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 management 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 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.
Sales tax on SaaS can change, which is why you need to stay on top on updates to ensure that you are charging the correct rate.
Check the 2024 VAT changes using the list here.
