Introduction
When expanding your business internationally, understanding Goods and Services Tax (GST) and Value Added Tax (VAT) is crucial. While these taxes function similarly to sales tax in the U.S., they have significant differences in how they are applied and collected. This guide breaks down how GST/VAT differs from sales tax, how it impacts importers and wholesalers, and how Amazon sellers should approach tax compliance.
GST/VAT vs. U.S. Sales Tax: Key Differences
GST or VAT is a form of sales tax used in most countries worldwide. However, the way it is charged and collected is fundamentally different from the U.S. sales tax system.
✅ How Sales Tax Works in the U.S.:
✔ Applied only at the final point of sale to the consumer
✔ Not paid by businesses during the supply chain (exempted via resale certificates)
✔ Collected by the retailer and remitted to the state government
✅ How GST/VAT Works in Most Countries (e.g., Canada, EU, Australia):
✔ Applied at every stage of the supply chain (manufacturer → wholesaler → retailer)
✔ Businesses pay GST/VAT on purchases but claim Input Tax Credits (ITCs) to recover it
✔ Final tax burden is only on the end consumer
In essence, while U.S. sales tax is charged once, GST/VAT is charged multiple times but refunded along the way, ensuring only the final consumer bears the tax.
GST/VAT on Imports: What Happens to the Importer?
When a business imports goods into a country with GST/VAT, they must pay GST at customs on the declared value of the goods. However, if they are GST-registered, they can later recover this tax via ITCs.
Example of GST in the Supply Chain:
1️⃣ Importer brings in goods worth $10,000 and pays 5% GST ($500) at customs.
2️⃣ Importer sells to a wholesaler for $12,000 + 5% GST ($600). The wholesaler pays $600 in GST but claims a $600 ITC, so their net tax cost is $0.
3️⃣ Wholesaler sells to a retailer for $14,000 + 5% GST ($700). The retailer claims a $700 ITC and pays only the net tax on their markup.
4️⃣ Retailer sells to the end consumer for $18,000 + 5% GST ($900). Since the consumer cannot claim ITCs, they bear the full cost of GST, completing the tax cycle.
The importer, wholesaler, and retailer will pocket the GST they recovered for the amounts they paid ($500 for the importer, $600 for the wholesaler, and $700 for the retailer) and only passing on the excess to the government.
This system ensures fair tax collection while preventing double taxation in the supply chain.
Selling to a Business That is the End-User (e.g., a Dentist Buying Equipment)
If a business buys a product for its own use (not resale), such as a dentist purchasing dental equipment, GST still applies. However:
✅ If the dentist is GST-registered, they can claim ITCs and recover the tax.
🚫 If the dentist operates in an exempt industry (e.g., healthcare services in some countries), they cannot claim ITCs, so the GST they pay becomes a final cost.
⚠ Why You Shouldn’t Just Request a GST Reimbursement:
The question arises: if the buyer (dentist) does not sell this further, why does the importer have to be GST registered? they might as well just add a line item on the invoice to the dentist to charge for the GST they paid to customs? although this is a very common practice, it might not be 100% compliant and oftentimes not even beneficial to the buyer (dentist), here is why;
- The customer cannot claim ITCs unless they receive a valid GST invoice with your business GST number.
- It is not tax-compliant in most countries—GST must be invoiced properly, not as a reimbursement.
If you are selling to business end-users, it is best to register for GST/VAT and charge them correctly to avoid compliance risks and allow them to claim ITCs where applicable.
Selling on Amazon and GST/HST Considerations
If you sell directly to consumers on Amazon, your customers do not claim ITCs, so you must decide whether to:
✔ Absorb the 5% GST and keep your prices competitive.
✔ Increase your price by 5% to pass the tax cost to consumers and use the proceeds to reimburse you for the GST paid upon importation if you aren’t VAT / GST registered.
In any of the two options above, you might not have to be GST / VAT registered in some countries (Canada demands that any company selling over $30,000 commercially worldwide is mandated to register for GST no matter if you plan on recovering it after the sale)
Selling on Amazon FBA? Here’s What You Need to Know:
✔ Amazon may automatically collect GST/HST from consumers and remit it to the government.
✔ If Amazon collects GST, you don’t need to charge it separately, but you should register for GST to claim ITCs on import tax.
✔ If you don’t register, the GST paid on imports becomes a non-recoverable expense.
In the above scenario you absolutely do not have to register for GST/VAT but it would be very unwise not to register (leaving on the table?) but if you are just starting out and want to keep your investment out of pocket minimal then maybe wait until you have some sales to invest in registration.
Bottom Line:
If Amazon is already collecting GST from consumers, absorbing the import tax makes no sense—you might as well register for GST and claim it back but if you are fulfilling direct to consumers you might decide to absorb the 5% to avoid having to register for GST and VAT.
What This Means for Your Business
If you’re expanding into international markets or selling on Amazon, take the time to:
✔ Understand GST/VAT rates and registration requirements in each country.
✔ Learn how to claim ITCs to avoid unnecessary tax costs.
✔ Decide whether to register immediately or wait until reaching the legal threshold.
✔ For Amazon FBA sellers: Registering for GST/HST can help you recover import taxes and increase profit margins.
💡 Need expert tax guidance?
Simple Forwarding can connect you with country-specific accountants and tax professionals to ensure full compliance while maximizing tax recovery.
