Today over 50 countries have introduced tax laws requiring digital merchants to register, file and remit VAT on sales to foreign tax authorities. Taxamo is a service that helps merchants selling digital goods and services to comply with these new global tax laws.
Taxamo offers merchants two primary services, which can be inter-mixed on a per-country basis:
Taxamo Advantage is our automated tax compliance software. It allows businesses to manage their own VAT/GST calculation globally on real-time sales using four comprehensive modules:
- real-time customer location determination
- business-to-business ( B2B - B2B - Business to Business transactions. These can sometimes be VAT exclusive if a reverse charge mechanism is available. ) sales validation
- compliant invoicing
- foreign exchange rate application.
Our service creates VAT/GST compliant reports, which you can then use to file and remit your tax in each country you have these obligations.
Taxamo Intermediary Plus allows businesses to use the Taxamo technology platform to support the distribution of digital service sales globally. As a platform, Taxamo is liable for VAT/GST obligations on the sale. So, for countries where you use Taxamo Intermediary Plus, your business will not need to register with the local tax authority or file and remit VAT/GST. You won’t need to appoint a tax agent. Taxamo will manage foreign exchange (FX) calculation and take on FX fluctuation exposure.
Taxamo has the liability for filing inaccuracies or any potential late fees or penalties exposure, with the relevant tax authority.
As Taxamo serves a global market of customers that are at different stages of evolution it is key that we provide flexibility in our service offerings. For each country, you can choose modules which best suit their compliance and overall business requirements .
The core of Taxamo’s service has a comprehensive RESTful API. On top of the API we offer integration libraries provided in several popular languages. We also offer a customisable Checkout Form that contains the integration with Taxamo and several PSPs, which greatly eases the integration effort. Our documentation covers the primary features, benefits, and requirements of the various options, but we find that every business is different so it is essential to speak with us prior to beginning an integration to ensure that all relevant factors have been considered.
There is also a merchant dashboard that is the central location for configuring settings, viewing data and reports.
In order to integrate Taxamo the following areas need to be considered:
- Checkout process
- Subscriptions lifecycle management
- Invoicing and issuing of credit notes
Countries have differing requirements on how to determine whether a transaction should fall under local tax laws or not. The key point to consider is where the customer of the electronic service is located, or in some cases, where they are typically located.
Some countries require the collection of two pieces of non-conflicting evidence while others only require one. Taxamo has developed a real-time tax logic algorithm and evidence hierarchy that manages the effective allocation of the correct tax treatment for every transaction.
The country of the customer must be determined by a number of pieces of evidence. The types of evidence that Taxamo uses can include:
- IP address
- Billing address
- Payment country (can be derived from the credit card BIN)
- Payment method country (PayPal user country) and IBAN country
- VAT/GST registration number / business number
- Self declaration
- Other commercially relevant information
Where there is a sale to a Business Customer, typically VAT/GST should not be charged. When VAT is not collected from a Business Customer this is what is typically referred to as a Reverse Charge Sale.
In order for a transaction to qualify for Reverse Charge treatment, the business customer must typically provide a VAT/GST number issued by their local tax authority to confirm that they are a business. This number is validated via the Taxamo API.
Depending on the country Taxamo will either validate the number against a local database or check the syntax of the number that is provided, as directed by local requirements.
For a small number of countries, there is an additional requirement of having a self-declaration message that states “By inputting your VAT/GST number you confirm that you are a VAT/GST registered customer”.
Taxamo provides a pricing option to display pricing with/without VAT/GST, these options are called universal and dynamic pricing.
With Universal pricing, the merchant can keep the price of their digital good the same across all countries and include the VAT/GST in the price. In this case, the total_amount can be provided to Taxamo; the service will calculate the VAT/GST and return the amount, tax_amount, and total_amount.
Dynamic pricing is where the merchant can price per individual country. They are adding the VAT amount to their list price. Where the pricing is dynamic, the amount is sent to Taxamo and the tax_amount is added to this to give the total_amount.
This requirement applies to the Intermediary Plus service only. Taxamo as an Intermediary is part of the supply chain and facilitates the sale of the service. As a consequence Taxamo becomes liable for the VAT/GST. When Taxamo acts as an Intermediary the Taxamo logo needs to appear on the checkout page. The display of the Taxamo logo is required for tax compliance.
Please see the example below:
For recurring transactions, a placeholder transaction can be created in Taxamo. This provides the evidence to determine the customer's country so the VAT/GST rate can be determined for the initial and subsequent transactions. When subsequent transactions occur, the placeholder transaction id can be provided to Taxamo so that the evidence from the initial transaction is used.
If the subscription is updated and there is a change of evidence e.g. customer country/VAT number has changed, this information needs to be provided to Taxamo in order to update the VAT/GST calculation.
If there are upgrades / downgrades, Taxamo needs to be notified of the revised charge amount where applicable. These changes are then reflected in appropriate filings and tax reports.
Taxamo’s invoicing module is an optional feature that meets compliance regulations in all countries that we support. For example, India and Belarus require a digital signature to be displayed on every invoice, and in Saudi Arabia the invoice to the end customer must be in Arabic.
When a merchant is availing of Taxamo’s Intermediary Plus service there are some additional invoicing requirements for compliance reasons. The following information needs to be on the invoice:
- Taxamo’s invoice number
- Taxamo company information
- Taxamo company address
- The VAT amount should be displayed in the local currency
- If the customer is from the UK and the customer paid in USD the VAT amount must be shown in GBP
- Country-specific additional text (please contact us for further information)
As an example, if a merchant is based in the United States and wants to sell a digital good to a customer in Germany for €100 + tax, the transaction will look like this:
The actual sale between Taxamo and the customer for €100 + €19 tax (the VAT rate in Germany is 19%).
An invoice is generated for the customer that references your company and logo, but shows Taxamo as the seller.
The sale between your merchant account and Taxamo for €100, minus the Taxamo commission.
A second invoice is created by Taxamo on behalf of your company and issued to Taxamo via self-billing.