SaaS Sales Tax 101: Selling B2B SaaS in Europe
The world is now the playground for digital products. And the explosive growth of the SaaS and software industry confirms this
So, it’s no surprise that businesses are often eager to go global and explore markets well beyond their borders.
But, where there is demand, there are also sales tax laws and systems in place that SaaS providers looking to grow and expand need to be aware of.
And that holds true for Europe, by the way!
Achieving and maintaining VAT compliance in Europe is complicated, but with the right partner, it can become a strategic business move. The partnership we are referring to is the Merchant of Record.
In this article, we plan to discuss:
What is VAT in Europe?
VAT Exemption Certificates For B2B SaaS
VAT ID Validation Process
4 Implications of Inaccurate VAT ID Validation
Why is the Merchant of Record the Solution?
What is VAT in Europe?
Before we get into the nitty-gritty of the VAT manag egypt phone resource ement process sales tax obligations in Europe, we need to address the elephant in the room – and that’s specifically what this tax stands for.
Value-added tax (VAT) is a consumption tax on a product or service applied to each sale made in the EU.
Since VAT is a consumption tax, the customers pay SaaS sales tax, not the SaaS businesses. However, this means that you need to be well aware of the b2c lead generation pricing: how much is b2c lead gen? VAT value to know how much you need to charge. Because later, you will need to report and remit it to the relevant authorities
Now, when it comes to VAT, the exact amount varies. There is no universal number for sales tax rates for digital and software as a service goods.
Tax rates in Europe vary between 17-27%, so it’s important to do your research and check specific local taxes on SaaS transactions based on the countries in which you are selling.
VAT-Tax-Rates-Across-Europe
Sales tax on SaaS can change, which is why you need business to consumer database to stay on top on updates to ensure that you are charging the correct rate.
Check the 2024 VAT changes using the list here.
When To Charge EU VAT
No, you shouldn’t check moon phases to figure out when to charge EU VAT for your SaaS product.
To figure out when you need to collect sales tax for your EU sales, ask the following two questions:
Where is the customer located?
Is it a B2B or B2C transaction?
Now, let’s clarify some things:
You must charge VAT on every sale if you are an EU business selling in your home country.
When selling abroad, there are different scenarios for B2B and B2C transactions.
For B2B payments, you do not need to charge VAT, as there is a reverse-charge method that states that the buyer will pay VAT to their government. In this case, you only need to request and validate a VAT ID from your business customer, as well as specify on the invoice that the transaction is subject to a reverse VAT charge.
For B2C payments, you are required to charge VAT
for all customers. However, in this case, there is the €10,000 in cross-border sales per year threshold. If you stay below it, the VAT amount is that of your home country. If you go over it, the VAT rate is specific to your customer’s country.
Non-European countries apply the reverse-charge mechanism for B2B transactions; for B2C transactions, the VAT rate is that of the customer’s country.