Cross-border e-commerce offers German businesses enormous growth potential. But entering international markets requires careful planning and preparation. Different legal frameworks, currencies, and payment requirements, plus logistical challenges, all need to be taken into account.

In this article, we’ll discuss what cross-border e-commerce is and what it means for German retailers. We also explain the legal hurdles involved and provide a guide to starting a cross-border business.

What is this article about?

• What is cross-border e-commerce?
  
• What is the significance of cross-border e-commerce for German retailers?
  
• What are the legal hurdles to cross-border e-commerce?
  
• How to start a cross-border business
  

What is cross-border e-commerce?

Cross-border e-commerce refers to international online commerce, which is the sale of goods or services online to other countries. Trade can be business-to-business (B2B), business-to-consumer (B2C), or consumer-to-consumer (C2C). Sellers can run their own online stores or offer their products through digital platforms and international marketplaces.

The development of cross-border ecommerce has been shaped by globalisation and digitisation. Growing economic interdependence, the removal of trade barriers, and free trade and customs agreements have facilitated international business. At the same time, consumers have become more familiar with international brands through travel and the media, increasing demand for foreign products.

Technological advancements have also made e-commerce platforms globally accessible, allowing businesses to reach international markets with just a few clicks. Another factor is the introduction of the International Bank Account Number (IBAN), which is now standard in more than 70 countries and facilitates cross-border payments. Digital payment service providers like Stripe also facilitate transactions across currency borders and help businesses reduce fraud risks.

Within the EU, cross-border e-commerce is encouraged by various regulations that facilitate trade across national borders. These regulations include the General Data Protection Regulation (GDPR), which ensures uniform data protection standards and enables online retailers to offer their products and services in accordance with European Union (EU) law.

Thanks to the One Stop Shop (OSS) procedure, businesses can report value-added tax (VAT) on cross-border B2C sales centrally via an OSS portal in their national language. This means businesses do not need to register for tax purposes in target countries (i.e. countries they’re doing business with) individually. In addition, as of 2021, there is a standard delivery threshold of €10,000 net per calendar year.

The Single Euro Payments Area (SEPA) system also allows businesses in the EU to make cross-border payments in euros as easily as domestic payments. This system reduces costs and speeds up transactions. SEPA Direct Debit, a secure and reliable payment method, was developed specifically for processing payments in the EU.

What is the significance of cross-border e-commerce for German retailers?

In an increasingly globalised economy, international trade offers great financial opportunities for German businesses. In 2022, global B2C online trade is estimated to have reached about $800 billion USD. By 2030, it is forecasted to reach $5.1 trillion USD.

The importance of cross-border e-commerce is also growing in Europe: in 2023, sales in Western Europe and Scandinavia reached around €237 billion. This represents growth of roughly 12% from the previous year, despite a difficult economic situation, including high cost of living. Germany is considered one of the driving forces behind the high cross-border e-commerce sales in Europe. Although the growth of B2C e-commerce in Germany has slowed in recent years, a new sales record of €88.3 billion was forecasted for 2024.

German retailers can take advantage of this growing market by starting their own cross-border businesses. They have the opportunity to significantly expand their target audience, reach new customers, and increase sales by expanding internationally. The “Made in Germany” label is a competitive advantage, as German products tend to have a good reputation internationally.

Another advantage of expanding abroad is that businesses can spread out their financial risks. Economic fluctuations in one market can be offset by stable sales in other markets. Online commerce is particularly well suited for market entry, as digital distribution channels require a comparatively low investment. New markets can be tested step by step to gradually expand a business.

What are the legal hurdles to cross-border e-commerce?

German businesses looking to expand abroad should consider potential barriers to market entry. These can include certain legal challenges involved with cross-border online commerce. It is important to note the differences between trading within the EU single market and trading with countries outside the EU. Although trade within the EU is relatively straightforward due to standardised rules, there are additional legal and administrative hurdles to overcome when exporting to third countries (i.e. countries that are not EU member countries).

Trade within the EU

The EU single market allows for the free movement of goods, which greatly facilitates trade within member countries. However, there are also some legal aspects of trade within the EU that retailers need to be aware of.

VAT regulations

The OSS procedure came into effect in July 2021, greatly simplifying VAT processing for cross-border B2C sales within the EU. Businesses no longer have to register for tax purposes in each country they sell to, but rather report the VAT due through the OSS portal in their home country. For cross-border supplies of goods and services between taxable businesses, the reverse charge procedure can also be used. This reverses the tax liability so that the VAT is paid by the businesses receiving the services rather than by the businesses providing the services.

Consumer protection rules

Standardised consumer protection rules apply throughout the EU, such as the right of withdrawal or certain information requirements in online trading. However, member countries implement these requirements with varying degrees of stringency, so country-specific adaptations might be necessary.

Data protection

The General Data Protection Regulation (GDPR) ensures that the processing of personal data is regulated uniformly across the EU (see, among others, Sections 5 and 6 of the GDPR). Online merchants must ensure that they process and store customer data in a legally compliant manner.

Trade outside the EU

There are a number of additional legal and administrative challenges associated with exporting goods outside the EU.

Customs and import regulations

When selling to third countries, businesses must comply with local import regulations. These include customs duties, import sales taxes, and special product certifications that can vary from country to country.

Tax aspects

In some third countries, businesses must pay local VAT or even establish a permanent establishment in order to be registered for tax purposes. Online merchants should find out exactly what regulations apply in a given target country before doing any business there.

Intellectual property and trademark protection

Trademark protection is essential in international trade. Registering a trademark with the European Union Intellectual Property Office (EUIPO) protects it in all EU countries. For countries outside the EU, separate trademark applications are usually required. Trademark protection is recommended for all target markets to protect against product piracy and counterfeiting.

Product liability

Liability rules for defective products vary widely around the world. Although the EU is governed by the Product Liability Directive, the US, for example, has a particularly strict liability practice with high damage awards.

How to start a cross-border business

Entering international trade requires careful planning and adaptation to local market conditions. Legal, logistical, and operational challenges must be considered. Businesses that take a strategic approach have the best chance of building successful cross-border businesses. Below are some of the important first steps to starting cross-border e-commerce.

Analyse the market

Before expanding into any new countries, you should analyse which markets are particularly suitable for your products. Key criteria include the demand and purchase patterns of your target demographic, the legal framework you will need to operate within, and the logistical feasibility. A comprehensive market analysis should also include the local competitive landscape. Only when you are familiar with the local competition can you develop strategies for differentiation.

Understand tax and legal protections

International trade is subject to numerous tax and legal regulations. You should be fully aware of the trademark, privacy, and consumer protection laws in each destination country, as well as customs, import, and local sales tax regulations. It is a good idea to seek legal advice to ensure that you are legally protected.

Adapt payment processing

Payment process localisation is a key factor for success in international online commerce. When they purchase from you, customers expect to use a secure and convenient payment method that they are familiar with in their own country. With Stripe Payments, you can offer over 100 different payment methods and easily accept and manage all payments. This creates a seamless customer experience and can accelerate successful expansion into new markets.

Optimise logistics

Smooth shipping is also essential for international trade. You should determine early on which shipping service providers offer the best terms for cross-border shipments. You also need to make the processing or returns as efficient as possible.

Localise communication

A customised approach to customers increases the chances of success in foreign business. For example, it might make sense to translate the content of your business’s website into the local languages of your target markets. Prices should also be quoted in local currencies. In addition, your customer support should be adapted to the destination countries’ time zones and languages. You need a team that can professionally handle the requests and problems of international customers.