Last modified: February 4, 2019
From payments and logistics to language and laws, no country is the same. Each region has its own risks, but also vast opportunities. Expanding out of your home market to capitalize on ever-growing global ecommerce opportunities can be a complicated business, with several nuanced regional considerations.
In this third installment of our three-part series about breaking down the barriers of global ecommerce, we’ll address the importance of keeping up with the constantly evolving landscape of local rules and regulations to avoid potential damage to your brand image.
Data Privacy Regulations
Consumers are increasingly mindful of who is accessing, collecting, receiving, processing, and storing their personal data. As a result, various regulations are being passed around the world to protect consumer privacy. Full compliance with these regulations requires local insight and is a vital component of brands successfully selling across regions.
In an effort to standardize data protection requirements across the member states of the European Union (EU) and improve trust in the rapidly expanding digital economy, the European Parliament and Council introduced the General Data Protection Regulation (GDPR). This regulation came into force in May of 2018 and affects nearly every organization that does business with European consumers, regardless of geographic location. The GDPR empowers consumers to take control over their personal data and has changed the way commerce is managed around the world.
If the GDPR has shown anything, it’s imperative for sellers to have deep local knowledge of regulations to account for even the slightest variances – without it, brands may encounter serious financial penalties or a destroyed reputation. Having a well-articulated data protection program in place to avoid these risks is even more important as the GDPR has started a snowball effect for data privacy regulations around the world.
California Privacy Act
In response to concerns regarding corporate data sharing practices, including the Facebook-Cambridge Analytica relationship, California passed the Consumer Privacy Act of 2018, which goes into effect in 2020. Similar to the GDPR, California’s new Consumer Privacy Act does not require a physical presence in the state for an organization to be required to comply since it applies to all businesses that collect, sell or process information about California residents. This legislation gives consumers access to the information that companies have stored, enables shoppers to opt out of having their data shared, and penalizes companies that improperly manage consumer data.
New Brazil and India regulations
Many other countries, including Brazil and India, are currently enacting their own revised data protection regulations following in the EU’s footsteps. Ecommerce is accelerating at rapid rates in both countries, making them increasingly attractive markets for global expansion. However, both Brazil and India are complex countries to sell in to, with challenging regulatory and tax requirements.
Brazil’s General Data Privacy Law was passed in August 2018 and closely mirrors the GDPR in terms of scope and rules for data processing. Even if processing is conducted outside of Brazil, the new law applies if the processing activities affect Brazilian citizens. Similarly, India’s Personal Data Protection Bill, which was proposed in July 2018, calls for a comprehensive data protection law that will regulate data processing and safeguard Indian consumers. While these regulations have not yet gone into effect, it is crucial for companies to plan ahead and bring their data processing practices into compliance.
Tax Management and Compliance
Tax management is one of the most challenging complexities of selling products around the world. As consumers continue to expect flawless ecommerce experiences, it’s crucial for merchants to be able to calculate tax quickly and accurately no matter where in the world they do business.
South Dakota v. Wayfair
In June 2018, the U.S. Supreme Court ruled to overturn the physical presence requirement for states to be able to enforce the remittance of sales tax – a requirement that many considered an unfair advantage for companies selling online. The South Dakota v. Wayfair ruling means that states can now require out-of-state retailers to charge sales tax on online purchases, regardless of the state in which the company has a physical presence. And just as any company that does business with European citizens needs to comply with the GDPR, this sales tax ruling applies to companies in other countries that sell to U.S. customers.
This notion of charging cross-border taxes regardless of physical presence is picking up steam around the world with other countries looking to implement similar laws. Like the South Dakota v. Wayfair ruling in the U.S., transaction tax laws are being passed globally requiring non-resident sellers of electronic services to register and charge local taxes to resident shoppers.
Value-added taxes (VAT), also known as goods and services taxes, vary greatly across regions and are a crucial component of accurate tax calculation. In June 2018, Argentina instituted a value-added tax (VAT) on digital services that are purchased by Argentinian consumers. This differs from traditional transaction taxes because the tax administration is shifted from the foreign retailer to the local Argentinian payment processor. As a result, the ability to offer localized ecommerce experiences in this region is further complicated.
Norway and Switzerland Complexities
Sitting outside of the European Union, Norway and Switzerland operate under separate free trade agreements than EU member states. While the market opportunity for ecommerce is strong, it also calls for an in-depth understanding of the complex tax and regulatory challenges specific to these countries. For example, Norway and Switzerland have much lower VAT than EU states. Local knowledge is essential to navigate the administrative landscape for any business looking to pursue ecommerce opportunities in these markets.
As consumers become savvier with the way they purchase online, they expect a superior ecommerce experience that offers the best deals no matter where in the world they are shopping. Geo-blocking, the practice of preventing consumers from accessing and purchasing products from a website based in a different region, threatens to undermine this experience for consumers. This practice, along with other geographically-based restrictions, affects the ways retailers conduct cross-border ecommerce and pose another challenge for global compliance.
In May 2018, Amazon made the decision to block Australian shoppers from accessing Amazon’s U.S. site to avoid a new sales tax on imported online goods. This decision, which forced Australian consumers to use the Amazon Australia site, resulted in backlash from these shoppers as Amazon Australia has a much thinner product range and uncompetitive prices compared to the U.S. site.
A mere six months later, the ecommerce giant decided to reverse the Australia geo-blocking decision in November 2018. This reversal came just in time for the holiday shopping season and is likely to improve Amazon’s previously tarnished brand image among Australian shoppers.
Regulation (EU) 2018/302 (the, “Unjustified Geoblocking Regulation”)
The European Union’s Regulation (EU) 2018/302 is the most recent ecommerce regulation to affect global retailers. Similar to Amazon geo-blocking Australian shoppers, EU member states had historically been able to geo-block consumers from visiting websites based in other member states.
To remove this barrier, the EU put a geo-blocking regulation in place that no longer allows ecommerce websites to restrict visitors by unjustified geo-blocking unless an exemption applies. Regulation (EU) 2018/302 went into effect on 3 December 2018 and impacts the ecommerce operations of many retailers that sell products throughout the European Economic Area (EEA).
The Bottom Line
Selling online internationally is a challenge that shouldn’t be underestimated. Brands are expected to comply with all local rules and regulations while delivering a local experience with the language, currency and payment methods that shoppers prefer. This is no easy task and causes massive headaches for retailers around the world. Our recommendation? Don’t do it alone.
Partnerships play a prominent role in global ecommerce expansion efforts. Look for a partner whose knowledge extends beyond “today” and who is able to help grow your business at the remarkable pace of ecommerce. Reliance on a partner that can take on the risk of regulatory compliance and tax requirements is especially helpful when expanding globally.
To successfully go global, brands have to focus their efforts on going local – providing familiar experiences that meet the expectations of customers, wherever they may be in the world. To learn more about international ecommerce expansion, download our Simply Global guide.
Disclaimer: This article is intended for informational purposes only and not for the purposes of providing legal advice as Digital River is not engaged in rendering legal, tax or other professional advice and this article is not a substitute for the advice of an attorney or other expert. If you require legal or other expert advice, you should contact an attorney, tax advisor or other expert to obtain advice with respect to any particular issue.