Companies who use the Internet to reach overseas customers frequently
use their website to process orders and accept payments. To ease
international customers' use, companies should consider installing
currency converters on the payment page. Additionally, as payment
practices usually vary from country to country, it is important
that the prevalent payment mechanisms be identified and incorporated
into the order-processing component of the web site.
U.S. Commercial Service Trade Specialists in your target market
can help you identify a country's most common payment mechanisms,
which you should consider before commencing cross-border e-commerce
in a particular market. See also, research on the Top Internet Markets FAQ .
Credit Card Payments
For B2C transactions, many overseas customers use credit cards
for online purchases, but credit cards are not a universally
common method of online payment. For example, regulations in
some countries hold cardholders liable for fraudulent charges,
other countries are culturally cash-based, and others simply
do not like credit. Nonetheless, to offer credit card payment
services, a company must establish a credit card merchant account
with a bank. The bank will process the transactions in exchange
for a fee. Companies should compare the fee structures of banks
to see which works best for the size and number of transactions
expected.
While fast, credit cards carry their risks. Chargebacks can
be very costly for online exporters. Common chargeback reasons
are: fraud, dispute over the quality of merchandise, non-receipt
of merchandise, or amount charged to card was incorrect. Companies
accepting online credit card transactions should be knowledgeable
about their credit card and bank's policies toward chargebacks
and how to avoid them.
Account-to-Account (A2A) Transfers
A2A transfers, in which money is transferred electronically
between the customers and merchants bank, are popular
in many countries. A2A transactions offer the advantages of
occurring in real time and reduce the potential for fraud and
chargebacks. Unfortunately, because A2A transactions are rare
in the U.S., few U.S. banks currently offer this service.
Person-to-Person (P2P) Transfers
There are many companies offering P2P services, in which funds
are sent electronically to a third party, which in turn deposits
the funds in the merchant's account. An example of a P2P service
provider that conducts cross-border transaction is PayPal. PayPal
lets anyone with an email address securely send and receive
online payments using their credit card or bank account. PayPal
will also conduct currency exchange, allowing the customer and
merchant to operate in their preferred currency. Other P2P providers,
such as Western Union's BidPay, accept a credit card payment
from the payer and send a money order to the payee. Internationally,
P2P transfers have come under some degree of scrutiny (see a
United Nations
Discussion Paper about Informal Money Transfer Systems ),
so it is advisable to consult with a Commercial Service officer
in the country you are targeting before deciding on a particular
payment mechanism.
Taxation
An online merchant selling to international customers must
pay careful attention to the tax implications of those sales.
In general, once a company crosses a certain threshold of activity
in a foreign country, the company becomes subject to income
tax in that foreign country. In many cases, a company must have
a "permanent establishment" in the foreign country
before that country will subject the company to income tax on
the company's business profits from that country. Thus, for
example, an American online vendor of digitally- or physically-
delivered products that does not have equipment or personnel
in Japan generally would not be subject to Japanese income tax
on its sales. However, there are important exceptions to this
general rule. Some payments from customers in a foreign country
may be subject to withholding tax by the foreign country (e.g.,
if the foreign country determines that the payments are "royalties"
or other payments subject to withholding).
Electronically delivered goods should be treated like any other
sale to a foreign customer. It generally is the responsibility
of the customer/importer to declare their purchase and pay any
taxes. Tax
and tariff information on a country-by-country basis is
available, or contact a Commercial
Specialist in the targeted country for more information.
In addition, a foreign country may impose other types of taxes,
such as value-added tax (VAT), on sales into its jurisdiction.
For example, as of July 1, 2003, the EU member states began
taxing sales of electronically supplied products and services
by non-EU firms to non-business customers located in the EU.
Non-EU providers of electronically supplied products and services
are now required to register with a tax authority in a member
state and collect and remit VAT based on the VAT rate of the
member state where their customer is located. More information
on online taxation can be found at the Department of Commerce,
Office of Information
Technology and Electronic website.