The SaaS tax agony is real, don’t get burned
For years e-commerce companies enjoyed the right to sell their products and solutions tax-free across the US and Europe. It was a breezy time for the likes of Amazon, Google, and Facebook. An audit by the US Government Accountability Office estimates online businesses and their customers saved a total of US$13.7 billion in US taxes in 2017 alone.
That’s how much Amazon bought Whole Foods for that very same year.
The US Supreme Court put a stop to this particular freedom in 2018. By then the EU had already introduced VAT MOSS to the same effect in Europe. These days, it doesn’t matter where your HQ is; your tax obligations are determined by where your buyers are. Over 40 countries now charge sales tax on digital goods and software.
If you’re in SaaS - especially self-serve subscription SaaS - your customers could be anywhere. What does this mean for you and your company? Worst case scenario: prison time. On the positive side, it does equal the playing field for homegrown SaaS.
Wait, did you think tax was boring? 👀
Global taxes in an online world
Fun fact: If you want to sell to people in Japan, it’s mandatory to work with a local agent to register and file your taxes. How’s your Japanese?
Another one for you: The state of Texas has around 1,700 separate tax jurisdictions.
Now, imagine you’re selling across all states and dozens of countries. Your team needs to stay up-to-date with the rules in all of the jurisdictions your customers are in so you can charge the correct rate of sales tax, as well as register, file, and remit it. Staying compliant when selling globally quickly becomes a huge overhead affecting teams from accounting to product.
That’s if your company is even aware of these requirements in the first place. Noncompliant SaaS businesses are being hit out of the blue with official warnings, fines, and prosecution.
The tax agony is real 😩
No software exec gets excited about tax compliance. SaaS business leaders want to (and should) focus on building great products and delivering excellent customer experience. But no exec wants to go to jail or be saddled with rocket high penalties. We don’t want that for you either.
So, we asked our brilliant team of tax specialists here at Paddle for help to create an index of the most taxing of tax agonies. It’s designed to help you more easily understand your liabilities as your SaaS business grows.
Alternatively, take a look at how you can wash your hands of the entire headache.