SaaS companies = tax evaders?
Hello everyone,
I'm working on a subscription service for my SaaS, which naturally brought up the topic of taxes. After days of research and a bit of frustration, I'm pretty confident I know what I have to do to stay compliant in most countries.
What I've discovered is that there appear to be a lot of misconceptions when it comes to online service providers having to pay taxes — even looking through old posts here on IH.
For example, it seems to be a common misconception (especially among US-based companies) that only companies located in the EU have to pay EU Value Added Tax. When in reality, there is no threshold for sales made to the EU, and you have to start paying taxes with your first EU customer no matter where your company is located.
Russia is another great example. For a short brief on the rules for online services see https://www.s-ge.com/en/article/news/20191-c7-russia-vat-e-services
Now check out the complete list of the actual foreign online service providers registered as VAT payers in Russia here https://lkioreg.nalog.ru/en/registry. It's hard to believe that out of all the SaaS companies out there only 2175 have even one paying Russian customer. Even big names like Intercom are missing on that list.
I'm left wondering what's going on. Do most companies not care as long as governments don't start cracking down on this? What's your take on this?
Cheers
Hey Dario, totally with you VAT compliance outside the EU for SaaS selling into the EU is wildly misunderstood.
We built VATFix Plus to help address exactly this. It doesn’t file or remit like Paddle or FastSpring, but it gives devs a way to validate EU VAT numbers automatically, even when VIES goes offline. It helps you stay compliant with zero-rate invoices and makes reverse charge logic possible if you’re using Stripe, manual billing, or your own invoicing setup.
No dashboards, just backend validation so you can keep your stack lean.
If you’re trying to stay on the right side of EU tax law without bloating your ops, I’d love to hear if it fits your model.
Some SaaS use services like paddle.com and fastspring.com, which take care of local taxes. That is a big advantage over stripe, which lets you handle all the taxes.
This is what I've done from the beginning.
Note that you DON'T have to pay VAT nor sales tax in the beginning if you're a small business owner in most cases. There are sales tax thresholds in the US in most states and in the EU the same goes.
Since FastSpring/Paddle are the vendor of record (and are likely over the threshold in most countries/states) they would always make sure sales tax / vat applies when the customer is not a business.
I think it's actually quite unethical on the part of Stripe to NOT include this as a default check/requirement in their setup. I believe in that way they help people evade sales tax by basically pretending it's not there. I wouldn't be surprised if that will come to bite them in the ass in the future in the form of states/governments going after them.
You are correct about thresholds in the US, but this doesn’t hold for the EU. There is no threshold before you need to collect VAT in the EU.
It depends on your country law and tax goverment resulations.
You can always try to invoice with "Reverse charge" so buyer will pay tax in their country. You will get only "net" amount with 0% VAT.
If not you can also ask services like stripe atlas or xolo.io or sth how they solve this problem?
This comment was deleted 6 years ago.