Asked

Taxes around the globe

Hi! I'm reaching out because I'm thinking of bootstrapping a simple project or a few, but i don't have a background in accounting I'm not quite sure on what are the general requirements one has to meet in order to be able to sell SaaS subscriptions internationally?

I'm currently based in EU and from what I've learned I'll be needing to set up system that would track the origin of my customers (via credit card BIN?) and then file taxes accordingly via EU VAT MOSS. I'm aware that there will be similar requirements for customers in USA, China etc. 

What i was hoping for was that somebody would share his experience and knowledge on what are ways on how to process selling to the majority of the globe and would provide me with pointers :)

Thanks in advance

edit: at first only B2C, later on B2B



Maker of WIP amongst other things.

Hi Marcel and welcome to WIP!

Taxes are a complicated matter you want to get right. They also vary per jurisdiction so I definitely recommend finding a good accountant in the country your business is based. If you have an accountant yet, I recommend asking other entrepreneurs in your local community with ideally a similar type of business as you are running or plan to run.

Just to give you some pointers though, yes you're right that as a EU-based company doing business with with consumers around the world you'll 1) need to know which country they are from, and 2) charge them the appropriate tax rate for that specific country. For example I think for German customers you need to charge 19% tax, while customers from the Netherlands will need to pay 21%.

I believe for each customer you'll need two pieces of "evidence" about where they are from. Don't quote me, but I think you can save the location of the IP address, the address they entered, and the country of their credit card. If two of those are the same country, you can assume that's the country of origin and you should base the tax rate on that.

The VATMOSS is rather complicated to explain, but yes that's basically one system where you enter all the taxes you charged for different countries, and then wire the total amount to your local tax authority. They will take care of the rest.

For B2B the story is a bit different, because you don't need to charge tax to registered businesses. Provided they are not from your country of origin (e.g. if you're based in France, then you still need to charge French companies tax too), and you need their VAT ID. You should also verify this is a valid number through one of the available APIs. If everything checks out you don't need to charge them VAT, but apply the "reverse charge" rule which means they need to take care of things on their side.

If this all sounds too complicated, you could also look into a service like Paddle or Gumroad who will do much of the heavy lifting for you. In a nutshell your customers become their customers, and they take care of all the taxes. Paddle or Gumroad then becomes your one customer so you only have one thing to deal with.

The price you pay is their fees, plus the limitations and risks that come with using a third party service like that. You'd be limited to whatever accounting and payment services they provide. Everything has to go through them. There's also some risk in that they could choose to no longer serve you, if they don't agree with the product/service you're selling. I think they can be a bit picky, because they are taking on some risks with their model.

But my main take away here is to talk to a professional. Getting information from random people on the internet is a good first step to get a general sense of what to be aware of and which questions to ask. But ultimately you don't want to risk doing this type of thing the wrong way.

Best of luck!

P.S.
My business used to be based in the EU too. It was a real pain. I never found an accountant I was 100% happy with. Ultimately I personally moved out of the EU and so did my business. If that's an option for you, that's worth considering too. But it's only applicable if you're no longer a resident of your own country.

Hey,

all this is now (as of January 2019) way easier if your EU sales are below €10,000 a year. In that case, you don't have to deal with VAT MOSS and you can simply charge your home country's VAT rate to all EU customers and declare it in your country. Also, you only need one piece of evidence. For more info see quaderno.io/blog/2019-vat-thr….

Moreover, Stripe Checkout can now handle it easily for you with dynamic tax ranges (stripe.com/docs/billing/subsc…). They will figure out where the customer is from and include the VAT in the invoice appropriately.

@yespizza I am planning to write an article showing how to become EU VAT compliant with Stripe Checkout so let me know if you are interested.

I recommend to read this guide to get a nice overview on the topic: www.chargebee.com/resources/g…

If you are below the threshold all this should be way easier, but as Marc says, it's always better to talk to a professional.

One more note: be sure to always show prices with VAT included.

Hope this helps!

(I am not a tax expert so please double check it.)

Jakub

https://twitter.com/rikschennink

As a EU resident, I investigated this and eventually decided to go with Gumroad (also looked at Paddle and similar services).

Building my own tax system and keeping an eye on tax rates and rules across the globe would cost way too much time and draw my focus away from building an awesome product.

You could also look at an in-between solution like Quaderno they integrate with popular payment services and add tax to your invoice and give you the paperwork to send to various tax agencies.

I'm quite happy with Gumroad, it's not perfect (far from it), for example they don't do bank payment to NL at the moment (apparently they're working on it). My customers purchase through Gumroad and then register their purchase in my customer portal, that way they're my customers and no matter what Gumroad does I have their contact information.

Gumroad: Customer creates Gumroad account and pays to Gumroad via Gumroad payment flow. Gumroad adds tax and pays tax to tax agencies. Paddle takes cut (3% when on 10 dollar plan). Gumroad pays to you.

Paddle: You create a customer portal to manage payments. Customer pays to Paddle via Paddle payment flow. Paddle adds tax and pays tax to tax agencies. Paddle takes cut (I believe 5%). Paddle pays to you.

Quaderno: You create a customer portal and set up (for example) Stripe and everything you normally would. Customer pays through Stripe. Quaderno adds tax. Customer pays to you. You pay tax to tax agencies.

Maker of WIP amongst other things.

+1 for Quaderno, I used it for a few years and it did help simplify tax reports a bit. There's still a lot you have to do yourself though, but it's probably also the most flexible solution as you get to keep using Stripe.

First of all -- thanks for all your detailed answers! +1

So I did a research into topics you provided and also consulted an accountant who claims to have experience with EU VATMOSS and so far it seems that doing business across Europe should not be much of a hustle. It seems the combination of stripe+quaderno would be quite doable with some automation and without too much of an overhead with bureaucracy.

I also discussed with the accountant possibility of selling overseas to the USA and in Asia but this is beyond what he has experience with. Since I'm based in EU this should be much of an issue in the beginning, but still I'd be interested -- how do you guys deal with sales in Americas/Asia/Australia?

USA --- It seems one does not have to have company based in US in order to pay sales taxes on SaaS? You "just" register in individual states and send taxes according to state laws?

China --- Seems like impenetrable fortress for sales from outside, probably better not waste resources until the startup healthy and growing.

Rest of the world --- any other large audience makers usually look at? India/Russia/Japan/Brazil?

And once again, thanks for your time, really appreciated!

Maker of WIP amongst other things.

I'm not an accountant, so take this with a grain of salt but I believe most small, European companies only charge VAT to local customers and those within the EU.

Anyone outside (U.S., etc) doesn't get charged. You either don't need to charge VAT or report taxes until you hit a certain revenue threshold, or these local tax authorities don't care until you do.

If you want to be on the safe side it's worth investigating further of course, but I believe that's how most small companies deal with it in practice.

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