Where should I register for Digital Services VAT/GST?

Knowing whether and where you should register for indirect tax in another country is fundamental to keeping compliant wherever you are selling your digital products. Given the nature of the products, it is very easy to sell around the world as all it takes is access to the internet to make a purchase. As your business grows, so does your responsibility to collect and remit tax to the relevant Tax Authorities.

Usually, if you make sales to residents or businesses in another country, you may be required to register for VAT in that country. However, it is not always as simple as that, and there are more aspects to observe:

Are your sales business-to-consumer (B2C) or business-to-business (B2B)?

B2C sales usually trigger a VAT/GST obligation, whereas B2B sales might be covered by the reverse charge mechanism, where the client reports the VAT/GST instead of you. You can find out more about the reverse charge mechanism and how to validate B2B sales in this article.

Are there any thresholds that may trigger the need for a registration?

Yes, some jurisdictions have a threshold and you only have to register as a foreign taxpaying business once you surpass it. The registration thresholds vary by country; and at the same time, some countries have a zero threshold, meaning you must register from the first sale. 

Countries with registration thresholds:

In all the member states of the EU, you must collect VAT from the first sale you’ve made, however, there is a simplified scheme called Non-Union OSS in which you make a single registration and can collect and report VAT in all countries in the EU. 

Countries with no registration threshold:

In most countries, the registration for a digital services tax number is simplified when compared to the tax registration needed when selling physical goods, and the best part is: Taxually offers coveroge in all countries in both lists above! Are you starting to have sales outside your home country? We are ready to assist you with your registrations around the globe!

FAQ

How long does it take for a registration to be completed?

On average, VAT/GST registrations take 2-8 weeks after all required documents are received. The timeline can vary depending on the country’s specific requirements, with some countries having more stringent processes. Taxually will always strive to expedite successful registrations as quickly as possible.

What if I fail to register for VAT after crossing the threshold?

Failing to register for VAT after crossing the threshold is a legal violation. Many tax authorities now use data from credit card companies, banks, and other sources to identify businesses that have not registered but should have. If you register late, you will need to submit retroactive filings and pay the VAT due from the effective registration date. Late filings and payments typically incur penalties and fines, and failing to register can result in legal and reputational damage.

What should I do if my VAT registration is delayed?

If your VAT registration is delayed, you should continue to monitor your sales and maintain accurate records of all transactions. Once your application is processed, it is important to comply with all filing requirements (including backdated ones if applicable) to avoid penalties.

How do I enable indirect tax collection in Stripe using the country-specific indirect tax number I’ve been assigned after registration?

To enable indirect tax collection in Stripe, you will need to enter your assigned tax number in the appropriate section of your Stripe account settings. Stripe will then apply the correct tax rate to your transactions based on the registered country. For detailed steps, consult the Stripe documentation or contact Stripe support.

How do I handle VAT in countries where I don’t meet the registration threshold?

In countries where your sales do not meet the VAT registration threshold, you generally do not need to register or collect VAT. However, it’s important to monitor your sales closely, as crossing the threshold can trigger an immediate obligation to register. If you are a Stripe Tax user, Stripe monitors these thresholds and will alert you to any obligations you have as they arise.

In many countries, you also have the possibility of voluntarily registering. It could be beneficial to register ahead of time in a few cases, such as if your business is expecting sales in a country. This would avoid late registration, and consequently late filings and potential penalties and fines.