Twenty-seven of the wealthiest countries in the world form part of the European Union, making it a great place for global e-commerce. For this reason, it has been lauded as having the highest growth potential for 2023 within the $6.2 trillion global e-commerce market, thanks to an annual growth of, on average, 10% following the pandemic.
In spite of Brexit, the top seven European markets and their e-commerce potential represent almost $200 billion. The UK and Germany sit at the top of this group, with the Netherlands, France, Spain, Italy and Portugal close behind. For example, Germany enjoyed an average per-capita expenditure of $73.6 billion in 2020, and the UK wasn’t far behind with $61.4 billion. What’s more, 42% of UK online consumers are continuing to shop cross-border.
There are a lot of benefits to be had in the European market and companies are wising up to this. The majority of its consumers are online and it boasts high internet penetration rates. In the UK and Germany, for instance, 95% and 92% of consumers shop online, respectively. In Sweden, 96% of the population shop online to make their day-to-day purchases – American-produced items being some of the most popular. This means that UK businesses could easily jump on this revenue stream and triple their sales. Equally, North American businesses should take advantage of the endless opportunities within their reach and trade with both.
The e-commerce market is thriving in Europe, with cross-border sales accounting for 25% of transactions. It is therefore a prime market to centre e-commerce strategies on. That said, perhaps unsurprisingly, things aren’t quite as straightforward as selling in one’s home country. EU tax laws have become stricter since the pandemic and governments around the world are prioritising protecting their local industries – the EU included.
If you’re interested in expanding cross-border e-commerce in Europe, our team at Go Global Ecommerce can help you achieve success. Let us take a look at what opportunities await you.
Challenges for Cross-Border Commerce in Europe
The UK is a $199.87 billion e-commerce market, consisting of over 700,000 online retailers. It’s the largest market in Europe, despite Brexit making trade between the UK and the rest of the continent somewhat tricky. Selling from the US to the UK will not be the same as selling to the EU, and vice versa, due to certain trade negotiations between each of the governments in question.
Although lumped together as being one place, the EU, like the US, is a collection of distinct markets. Take Italian consumers – they continue to favour cash-on-delivery (COD) payment options. This is unique to the Italian market. Spain, Germany, and France all have particular markets too, and so it is integral that companies are familiar with each individual market’s customs process – so as not to encounter delays as a result of shipments being held at the border, for example.
Nevertheless, the one thing all EU members do coincide on is data privacy. The EU has strict privacy regulations that must be adhered to for the practice of cross-border e-commerce in Europe. Restrictions include the General Data Protection Regulation (GDPR), which requires key data protections to be implemented on any website accessible in Europe. In addition, compliance with the European Data Protection Board’s adequacy decision is mandatory, and the standard contractual clauses put forward by the European Commission.
Shipping regulations also need to be taken in account, such as the Import One Stop Shop (IOSS), and an IOSS number is required for selling goods under the EU IOSS scheme. There are commercial invoices and delivery times to consider too, and CN22 and CN23 customs declarations to file. These mandatory documents help you to carry out deliveries without there being any glitches in customer service.
Initially, the EU’s Distance Selling Directive was applicable to distance contracts between businesses and consumers. It has now been replaced with a new system of duties and taxes which have to be declared upfront. EU tax law applies the value-added tax (VAT) to each stage of the supply chain where value is added.
How Does VAT Work in Europe?
VAT is a far-reaching tax which is levied at every point in the supply chain – from manufacturing through to the point of sale. It is supposed to shift the burden of taxation from income to consumption, so that you contribute based on how much you buy rather than how much you earn. VAT is based on gross margins at the points of initial production, distribution and sale.
The UK has the Trade and Cooperation Agreement with the EU, meaning that savings can be made on VAT, so long as specific requirements are met. However, while there are some favourable tariffs, we also encounter higher production costs. Be sure to plan for operational expenses well in advance to make sure that you are compliant, and carefully calculate overhead expenses.
Should I Charge VAT to European Customers?
According to EU tax law, customers must be charged VAT. However, charging it depends on possession of an EU VAT number. In this case, one is exempt from paying at the point of sale but can still be charged VAT for related expenses.
Getting Started in the Europe E-Commerce Market
The EU and the UK are growing markets that continue to favour foreign goods and services. The world is more connected than ever before and each of the markets can be accessed from anywhere. Increase revenue and expand your brand recognition across borders.
We know it looks complicated from the outside. The pandemic forced governments across the world to protect their local markets, causing potential problems for foreign sellers. If you’re thinking about expanding your e-commerce into Europe, contact Go Global Ecommerce and find out how to create and implement a cross-border e-commerce strategy and achieve global success.