What to look for in a SaaS sales tax and VAT platform
As your software company grows, you are likely starting to acquire customers outside the US. When this happens, whether you like it or not—and whether you’re a B2B or B2C software company—you’ll have to manage VAT and GST compliance. If you don’t, you’ll be growing your liability along with your revenue, and you could take a big hit to your bottom line (and reputation) down the road.
Why you need a platform to manage sales tax, VAT, and GST
Value-added tax (VAT), sometimes known as a goods and services tax (GST), is the rest of the world’s version of what we in the US call sales tax. This means that, just like with sales tax, non-compliance will affect your audits and cost you more money the longer you let it go. Dozens of countries outside the US now require VAT compliance from both B2B and B2C SaaS companies.
But with various sales thresholds, tax rates, and business validation processes for different jurisdictions across the globe, managing this manually just doesn’t make sense. A sales tax platform is definitely the way to go. But how do you find one that has exactly what you need, and isn’t going to leave you with hidden liabilities or overcharged customers?
What your sales tax and VAT platform needs to solve
Here’s what to look for in a sales tax and VAT engine for SaaS:
Global tax exposure monitoring
Global VAT ID validation
Real-time sales tax, VAT, and GST calculations
Global reporting
Multi-currency support
Built-in return prep and filing support
Read on for more detail on each of these requirements, and how to make sure you get what you need out of your compliance solution.
Monitoring where you have tax exposure is more complicated than you might think. Here’s why you need a platform built for SaaS:
The US regulatory landscape is constantly changing, so it can be hard to keep up with where SaaS or other digital products are taxable.
There are many different tax codes for SaaS products and digital goods in various jurisdictions, so your platform has to understand the taxability intricacies of modern software products and map exactly what you’re selling to where you’re selling it, in order to get the exposure tracking right.
The US has “home-rule jurisdictions”— cities that tax SaaS, even if the state does not. Most tax engines don’t cover these out of the box, leaving gaps in compliance.
With many international VAT regimes, you won’t have exposure if you’re a B2B SaaS company, as long as you collect and verify customer VAT IDs. B2C companies need to monitor exposure and collect VAT from customers.
Make sure you find a platform that reliably syncs with your billing systems to automatically monitor your sales tax and VAT exposure in any region, country, state, or home-rule city. Look for a tool that pulls in every transaction and allows you to get a full picture of your exposure without worrying about charges on non-taxable transactions. And choose a vendor that won’t make you purchase different modules and re-negotiate with a sales rep just to see your tax liabilities outside of the US.
Global VAT ID validation
U.S.-based SaaS companies may not have a VAT obligation if selling to businesses in Europe, as long as they have a valid VAT ID number. So B2B companies still need to collect and validate customer VAT ID numbers in order to stay compliant.
Most VAT ID validation services can only tell you if a VAT ID is valid or invalid. But what you need is a platform that can also tell you if a VAT ID is missing.
Look for a tax platform that can tell you when a VAT ID was expected on a transaction, but was missing. How do you know what customers are being short-changed otherwise? This leaves a gap in your compliance and could result in an angry customer that blames you for failing to collect their VAT ID and charging them tax when you shouldn’t have. (This is especially tricky for companies that have both B2B and B2C selling motions.) Anrok is the only platform that can tell you if a VAT ID is valid, invalid, or missing.
With many legacy platforms you also have to specify if you want a format-only or an API check. Anrok automatically selects the type of check required by the specific government so that you are always in compliance with the local rules.
Real-time sales tax, VAT, and GST calculations
A great tax platform will make calculating and collecting tax from customers easy, without adding friction to your checkout flow or billing process.
Look for a tool that offers no-code integrations with your billing tool to automatically add the right amount of sales tax or VAT at checkout, or on an invoice. And be sure to find one that validates VAT IDs in the process, so that you’re not charging tax when you shouldn’t be.
Global sales tax and VAT reporting
When it comes time for your next audit, you’ll be glad you chose a sales tax engine with global reporting capabilities. You’ll want one place to see all your returns across geographies.
For the best reporting, you should implement a platform that pulls all your transactions into the system, with powerful filtering to see exactly what you need. With Anrok, the system captures and processes every transaction (but you only pay based on transactions on taxable products, where you’ve enabled compliance).
Multi-currency support
Of course, one of the challenges of selling globally is managing currencies. Many sales tax and VAT platforms only support one functional currency. Given that global sales are prone to local currency fulfillment, this can result in egregious errors, potentially costing you overpayment of tax that could be multitudes more than what you collected in the payment currency—plus other unnecessary expenses to clean up the mess.
This also means that your returns will often be in the wrong currency. Reports for the EU will be in Euros, even if you set your functional currency to USD. Then, You or your accounting partner will need to do the conversions to the local currency at filing time—leaving you with manual work and room for error.
What your tax engine should do is: Regardless of whether the currency used to fulfill the transaction matches the functional currency that you record your financial statements in—and whether that matches the currency required for the country-specific return, the tool should be able to keep a record in the transactional currency as well as convert it to the return currency and your functional currency for all your reporting purposes.
With Anrok, you know that your transactions will be recorded accurately, regardless of whether they are in USD, CAD, EUR, or one of the 50+ other currencies supported by the platform.
Built-in return prep and filing support
Providing a complete sales tax compliance solution means supporting the ongoing process of filing returns and remitting (paying) tax to the jurisdictions.
In the US, your sales tax platform should have built-in filing and remittance, at no extra charge. For global VAT filing, make sure the tool provides return-ready reports and a preferred filing partner that can get you registered and filing with international jurisdictions.
Anrok: The leading global sales tax solution for SaaS
If you think this all sounds like table stakes for a tax engine, you’re not alone. But only one tax platform provides all of this functionality.
Legacy sales tax engines were built before cloud-based software was the norm, so they weren’t built to support global internet businesses. Then, they grew via acquisitions, so modules are sold separately and the experience is cobbled together. Not a single tax engine out there has built tax support for both sides of the Atlantic completely in-house. Until now.
Anrok is the first, and the only, global sales tax solution purpose-built for SaaS and other digital products. With Anrok, you can:
Monitor your sales tax, VAT, and GST exposure in 40+ countries on one platform
Validate and identify missing VAT IDs for B2B transactions
Calculate sales tax, VAT, and GST across multiple currencies, in real time
Create reports and returns in functional, transaction, and return currencies
File and remit automatically in the US, and with a preferred partner for VAT
