Meaning
Monetary reductions applied to cross-border invoices account for the varying costs associated with moving goods between different legal and tax jurisdictions. These charges often include withholding taxes, customs fees, local levies and administrative surcharges that the buyer must pay on behalf of the seller. Because cross border deductions reduce the net revenue received by the exporter, they must be calculated during the initial pricing phase.
Withholding Obligation
Local tax authorities often require the importer to retain a portion of the payment to cover potential tax liabilities of the foreign entity. The application of cross border deductions for tax purposes depends on the existence of double taxation treaties between the two countries.
Treaty Application
Bilateral agreements may lower the percentage of funds taken from a payment if certain conditions are met. When a valid residency certificate is provided, cross border deductions are adjusted to reflect the lower rate allowed under the treaty.
Net Remittance
Final payments arriving in the bank account of the seller are the result of the gross invoice minus all applicable fees and taxes. Monitoring the variance in cross border deductions is necessary to maintain the profitability of international distribution contracts. Correct documentation ensures that these losses are not higher than expected.
