That’s according to this article from Quaderno.
They all have different thresholds, and different rules on what gets taxed and what doesn’t. Naturally most businesses keep ignoring these rules.
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If I understand it correctly, Russia just passed the same law - electronic sales of software and even services are taxed at 18%, even when a non-resident (say Google) sells to a resident.
Looks like it becomes a standard practice.
This is OK until it is not. With time governments will work out the processes to efficiently find and fine the violators.
Australia, Canada, Russia, and many other countries are discussing similar laws. This is going to be a normal practice in the digital world. And it makes sense in some way. VAT is a consumption tax paid by consumers in the place where they purchase the product or service. It’s a little bit unfair for local businesses that foreign companies didn’t have to collect that tax.
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Hey, hey, nice to see the owner of Quaderno comment on the post.
Have you considered contacting the Microconf organisers with regard to presenting at Microconf.eu in Barcelona? I think you’ve got a whole lot of knowledge useful to our field, and it’d be quite different to the other typical presentations.
Hi Steve! Thanks for sharing the article and glad you like it.
I haven’t considered contacting the Microconf guys yet. But if people find this topic interesting, I’ll be glad to share the little I know about it. I’ll be in Microconf EU this year anyway. Hope to meet you there 
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So, who provides a SaaS (with an API) I can sign up for to have all this stuff automatically calculated for me at check-out?
VAT-registration “by proxy”, if possible, in relevant countries would also be nice.
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A talk would be great, even just an attendee one. I’ve recently fallen foul of this so I am sure there may be others who would benefit from this.
My impression is that VAT is becoming so complex, that solo bootstrappers should try to avoid to deal with it. The problem is not only related to calculating the right amount of VAT, that is relatively (??) straightforward.
What is a problem however, is the VAT filing with the different tax authorities. You need to file according to the tax code of all the different countries (EU VAT MOSS, Russia, NZ, AU, …). I don’t know all these codes and filing requirements in detail (e.g. what are the different filing deadlines, how to handle returns?).
I’m currently using only resellers like fastspring or paddle. They handle all VAT related things. If you count in administration costs, I don’t see them more expensive than e.g. STRIPE + accountant + time to file in EU, AU, NZ + time to integrate/develop VAT API. Maybe they become more expensive once your revenue really goes up.
Related to this are currency conversion costs. Fastspring and paddle take a cut here, but VAT filing requirements and tax authority approved exchange rates can be quite expensive and complicated.
VAT/sales tax is a nightmare. I let Avangate handle that if at all possible.
Currently it seems that only Texas and Illinois collect sales tax from foreign companies, but no doubt all the states will soon get in on the act and, no doubt, all have different rates.
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People who sell physical products across international borders have always had to deal with tax problems, be it in the form of tariffs, export duties, or sales tax. They also have to deal with potentially long delays for goods at borders.
I think companies selling digital products have had a couple of decades where they were able to pretend international taxes and tariffs didn’t exist, because existing government tax collection systems didn’t quite know what to do with them. As the online economy becomes a significant part of the entire economy, it makes sense that governments will start putting in processes to collect taxes we’ve not been paying.
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VAT with physical products is different. When you order a product you don’t have to pay VAT to the seller. Once the product crosses customs, VAT is applied and charged to the consumer.
That means the seller is not obliged to collect the VAT on a sale.
In that sense VAT for products is different.
how are people handling this for SaaS at the moment?
how are people handling this for SaaS at the moment?
Either:
- they don’t, simply ignoring the issue; or
- they write their own payment system to collect VAT but only from the customers in the same geographical as the seller (that is, ignore the issue for all countries except their own); or
- they use a third-party payment processor that is the “merchant of record” (eg FastSpring, Paddle)
I think there must be very few SaaS’s actually collecting all VAT in each country that expects it.
This is where I have been. Looking into it now and not really keen to implement all this myself.
I have found these services which may do it
- https://www.chargebee.com/ - looks a little complex but I think does what is required. Not clear if you need the $199 or the $499 product though
- https://www.taxamo.com - you have to ask for pricing, so… expensive?
-
http://www.info.avalara.com/Stripe - same
Edit - https://quaderno.io/features/checkout/ looks to do it all as well, just checking it out now.
$200 would be reasonable for me at this point (maybe I’m being a cheapskate?) but much more is getting too expensive I think, especially if I end up paying for a bunch of features I don’t want.
I assessed Quaderno recently to use with my new SaaS. I really want them to be the solution for me, because they do such a good job of explaining the VAT situation across the world as it affects online sellers of digital products. But as far as I can tell, I’d still need to register in each jurisdiction as necessary and submit the tax collected myself.
Another one I assessed. They ‘simplify’ the problem by pretending that tax only needs to be collected for EU customers, and that nowhere other place in the world is yet charging VAT on digital sales. For EU tax, you still need to submit the tax returns yourself.
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So around $200/mo for such a service? You also need to add the costs of the payment processor, and of the actual tax filing. Probably all in services like avangate, fastspring or paddle are cheaper AND offer security for you that you will have no trouble with tax authorities, as they act as the seller of record.
Be sure though to compare the features of the three companies mentioned. For example I needed the possibility to send individual customers invoices, and for me that worked best with fastspring. On the other hand, paddle seems cheaper.
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Taxamo is not cheap, I asked.
In summary from the latter parts of that thread, I plan to go with FastSpring to get started, Stripe + Xero for high-value Australian clients (I am in Australia so forex hurts), Quaderno if I get a lot of EU + UK sales
The money-quote from that thread:
Thanks for mentioning Paddle, I didn’t know about it. Seems a good alternative to FastSpring, which I’ve used for ages.
They basically make the whole tax problem disappear, and you just focus on building the product and helping the customers.
I am a solopreneur, so I don’t really have time to manage taxes on my own, and I’m glad that a company takes care of that as a reseller, and I just have to interface with them.
FastSpring is great, I use it but it seems a bit in maintenance mode, meaning that I’ve not seen a new meaningful feature that’s not a simple addition to the things they already offered 5 years ago, and I always asked myself why there is not much competition in this space, as there is a lot of money to be made in this kind of business, or at least this is what seems to me. Paddle is one, maybe you know others?
@fireupyourshop
Fastspring just launched a new platform, parallel to their older one. You can use both.
Another alternative is Avangate.