are online businesses taxed

What is tax? A tax is a compulsory contribution to a government. We all pay tax on pretty much everything: the stuff we earn, the stuff we buy and the stuff we own. Like it or not, taxes are how governments raise revenue. They spend the money on services that benefit the community. Things like welfare, health, defence, education, infrastructure Etc. The burden of different taxes can fall on different groups of people. We tend to think of taxes as proportional, regressive or progressive.

A proportional tax charges everyone the same average tax rate regardless of their income. It's also called a flat tax because the line is flat. A regressive tax hits people with lower incomes harder. As your income increases your average tax rate goes down and the burden of a progressive tax lands on people with higher incomes. So as your income increases your average tax rate goes up. It might seem obvious but most people want to keep their tax bills to a minimum. There are a couple of ways to do that: the nice way and the naughty way.

The nice way is to avoid tax. Tax avoidance means you fully report your income and structure your finances in a way that minimizes your tax bill. It's completely legal and even encouraged. Nobody should pay more tax than they have to. The naughty way is to evade tax. Tax evasion can be as simple as not paying your taxes or perhaps you don't report all of your income. It's illegal so don't do it. Taxes can also be direct or indirect.

A direct tax is one that a taxpayer pays straight to the government and an indirect tax is one that a taxpayer can pass on to someone else. We'll see examples of both of these in a second. Hello and welcome back to Accounting Stuff. I'm James and today I'll take you through 10 of the most common types of tax.

This is an intro to tax for beginners, I won't be giving any tax advice in this video. the rules are different in different places and they're constantly changing so for any real life scenarios please check with your local tax authority or seek help from a qualified tax accountant. Let's do this! We pay tax on the stuff we earn, the stuff we buy and the stuff we own. Let's start with tax on the stuff we earn. The first tax that jumps to mind is personal income tax. Personal income tax or individual income tax is a direct tax on most forms of income earned by individuals. It's charged on your salary or wages, the profit earned by your business if you're self-employed, and your investment income from interest and dividends. Most countries have some form of personal income tax and it's usually a large source of revenue. The tax collected often goes into a general fund to be spent as the government sees fit.

We can calculate personal income tax by multiplying your taxable income by your personal income tax rate. It seems simple but usually your personal income tax rate increases as you earn more. Let me show you how. In a galaxy far far away there's a small planet called Naboo. Naboo has a graduated tax system with personal income tax bans. On the first 15,000 galactic credits you earn you pay nothing and on your next 35,000 you pay 20% tax. On any personal income above 50,000 you pay 35%. Jar Jar is a cook for a wealthy nobleman he lives on Naboo and earns 80,000 credits during a tax year. Let's work out his personal income tax bill. On Jar Jar's first fifteen thousand credits his tax rate is zero, so he pays nothing. On his next 35,000 his tax rate is 20% so he pays 7,000 credits and on his income above fifty thousand his tax rate is 35 percent eighty thousand minus fifty thousand is thirty thousand and thirty five percent of that is ten thousand five hundred credits. So Jar Jar's total personal income tax bill is seven thousand plus ten thousand five hundred which is seventeen thousand five hundred galactic credits. If we visualize this on a graph we can see that personal income tax on Naboo is progressive.

As Jar Jar earns more his tax rate steps up. Jar Jar's marginal tax rate is 35%. This is the highest rate of tax he pays. The effective tax rate that he pays on all of his income is an average tax rate. We can work out Jar Jar's average tax rate by taking his total income tax payable and dividing it by his total taxable income 17,500 divided by eighty thousand which comes out at around 22 percent. This is much lower than his marginal tax rate of 35 percent. But what other taxes do we pay on the stuff we earn? We also pay payroll tax. Payroll tax is a direct tax on wages and salaries earned by individuals. It can be paid by you, your employer or both. Payroll tax is normally deducted from your pay slip like personal income tax. But it ignores profits, interest and dividends. The tax money raised from payroll tax is often used to fund Social Security Programs.

These provide a safety net for those unable to work: people who are sick, retired or unemployed. Payroll tax is equal to gross wages or salary multiplied by the payroll tax rate. Naboo has a flat five percent payroll tax rate. Jar Jar earned 80,000 credits during the tax year, but his gross wages were 60,000 credits. So his payroll tax payable is 60,000 multiplied by 5% which is three thousand credits. If we look at our graph you might think that payroll tax is a flat tax. As Jar Jar's wages go up his effective payroll tax rate stays the same. But this one's up for debate. You could argue that payroll tax is actually regressive since wealthy people tend to earn more income from other sources like investments which are exempt from payroll tax. But individuals aren't the only ones who pay tax. Companies are separate legal entities so they have to pay tax too.

Company tax or corporation tax is a direct tax on business profits. Profit is equal to revenue less expenses and company tax payable is equal to taxable profit multiplied by the company tax rate. The company tax rate on Naboo is 15%. The government set it a little bit lower than the personal income tax rate to encourage economic growth. Naboo Technologies is a company that makes communication devices. It's registered on Naboo and generated a taxable profit of 1 million credits during the tax year. So their company tax payable is 1 million multiplied by 15% which is 150,000 credits. But wait there's more! We also have capital gains tax. Capital gains tax is a direct tax on the profit realized when an investment is sold. Individuals and companies both pay capital gains tax when they sell a long-term asset for a higher price than they bought it for.

The asset might be shares, bonds or real estate. But it normally excludes primary residences for individuals. We can work out capital gains tax by multiplying the capital gain by the capital gains tax rate. Jar Jar bought 100 shares in Naboo Technologies a few years back at 60 credits per share. The share price has since risen to 100 credits so he decides to sell up and realize the capital gain. His capital gain is 10,000 minus 6,000. So that's 4,000 credits. Naboo has a capital gains tax rate of 35% so Jar Jar's capital gains tax payable is 4,000 multiplied by 35 percent which is 1,400 credits. I know we're covering a fair amount here so I've summarized all of the key points from this video on my tax basics cheat sheet. It's available buy on my website. The link is down in the description and the proceeds help keep these videos free from sponsors.

So you pay tax on the stuff you earn but what about the stuff you buy? Depending where you live, you might familiar with sales tax or value-added tax. Sales tax is an indirect tax on the sale of products and services to the final customer. It's a consumption tax, triggered by the customer when they buy something. You can find it on bills and invoices in the US where it's a large source of revenue for many states. Sales tax is equal to the list price of an item multiplied by the sales tax rate. A scavenger on Tatooine sells some raw materials to a droid manufacturer for 2,000 credits. The Droid manufacturer uses these to build a house droid which it then sells onto a moisture farmer for a list price of 10,000 credits. If the sales tax rate on Tatooine is 10% who pays what? Since the first transaction is business-to-business the scavenger doesn't charge sales tax.

The Droid manufacturer only pays them the list price of 2,000 credits. But the second transaction is business-to-consumer. So this time the droid manufacturer needs to charge sales tax. We can find out how much by taking the list price of 10,000 credits and multiplying it by the sales tax rate of 10% which is one thousand. The droid manufacturer collects 11,000 credits and pays the sales tax of 1,000 to the local government. As you can see, sales tax is an indirect tax because it's collected by the seller but the cost is born by the end consumer. The sales tax rate on Tatooine is flat but it's still considered to be a regressive tax. The theory goes something like this...

High income earners are able to save more of their income which means they spend a lower proportion of it on taxable goods and services. On the other hand, people with lower incomes spend a higher portion of it on consumption. You'll find that a lot of places exempt necessities from sales tax in order to make it less regressive. Things like food, water, rent and medication. Sales tax tends to be an American thing but value-added tax is popular outside of the US. Value-added tax or VAT is an indirect tax on the sale of products and services at each stage of the production chain. It's also called goods and services tax or GST. We can calculate VAT by taking the list price of an item and multiplying it by the value-added tax rate. This can get a little confusing because it sounds similar to sales tax. But allow me to break it down for you. Let's pretend that Tatooine actually has a value-added tax system.

The rate is still 10 percent. The scavenger sells raw materials to the droid manufacturer and in return they pay them the list price plus VAT since value-added tax is added at every step of the production chain. The droid manufacturer turns the raw materials into a house droid which it sells onto the moisture farmer. They pay the list price plus VAT as well. From the droid manufacturer's point of view, there are two kinds of value-added tax: input VAT and output VAT. They collect output VAT on sales. This is payable to the government. And they pay input VAT on purchases which they can claim back. The net VAT payable to the government is equal to Output VAT minus input VAT. Let's throw some numbers in. The Droid manufacturer pays the scavenger the list price of 2,000 plus 10% VAT which is 200 credits. From the scavenger's point of view, this is output VAT.

They owe this money to the government. But from the droid manufacturer's point of view, this is input vat that they can claim back. Now stay with me... When the droid manufacturer builds the house droid they add value in the production chain which allows them to charge more money. The moisture farmer pays them the list price of 10,000 credits plus 10% VAT of 1,000 credits. The moisture farmer can't reclaim this as input VAT because they're the final consumer in the production chain. But from the droid manufacturer's point of view this is output VAT and they owe it to the government. Their net VAT payable is 1,000 of output VAT minus 200 of input VAT so 800 credits.

In total the government collects 1,000 credits. 200 from the scavenger and 800 from the droid manufacturer. VAT is a regressive indirect tax in the same way that sales tax is. But the difference is in who pays the government. Sales tax was only paid once by the droid manufacturer on the final sale, but the value-added tax payments are shared amongst businesses in the production chain. Sales tax and value-added tax aren't the only taxes we pay on the stuff we buy. Excise tax is an indirect tax on the sale of specific products and services. Usually these are bad things that the government wants to discourage. Stuff like fuel, alcohol cigarettes and CO2. For this reason it's sometimes called a Sin Tax. It's usually charged at the point of production and becomes baked into the sales price of the final product. Often sales tax or value-added tax is applied on top. Excise tax is equals total units of a product multiplied by the excise tax rate per unit. The units can be based on weight, volume or any other unit of measurement.

Another tax on specific things is a tariff. A tariff is a tax imposed by one country on specific products and services imported from another country. It's also called a customs duty. Tariffs are trade barriers charged at the moment the product crosses the border. They're meant to help domestic manufacturers by raising the prices of imports and reducing competition. The cost of a tariff is equal to total units of a product multiplied by the tariff tax rate per unit. Governments tax the stuff you earn and the stuff you buy but they also tax the stuff you own. Take your house for example. Property tax is a direct tax on the ownership of land and buildings. It tends to be charged by local governments to fund public services in the area. Things like schools and libraries.

Property tax is equal to the assessed value of a property multiplied by the property tax rate. We can assess the value of a property by comparing it against the sale of similar properties or calculating its replacement cost or taking its rental value. Jabba's Palace sits on the Northern Dunes of Tatooine. If it has an assessed property value of 10 million credits and the annual property tax rate on Tatooine is one percent then Jabba owes 100,000 credits in property tax. Is property tax progressive? Sort of. On the one hand, people with lower incomes are less likely to own property so they either don't pay property tax or they live in cheaper properties. But on the other hand, the wealth of low-to-middle income homeowners can become heavily concentrated in property and landlords can pass on their property taxes to tenants by raising the rent.

So perhaps property taxes are regressive... what do you think? Property tax is a type of wealth tax. A wealth tax is a direct tax on the assets of individuals. We take net assets above a certain threshold and multiply it by the wealth tax rate. An individual's net assets are their total assets minus their total liabilities. The stuff they own minus the stuff they owe. If the wealth tax rate on Tatooine is 0.5 percent how much wealth tax does Jabba owe? What are his net assets? This is where things get tricky. Jabba has an enormous amount of wealth but is difficult and expensive to measure.

He doesn't just own property. He owns private companies and trusts all across the star system. He also hires the very best tax experts to help him avoid paying it. In practice it can be difficult to implement a wealth tax. Since you made it this far, I have one quick bonus tax for you: Inheritance tax. Inheritance tax is a direct tax on inheritance received. It's one of the oldest taxes in the world, dating all the way back to Roman times.

When a person dies they pass on their assets and the recipient pays inheritance tax when they receive them. We take inheritance received above a threshold and multiply it by the inheritance tax rate. Inheritance tax is progressive since it targets people with a high net worth, but there are often loopholes to avoid paying it. You might set up a family trust or pass on gifts while you're still alive. You pay tax on everything! On the stuff you earn, the stuff you buy and the stuff you own. Like I mentioned I've summarized all of the key points in my tax basics cheat sheet.

What VAT is applicable on the online sale of goods?

The buyer is an individual

Since July 1, 2021, 2 types of online sales must be distinguished:

• intra-Community distance selling, which refers to B2C sales of goods when the goods are transported from one Member State of the European Union to another Member State of the European Union.

• distance selling of goods imported from third countries, which refers to B2C sales of goods where the goods are transported from a non-EU state directly to the particular customer in an EU member state (dropshipping).

Intra-Community distance sales

When the buyer is an individual, the transaction is subject to the distance selling regime. The VAT to be applied to the sale is then based on the turnover threshold for distance sales made.

Prior to the entry into force of the e-commerce VAT reform on July 1, 2021, online sellers were required to register for VAT in each Member State in which they had a turnover of more than one year. certain overall threshold, which varied by country. Since July 1, 2021, these different thresholds have been replaced by a single threshold set at €10,000, above which VAT must be paid in the Member State where the goods are delivered.

The turnover to be taken into account corresponds to the amount, excluding VAT, of distance sales made by the supplier in the State of arrival of the goods during the previous calendar year or, failing that, the current calendar year. price at the time of delivery.

This threshold of €10,000 is assessed globally with all EU Member States and not State by State:

• When the company does not exceed the threshold of €10,000, VAT must be paid in France, at the rates and conditions specific to French regulations.

• When the company exceeds the threshold of €10,000, the VAT must be paid in the Member State where the goods are delivered. Sales are therefore taxed in the Member State of arrival, at the rates and conditions specific to the regulations of that State. The company can declare the VAT either via the VAT one-stop shop (for B2C sales), or via a registration and a local VAT declaration, which can be carried out by an agent or a tax representative.

Even if he does not exceed the threshold of €10,000, an online seller still has the possibility of opting for the application of the VAT rate of the Member State of destination (option of 2 years minimum + that during from which it was exercised).

Note: the distance selling regime does not apply to new means of transport, products subject to excise duty (alcohol, alcoholic beverages, mineral oils, manufactured tobacco) and deliveries of second-hand goods, works of art, collectibles or antiques.

Yes, online businesses are generally taxed in the same way as traditional brick-and-mortar businesses. The taxes that online businesses may be required to pay depend on a number of factors, including the type of business, its location, and the nature of its activities.

In the United States, for example, online businesses are subject to federal, state, and local taxes, just like any other business. This may include income taxes, sales taxes, payroll taxes, and property taxes, among others. The exact taxes that an online business must pay will depend on its structure, location, and the type of products or services it offers.

In addition to domestic taxes, online businesses may also be subject to taxes in other countries if they sell products or services to customers located outside of the United States. This is because many countries have laws requiring businesses to collect and remit taxes on sales made to customers within their borders.

Overall, it is important for online businesses to understand the tax laws and regulations that apply to their operations in order to ensure that they are in compliance and avoid costly fines or penalties. They may benefit from seeking the advice of a tax professional or consulting relevant tax authorities to determine their tax obligations.