Tax on International SaaS Transactions: 2 Things to Remember
The taxation of international SaaS transactions is complicated and not all worked out, but I thought I would summarize a few key points from a recent Grant Thornton article on the subject.
Here are a few key things to think about:
Permanent Establishment – this is accounting speak for do you have enough of a presence in a country for the country’s tax authorities to tax your SaaS offering.
The main factors are:
- Is there a fixed place of business in the country? [BTW, owning hardware in country = fixed place of business]
- Is there a dependent agent in the country (‘dependent agent’ is not the same as ‘independent agent/contractors’)?
If there is a PE, then
- You will be taxed by the local authorities on the income generated from that location.
- The transfer pricing rules apply (we can figure this one out another day, but here is some info on it from Wikipedia).
Sales and VAT Taxes – these taxes often apply, even if you don’t have a PE in a country.
Few things.
- SaaS is considered taxable for VAT purposes in the European Union (in the country where your customer is located).
- Your customer should pay this, so make sure in your contract that your clarify that you customer is responsible for any sales, use, VAT and other similar taxes.
If you look at the history, most tax regimes were originally setup to tax tangible goods (i.e. not software or software services) so trying to fit SaaS …