Identify jurisdictions with low or no indirect tax rates. Indirect taxes can vary by jurisdiction and may be classified in the following ways:
Value Added Tax (VAT) is a consumption tax applied at each stage of the supply chain. It is commonly used in the European Union and the United Kingdom. For example, in the United Kingdom, a book manufacturer pays VAT when purchasing paper. The manufacturer then uses that paper to produce books. When selling these books to retail bookstores, the manufacturer adds VAT to the sale price. The bookstores, in turn, include VAT when selling the books to customers.
Sales tax is a type of transaction tax. It is calculated as a percentage of the sales price of taxable goods and services. For example, in the U.S., when a customer purchases a taxable item like a shirt, they must pay sales tax based on a percentage of the shirt’s selling price. For a detailed discussion about the sales tax, please refer to this article.
GST is a tax system that applies to the value added at each stage of the production and distribution of goods and services. It is commonly used in India and Australia.
Excise duties are specific indirect taxes imposed on the sale, production, or use of certain goods that are viewed as harmful, such as alcohol and tobacco. For instance, in France, excise taxes are explicitly applied to the production of alcohol. Breweries are responsible for paying this tax when they manufacture beer, rather than on general goods.
Please be aware that the aforementioned forms of indirect taxes may have varying definitions in their respective jurisdictions. It’s crucial to consult a local tax expert from those areas for detailed information.