Indirect tax in the US - essential insights for EU and UK businesses

Trade between the EU, the UK, and the US isn’t just significant; it’s a powerhouse driving the global economy. Together, these partnerships make up about one-third of global trade and the world’s GDP showing just how crucial these relationships are for business on a global scale. 

Despite the challenges of the Covid-19 pandemic, EU-US trade has shown remarkable resilience. In 2021, the partnership exceeded pre-pandemic trade levels by over 10%, to an impressive 1.2 trillion euros, with bilateral trade in the services sector hitting a record at over 500 billion euros. 

Similarly, the trade relationship between the UK and the US has experienced substantial growth. In the four quarters leading up to the end of Q4 2023, UK exports to the US totalled £191.5 billion, a notable increase of 9.3% compared to the previous year. The US was the UK's largest trading partner during this period, accounting for 17.6% of total UK trade.  

Indirect tax in the US 

Expanding your business into the US market can be an exciting opportunity, but indirect tax in the US poses unique challenges. Unlike straightforward value-added tax (VAT) systems in the EU and UK, the US has a maze of over 10,000 taxing authorities, each with its own sales tax rates that can change all too often. This decentralised setup makes things tricky for European businesses. Navigating these intricacies involves understanding the concept of nexus, which determines tax obligations based on business activities in specific locations. Businesses must also be aware of tax exemptions for certain customers and different rules in states that do not collect sales tax. 

To avoid pitfalls like overcharging or undercharging tax, which can harm customer trust and lead to penalties, it's essential to use automated tax solutions and consult with local experts.  

Proper planning and understanding of indirect tax in the US will help ensure a smooth expansion into the market, allowing your business to thrive. 

What you need to know about indirect tax in the US  

• Indirect tax in the US is complex and can cause problems for business 
• There are over 10,000 separate taxing authorities, making it difficult for businesses to determine the correct authority for tax purposes 
• Indirect tax in the US has varying rates, rules that can change at any time, and a decentralised approach to taxation, is a challenge when entering the US market 
• Mistakes with indirect tax in the US can have significant consequences, including raised prices, lost customers, penalties, and backdated interest. 

Find out more in our white paper - Navigating the US Indirect Tax Map. Overcome the challenges that UK and EU businesses face complying with indirect tax in the US.