For cross-border eCommerce businesses looking to do business within the European Union, keeping up with the complex and constantly evolving world of trade regulations — from codes, declarations, duty and tax calculations to customs clearance requirements that may vary from one country to another — can be a daunting task.
The EU Value Added Tax (VAT) rule, under which imports valued at €22 euros were not subject to the tax, was removed in July last year, further complicating the regulatory environment for many eCommerce firms that must now endure heavy bureaucracy to pay VAT on all their imports.
“Most of eCommerce goods that were declared were under €22 [and therefore exempt from tax],” Egon Veermae, chief operating officer at Estonia-based eCommerce compliance firm Eurora Solutions, told PYMNTS in an interview.
He added that these stringent regulations are in stark contrast to the U.S., where firms benefit from a $800 threshold before they are subject to tax rules.
Another challenge EU cross-border firms are facing is the requirement to now declare all the goods to customs. According to Veermae, this leads to the complex task of having to calculate different VAT rates based on where the consignee is based — for example, the standard VAT rate is 19% in Germany, while in Estonia, it’s 20% — in addition to other tax requirements firms might be subject to.
At the end of the day, companies struggle to keep up, leaving them in dire need of a solution that helps them to calculate their taxes correctly. It’s a solution that the artificial intelligence (AI) and machine learning (ML)-backed firm is offering to clients through its proprietary platform that fully automates tax, compliance and customs services.
“We have integrations with the different European customs authorities because there is not a [centralized] customs authority in Europe,” Veermae explained. “Beyond these technical integrations, there’s also the language barrier we help tackle.”
Unlike some competitors, Eurora Solutions’ automated solution is accompanied by a customer support service to help customers to navigate new regulations.
“When we onboard the customer, we always appoint a special tax accountant to you who can always answer any questions you might have,” he noted.
Middle East Expansion
Last month, the cross-border eCommerce compliance platform snagged $40 million in Series A funding in an oversubscribed round that was considered one of the largest financing rounds of its kind in the Estonian startup ecosystem.
Read more: Eurora Solutions Snags $40M for eCommerce Compliance Platform
According to Veermae, parts of the funds have been earmarked for expansion into Middle Eastern markets, which hold huge potential for business growth but require a good understanding of the local culture and how to successfully build a business in the region.
“We want to find our niche and identify how we can help businesses,” he said. “That is the biggest challenge, in addition to ensuring a good penetration in these markets.”
However, another challenge will come from regulators and the pressure governments are putting on cross-border businesses to collect more taxes.
“Countries now require eCommerce platforms to start collecting taxes cross-border, I think this is going to be the biggest challenge,” Veermae said. “This was implemented in the U.K., now in Europe, and next year Singapore will start to use the same logic.”
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