enforces several regulations with legal implications for online sellers who fail to comply. The Australian Consumer Law (ACL) under federal law prioritizes consumer privacy and protection and prevents harmful business practices.
Australian Consumer Law (ACL)
The ACL regulates all businesses that deal with consumers, maintaining a high level of business conduct. Online businesses are obligated to ensure products sold are:
- Suitable for sale.
- Fit for purpose.
- Free of defects.
- Match the online product description.
Consumer data protection
Online businesses must have processes in place to protect all consumer data, including personal information and credit card details.
Data protection measures must be clearly defined on your website, with further information outlined in the privacy policy.
Displaying legal documents on websites
All websites must display the following key legal documents:
Website Terms of Use: Outlining content accuracy, business liability for website material, consumer rights and obligations while on your website.
Privacy Policy: Details how you manage the information of customers, supporters and donors.
Terms and Conditions: Addresses what you are selling, how it is paid for, how it is delivered and any disclaimers about what your business is not liable for.
When online selling becomes a business
Selling online in Australia may not meet business criteria.
If you’re selling online sporadically on established trading platforms, this is considered a hobby.
If you intend to make a profit, set up a ‘shop’ on a trading platform, apply product mark-ups or make regular sales, you are operating an online business.
In this case, you will need to apply for an Australia Business Number (ABN) and register as a business.
Goods and Services Tax (GST)
GST applies to businesses with an annual turnover of over $75,000. GST is a rate of 10% that is tacked on to the original sales price of a product.
This tax is then reported and paid to the Australian Taxation Office (ATO) monthly, quarterly or annually, depending on your annual business income.
Business Income Tax
All businesses must file an annual business income tax return even if they don’t owe tax for that year.
The federal tax rate of 30% of accessible income applies to larger businesses and 25% for small to medium businesses.
Most Australian businesses use a Pay As You Go (PAYG) system and pay tax in quarterly instalments to avoid a large annual tax bill.
New Zealand
New Zealand’s online selling regulations are outlined in the Consumer Guarantees Act and the Fair Trading Act.
These laws are closely regulated to protect consumer information and prevent online businesses from misleading their customers.
Fair Trading Act
The Fair Trading Act applies to online businesses selling within New Zealand and online businesses abroad that sell to New Zealanders.
Under the Fair Trading Act, online businesses are obligated to:
- Disclose to customers that you’re in trade.
- Represent goods accurately and have a reasonable basis for all claims.
- Ensure consumers are aware of their rights.
- Engage in fair, accurate advertising.
- Comply with product safety standards.
Consumer Guarantees Act
The Consumer Guarantees Act protects consumers from being misled by online sellers.
Under the Consumer Guarantees Act, online businesses are obligated to:
- Sell goods of reasonable quality.
- Sell goods fit for purpose.
- Ensure goods arrive in good condition.
- Ensure goods match their online product description.
- Offer repair or refund options for manufacturer faults.
Consumer privacy
It is up to the online seller to protect consumer data and display cybersecurity measures in their Privacy Policy.
Online businesses may be liable for leaks of personal and payment information.
Goods and Services Tax (GST)
New Zealand GST is a flat rate of 15% applied to the original sale price of goods and services.
The extra 15% is charged to the consumer and then paid by the business to the Inland Revenue Department (IRD) every month.
Business income tax
Contractors, sole traders, or self-employed New Zealanders - such as those who run their own online stores - pay provisional tax on their income.
Provisional tax is a method of paying tax in instalments in advance which, in many cases, requires a forecast of earnings.
As inaccurate forecasting can lead to significant penalties on underpaid tax, IRD-approved intermediaries offer progressive tax pooling systems to simplify provisional tax.
Many of those who are eligible to take advantage of tax pooling are still unaware it is an option, so it’s worth checking to see whether you qualify.
United Kingdom
There are several rules and regulations to be aware of before becoming an online trader in the United Kingdom.
Online businesses are closely monitored to protect the consumer and ensure fair trading practices are adhered to. Online sellers are subject to the same laws as bricks and mortar retailers.
Consumer Rights Act
All online businesses must adhere to the regulations outlined in the Consumer Rights Act.
These regulations give consumers the legal right to:
- Repair or replace a faulty product.
- A reasonable delivery timeframe.
- Fair terms and conditions.
- Goods of satisfactory quality, fit for purpose and accurately described by the seller.
Distance Selling Regulations
Consumers are protected by Distance Selling Regulations when not in the presence of the seller at the time of transaction.
Under these regulations, online businesses are obligated to:
- Give consumers the right to cancel a sale within seven working days.
- Provide clear product details and delivery information.
- Provide email confirmation of order.
- Deliver the product within 30 days of order.
Value Added Tax (VAT)
Most goods and services in the United Kingdom incur a standard rate of 20% VAT tax.
If you are VAT-registered, you must file a VAT return to Her Majesty’s Revenue and Customs (HMRC) quarterly even if you have no VAT to pay.
Online Sales Tax
In the wake of COVID-19, online shopping has skyrocketed, contributing to the collapse of bricks and mortar retailers.
The UK government introduced a 2% digital sales tax in April 2020 in an attempt to help reduce store closures.
Be aware that the UK government is now considering a 2% sales tax on top of the digital sales tax.
This levy has not yet been introduced, but it’s looking more and more likely as retailers struggle to come back from the pandemic’s economic impact.
Look into your local laws and regulations
Online selling can be extremely profitable, especially in today’s climate.
However, it’s important to know your local laws and regulations before setting up an online business to ensure you’re a compliant and reputable company.
As we’ve learned, consumer rights are a priority across the globe, so putting your customers first throughout your business journey is key to your success.
