The SaaS market is global, but far too many businesses misunderstand their tax obligations when selling outside the United States.
While sales tax in the U.S. is charged to end users at the point of sale, most countries impose a Value Added Tax at each phase of the supply chain.
VAT rules are complex and vary by jurisdiction, but rates are often higher than sales tax rates.
Companies collect VAT on behalf of the government for taxable sales and may claim input VAT credits for tax paid. They must remit payments and file returns on schedule as required by law.
If you sell SaaS into one or more of the 170+ countries with a VAT, over 80 of which apply the tax to software subscriptions, you must understand and fulfill compliance obligations that often begin from the first sale.
Otherwise, your company is liable for back taxes and penalties.
This guide explains countries where VAT applies to SaaS, offers insight into how to determine what you owe, explains ways companies handle compliance, and touches upon upcoming reforms in EU countries that could alter your existing VAT processes.
When VAT applies to SaaS and Software
The European Union has a centralized VAT framework applied within all member states. This establishes tax rules for SaaS. While there is some variation from country to country, many other locations that charge VAT on SaaS have based their rules on this framework as well.
Under this model, the key question of whether VAT applies to SaaS hinges on whether the software is a digital service.
However, rules for when your company must collect and remit VAT, versus when the buyer is responsible for collecting and remitting, differ based on whether the transaction is B2B or B2C.
Is your product a digital service?
Under the EU framework, electronically supplied services are subject to VAT in the country where the customer belongs, for both B2B and B2C sales.
This customer-location rule has applied to B2B sales since 2010, while a January 1, 2015 reform extended it to B2C sales of electronically supplied services, which had previously been taxed at the seller's location.
The definition of "electronically supplied services" (ESS) is provided in Article 7(1) of the VAT Implementing Regulation, which states:
"‘Electronically supplied services’ include services which are delivered over the Internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology."
There are four criteria for SaaS (or other digital products) to be treated as an electronically supplied service:
- The services must be delivered over the Internet or an electronic network
- The supply must essentially be automated
- It must involve minimal human intervention
- It must be impossible to ensure in the absence of IT
The implementing regulation also listed specific activities that would result in the product being taxed as an electronically supplied service, including the supply of software and its updates, website supply, web hosting, program and equipment maintenance, distance teaching, and the supply of music, films, and games of chance.
If you sell a listed product or one that meets this definition, including subscription software, VAT is owed to the government based on the end-customer's location where the digital product is received.
B2B vs. B2C: the most important distinction
In the EU (and other locations with a similar framework), it's important to note that while VAT applies to all electronically supplied digital services that are subject to the tax, this does not always mean your company is responsible for collecting and remitting the tax.
Your responsibility largely depends on whether the transaction is B2B or B2C.
- For direct B2C transactions, you are responsible for collecting and remitting VAT under the rules and rates applicable in the customer's country where you're delivering the services.
- For B2B transactions, if you are selling to a VAT-registered buyer with a validated VAT ID, the reverse charge mechanism applies. Under the reverse charge mechanism, the buyer is responsible for declaring and remitting VAT on their own VAT returns (and can also claim input credits on the same return).
When the reverse charge mechanism applies, your key obligations are to confirm you are selling to a VAT-registered buyer, to confirm they have provided a valid VAT ID, and to ensure you prepare a VAT-compliant invoice that notes the reverse charge mechanism applies.
Pro Tip for selling in the EU: Always collect VAT IDs at checkout, regardless of whether you are registered or participating in OSS or IOSS, to avoid retroactive VAT liability. Visit VIES to validate IDs in real time to ensure VAT compliance.
If the reverse charge mechanism applies to all your transactions in a country, and you do no other activities that trigger local registration requirements, you usually won't have to register for VAT in that location, as the buyer fulfills the obligation of paying VAT on taxable sales.
For example, if you sell to a VAT-registered business in Germany and the company provides a valid VAT-registered ID at checkout, the reverse charge mechanism applies, and you have no obligation to collect VAT.
But if a customer does not provide a valid VAT ID, you generally need to treat the sale as B2C and collect VAT, unless local rules allow you to rely on other evidence of business status.
You may be able to satisfy this obligation through:
- The EU One Stop Shop (OSS) scheme if your business is based in the EU.
- The non-Union One Stop Shop (OSS) if your business is based outside the EU.
- Registering for VAT in Germany and filing returns and remitting payment there.
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Where SaaS companies owe VAT: a global overview
VAT is the standard method of taxing consumption across the globe, so if you sell anywhere outside of the U.S., you could potentially be obligated to collect VAT.
However, registration thresholds, standard rates, and whether SaaS is taxed locally all vary by location:
European Union
Intra-EU sellers (EU-established businesses) have a €10,000 per year EU-wide threshold for cross-border B2C supplies of goods and electronically supplied services.
If their total cross-border B2C sales across the entire EU remain below this threshold, they can charge VAT at the rate of their own country of establishment and file locally.
Sellers outside of the EU do not benefit from this threshold. To stay compliant with EU VAT rules, you are required to be registered to collect VAT from the first taxable B2C sale with no de minimis threshold.
Fortunately, there are simplified schemes like the Non-Union One Stop Shop, which allows you to register in one member state, file a single quarterly return covering all 27 EU member countries, and make a single payment.
Many U.S. based businesses choose Ireland as their country of registration because it is English-speaking, but you can register in any EU member country. The country of identification will then distribute the appropriate VAT you submit to the member country where it is owed.
EU member countries tax SaaS as an electronically supplied service, and VAT rates are higher than U.S. sales tax rates.
The EU sets a minimum standard VAT rate of 15%, although up to two lower rate thresholds are permitted for specific products. All countries charge more than the minimum, with rates ranging from 17% to 27%.
A failure to collect and remit required VAT could lead to significant liability due to high rates.
United Kingdom
The United Kingdom left the EU, and thus the EU's tax schemes, effective January 1, 2021. Post-Brexit, non-UK companies selling into the country must separately comply with UK VAT rules, including registering through HMRC from the first taxable sale where reverse charge doesn't apply.
While the UK has a domestic registration threshold of £90,000 for UK-established businesses, this does not apply to any non-UK countries, including EU member states.
The UK taxes SaaS as an electronically supplied service. The standard tax rate is 20%, and you must register, file quarterly returns, and pay VAT due in GBP.
Pro tip: Post-Brexit, SaaS companies can no longer treat UK and EU VAT as a single compliance option. Ensure you follow both the EU and UK deadlines to avoid late filing fees and penalties for non-compliance.
Canada
Canada adds another layer of complexity entirely that doesn't apply in many VAT countries, which frequently apply tax rules on a country-wide level.
Canada's federal GST/HST rules can differ from provincial taxes. This requires sellers to monitor both national and provincial laws when selling into the region.
SaaS is taxable throughout Canada as a digital service or taxable supply of a service/intangible personal property. The applicable GST, HST, or provincial sales tax rate depends on the customer's province or territory.
Asia-Pacific
The Asia-Pacific region has wide regional variation in when SaaS companies must register.
Some countries, including Australia and New Zealand, have sales thresholds in place applicable to foreign sellers, offering companies the opportunity to ramp up sales before VAT obligations kick in. Others, including India, require registration from the first taxable sale.
And while SaaS is widely taxable throughout the APAC region, some countries treat SaaS as an electronic or digital service while others treat it as a general taxable service under GST or VAT laws.
Latin America
Latin America has rapidly expanded digital services taxation in recent years, including:
- Colombia, which imposed VAT requirements on foreign providers of digital services in 2018
- Chile, which introduced a new 19% VAT on foreign digital services effective June 1, 2020
- Mexico, which also imposed VAT requirements on nonresident providers of digital services in 2020.
Many LATAM countries now require SaaS providers to register and collect VAT from the first sale, and often to file monthly. And Brazil provides added challenges because while ISS/ISSQN applies to digital services, rules vary by municipality, with rates ranging from 2% to 5%.
Middle East and Africa
This is another region where governments have moved to expand taxation, with some adding a VAT for the first time, and others bringing SaaS under the scope of existing VAT systems.
This includes Saudi Arabia, which introduced a VAT for the first time in 2018, as well as South Africa, Kenya, and Nigeria, each of which expanded VAT to cover non-resident suppliers of digital services. In fact, as of July 2, 2026, Nigeria had collected over $120 million in VAT from non-resident suppliers over three years.
While rules vary by region, registration from the first taxable sale is a common requirement.
Laws are also evolving in other ways, as South Africa was one of just a few countries that required B2B suppliers to register before a rule change in 2025 implemented the reverse charge mechanism.
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Three ways to handle global VAT compliance
Global VAT compliance is complicated. You must know VAT rules in every country you are selling in, ensure you register before your first taxable sale in countries that require it, and potentially submit dozens of monthly, quarterly, or annual VAT returns if you sell globally.
There are three potential paths you can take to manage your global VAT compliance obligations, each with its own pros and cons.
Path 1: Self-file with a tax automation platform
Best for: SaaS companies that want control over their billing process and a direct relationship with government authorities.
Your first option is to use a platform like Numeral that automates compliance for you. You remain the merchant of record and own the relationship with each taxing authority, but Numeral does the work on your behalf.
Numeral monitors sales to determine when registration is required, calculates and charges VAT at the appropriate rate, validates VAT IDs, generates invoices, and files and remits tax in each jurisdiction where you have compliance obligations.
And while you ultimately remain responsible for any VAT that is due, the Numeral Guarantee covers your fees and penalties if our error causes fines after an audit.
The benefit to this approach is that you are in full control of the customer purchase experience from end-to-end. This option is best for SaaS companies that want to own their pricing and billing stack. The downside is that you remain legally liable to Departments of Revenue.
Path 2: Use a merchant of record (MOR)
Best for: Early-stage B2C companies that want to defer compliance obligations and SaaS companies offering low-ACV products.
Using a merchant of record is an alternative to remaining responsible for your own compliance.
When you partner with a merchant of record, the MoR becomes the legal seller of your products in each country, taking full responsibility for registration, VAT collection, filing, and remittance.
You pay a fee to the MoR (typically 5% per transaction), which tends to be much higher than payment processing fees alone. You also give up substantial control over the checkout experience and customer data, and your invoices and receipts list the MoR as the actual seller.
This approach is best for companies that would rather pay higher fees to avoid compliance obligations and potential liability, as well as for companies that don't mind giving up a significant degree of operational control and brand identity.
Path 3: Manual self-management
Best for: Companies selling into just one or two countries.
Finally, manually managing compliance is the last possible path. This involves tracking sales in each country, registering yourself, tracking rates, and filing on your own with each taxing authority in countries where you do business.
While this approach is possible if you sell into one or two countries, it quickly becomes unworkable as your business grows since each country has its own requirements, the rules change regularly, and calculating, collecting, and remitting the correct VAT is a full-time job.
There is also a significant risk of human error, missed deadlines, and substantial liability if VAT is not collected and remitted properly or registration requirements are missed. Once a company expands beyond two to three markets, another solution almost always becomes necessary.
The VAT compliance process for SaaS & software companies: step by step
Understanding the steps involved in VAT compliance as a SaaS or traditional software company can help you determine what the best approach is to managing this obligation. Here are the steps to take.
Step 1: Determine where you have obligations
Review your transaction data and compare customer location and sales volume with registration requirements in each market where you do business. If you have any B2C transactions in the EU without valid VAT IDs on file, you likely already have registration obligations.
Because many countries require VAT registration from the first taxable sale, continuous monitoring is important. As soon as you expand into new markets, if not before, you must register for VAT to avoid potential penalties for failure to register and remit VAT.
Step 2: Register
As soon as you have VAT obligations, you will need to complete the registration process, which will vary by country.
For example, in the UK, you must register through HMRC's VAT registration service. In the EU, you'll likely, but not always, register through non-Union OSS. You can elect the country to register in, with many U.S. based sellers using Ireland's portal due to language compatibility.
Because there are time deadlines for registering after meeting each country's thresholds, or from your first taxable sale, it's important not to delay, especially as the process can take time.
For example, in the EU, registering for non-Union OSS can be completed in a matter of weeks, while Australia and New Zealand also offer timely registration.
Some countries, such as Poland and Spain, require you to appoint a fiscal representative (or the local equivalent) to register. This is a local representative who shares responsibility for your VAT obligations. Working with one can extend the registration process.
In some countries, in fact, it could take months to get your VAT ID and be ready to begin collecting tax, which can impose significant operational limitations during rapid expansion.
Step 3: Set up VAT calculation at checkout
Once registered, you will typically begin collecting VAT at checkout. Your company needs to ensure the correct rate is applied to each transaction based on:
- The customer's country
- Whether the sale is a B2B or B2C Sale
- The VAT rate charged on the product/service
This means you must determine where the customer is located, if the country taxes SaaS or software, and what rate applies. You also must determine if the customer is a business with a valid VAT ID, in which case the reverse charge mechanism applies to shift the VAT obligation.
Your billing system will need to collect location information, and EU rules require two independent pieces of evidence of location for each digital transaction. This can include the billing address, credit card country, IP address, or SIM code for mobile.
Step 4: Determine what data to collect and retain per transaction
To ensure you can prove compliance, you're also required to collect and retain certain customer data for each transaction.
For example, EU auditors may request validation documents confirming you have the required proof of customer location, or that you have validated VAT IDs when reverse charge applies, so you must collect and retain the right information.
Generally, you must collect and store:
- The customer's country
- The billing address
- The country that issued the credit or debit card used to pay for the purchase.
- The customer's IP address
- Any provided VAT ID and, when applicable, proof that you validated the VAT ID, including evidence of the validation result and a timestamp showing when the validation was completed.
- Details on the VAT rate applied
- A tax calculator log
- A copy of the invoice showing relevant details, including a notation when the reverse charge mechanism applies.
Collecting this data is key to being audit-ready, so you need a system for both collecting and storing this data so it is accessible upon request.
Step 5: Issue VAT-compliant invoices
Many VAT-taxable transactions require a compliant invoice, especially B2B sales. For B2C digital services, invoice requirements vary by country and by whether you use a scheme like OSS.
In the EU, invoices typically must be issued within 30 days of supply in most member states, although it is important to verify individual country requirements. Some locations, like Italy, also require e-invoicing.
In general, to be compliant, VAT invoices must include:
- Your company name and address
- Your VAT registration number
- A unique sequential invoice number
- The date of the invoice and, if different, the date of supply
- The customer's name and address
- The customer's VAT number for B2B transactions
- A description of the service provided
- The VAT rate and VAT amount in the local currency
- The total cost of the supply before and after VAT
- A notation when the reverse charge applies to B2B transactions
Be sure to check each individual country's invoice requirements to determine if e-invoicing is necessary or if there are any other specific requirements.
Step 6: File returns and remit
Filing VAT returns on schedule is required as well, and the timeline for filing varies depending on the country. The table above specifies the frequency for required filings. You must know both how often to file and the specific deadline dates.
For example, if you are participating in the EU's non-Union OSS scheme, returns are generally due the last day of the month after the relevant quarter, so due dates are April 30, July 31, October 31, and January 31.
In the UK, on the other hand, quarterly filings are due a month and seven days after the end of the quarter.
Payments typically must be made in the local currency, so consulting with your bank or provider to arrange foreign currency may be necessary.
Step 7: Keep records
Finally, you'll need to meet each country's record retention requirements, which can vary by jurisdiction as well. In some EU member countries, you must retain these records for up to a decade.
While you can individually confirm record retention requirements for each location, in general, it is best practice to simply keep all relevant documents for a decade. This can include:
- Invoices
- VAT ID validation logs
- Location evidence
- Confirmation of registration, filing, and remittance
Ensure you are systematically storing all documentation, especially location evidence and VAT-ID validation, so this information is accessible and you are audit-ready.
Common mistakes SaaS companies make with Global VAT
SaaS companies unfortunately make common mistakes related to global VAT compliance that create a significant audit risk. Some of the mistakes companies make frequently include:
- Assuming you don't have VAT obligations with B2B customers: The reverse charge mechanism applies only if the buyer has a valid VAT ID. If you don’t collect and validate VAT IDs, you generally need to treat those sales as B2C and collect VAT, unless local rules allow another way to prove the customer is a business.
- Waiting too long to register. In many countries, the very first B2C sale triggers registration requirements. Do not delay registration or confuse local registration thresholds that apply to domestic businesses with your own registration requirements.
- Treating the EU and UK as one jurisdiction. In the post-Brexit era, compliance for the EU and UK must be managed separately, with your company following each individual location's rules.
- Not fulfilling global tax compliance obligations: Many SaaS companies focus on U.S. and EU compliance and fail to understand the rules in other countries with active VAT regimes that apply to digital services -- particularly if the country only recently imposed VAT on digitally delivered products.
- Failure to plan for foreign country remittance. Your obligations go beyond filing. You must remit taxes and often do so in a foreign currency. You must have processes in place for this.
What's coming: VAT in the Digital Age (ViDA)
On March 11, 2025, the EU Council passed a major VAT reform package called VAT in the Digital Age, or ViDA. ViDA modernizes the EU's VAT system with the goal of closing the estimated VAT gap, as well as simplifying compliance with VAT obligations in the digital era.
The reforms aim to make it simpler for companies selling across borders to fulfill their VAT obligations, to digitize reporting of VAT, and to level the playing field for platforms selling within the EU.
ViDA went into force in mid-April of 2025, but its reforms take effect slowly over time through 2035. Each member state must incorporate the ViDA rules into its national laws, so there may be slight differences in when each provision takes effect across the EU.
There are three major pillars of the reforms:
1) Expansion of the One-Stop Shop to allow more companies to register in a single member country
This expands the current single-registration system to cover more transaction types to minimize the need for multiple registrations.
The movement of goods between countries and installation services are now included in the scheme, and the mandatory reverse charge mechanism is expanding to include sales to some non-established suppliers. These changes will come into effect on July 1, 2028.
2) Leveling the playing field for platforms with new deemed supplier rules
Digital intermediaries (platforms) are sometimes treated under the deemed suppliers under current laws. This makes the platform liable for collecting and remitting tax on transactions it facilitates.
The platforms treated as deemed suppliers are expanding to more business types, including short-term rental accommodations and passenger road transport companies like Uber.
This change is voluntary starting in July of 2028 in some member states and mandatory beginning January 1, 2030. SaaS companies operating marketplaces that resell third-party software may be affected.
3) New digital reporting requirements
New Digital Reporting Requirements (DRR) + Mandatory Structured E-Invoicing are the most substantive changes bringing the EU VAT system into the digital era. The reforms reflect a shift from manual reporting to a digital process with near-real-time oversight.
Starting July 1, 2030, e-invoicing is required for many intra-EU cross-border transactions. Invoices must be issued within 10 days of a chargeable event (like the supply occurring or payment receipt), and must be in a structured electronic format easily readable by machines.
For example, invoices may need to follow PEPPOL BIS specifications, which are already in place in some countries. Invoices must also include new data fields, such as bank accounts for payments.
Data must be reported to a centralized EU system by a strict deadline and buyers must report certain transactions, such as intra-Community acquisitions or self-billed invoices, within five days.
The system also includes a new Central VIES platform to match supplier and customer data to reduce VAT fraud.
What SaaS companies should do now
While the phase-in of ViDA changes is happening over time, SaaS companies can begin preparing immediately by:
- Implementing invoicing processes that follow required formats and allow e-invoicing, including by modifying existing billing systems.
- Determining if the 2028 platform rules will affect your company if you run a marketplace or resell third-party SaaS so you can begin preparing to be treated as a deemed supplier
- Monitoring the European Commission's ViDA implementation page for the deadlines set for changes, as well as for new regulatory guidance that becomes available.
How VAT differs from US sales tax
It's important to understand that complying with VAT obligations differs dramatically from complying with U.S. sales tax obligations.
Here’s an overview of the key differences between VAT and sales tax:
The table also applies to GST, which is charged in some countries and which is functionally similar to VAT.
How Numeral handles global VAT
Numeral manages global VAT or GST compliance for SaaS companies, traditional software companies, eCommerce businesses, and enterprise organizations. Numeral offers a full end-to-end compliance solution, so your finance team has no internal VAT obligations to fulfill.
Numeral manages every aspect of VAT compliance, including the following:
- Tracking sales across jurisdictions in real-time and alerting you when you establish nexus or cross a registration threshold so you will not risk penalties for late registration.
- Automated registration: Numeral handles the registration process for you in over 70 countries, including registering for the non-Union OSS. We understand each country's specific requirements, and you never have to visit a registration portal. We also take care of arranging a fiscal representative when required.
- VAT ID validation: We collect and validate VAT IDs in real time and correctly apply the B2B reverse charge mechanism in appropriate situations. When a buyer's VAT ID cannot be verified, or a buyer does not have a VAT ID, we apply the correct tax rate to charge the buyer.
- Filing and remittance: Numeral will prepare and file VAT returns on the required schedule in all countries. We'll also take care of remitting payments in the correct foreign currency.
- Expert review and the Numeral Guarantee. You have peace of mind in knowing everything is done right. Every return is reviewed by a tax expert and backed by the Numeral Guarantee. This means if we make an error that costs you fees or late filing penalties, we'll cover the costs.
All of this and more is available with no long-term commitments, and many companies are onboarded with Numeral in as little as a week. Learn more about how Numeral can help you manage VAT or get started now.
Global VAT for SaaS FAQs
Still want to learn more? Here are the answers to some frequently asked questions about global VAT for SaaS companies.
Does my SaaS company need to collect VAT?
Most countries outside of the United States apply VAT to digital services. In many cases, including in the EU and UK, your VAT registration requirements are triggered from your first B2C sale. This means you likely need to collect VAT whenever you sell software outside the U.S.
You can refer to the VAT registration thresholds by country found earlier in this article to see if you must register in a particular location.
What is the reverse charge mechanism?
The reverse charge mechanism is used in countries that apply a Value Added Tax.
It shifts the VAT compliance obligation from seller to buyer if the buyer has a valid VAT ID. Sellers must note on the invoice that the reverse charge mechanism applies and verify the VAT ID is valid and kept on file.
When the reverse charge mechanism is properly applied, the buyer reports the VAT on their VAT return and claims any input credits due. If the buyer has no valid VAT ID, the compliance obligation remains with the seller.
What is EU OSS and do I need it?
The EU offers several VAT schemes aimed at simplifying compliance, including the One Stop Shop. The One Stop Shop allows companies to register for VAT in a single EU member state and submit one quarterly return within that state, which covers all 27 EU member countries.
While the union One-Stop Shop applies to EU-based companies with cross-border sales, the non-Union One Stop Shop is used by companies outside of the European Union.
Registering for non-Union OSS can greatly simplify your compliance obligations compared with registering in every EU country where you do business.
Can I use a merchant of record instead of managing VAT myself?
You can choose to use a merchant of record instead of managing VAT on your own. This shifts VAT liability entirely to the merchant of record, who becomes the official seller.
However, you typically pay high fees (around 5%), and you have less control over branding and customer data because the MoR is the official seller.
Using a merchant of record is most viable for SaaS sellers with low-ACV who primarily sell to B2C customers, but it is not usually appropriate for enterprise B2C customers who expect invoices from the actual vendor.
Does Brexit mean I need a separate UK VAT registration?
In the post-Brexit era, the United Kingdom is no longer part of the European Union.
Since January 2021, the UK has operated under a separate VAT system. Participation in the EU One Stop Shop Scheme and complying with EU VAT obligations will no longer satisfy your UK obligations.
What is ViDA and what does it mean for my SaaS company?
ViDA stands for VAT in the Digital Age. This reform package was passed by the EU Council on March 11, 2025 and is being phased in over time to modernize VAT and reduce fraud. It includes three pillars:
- The One Stop Shop system has been expanded to cover more transactions, effective July 1, 2028. The single-registration system can now be used to comply with VAT obligations for installation services and for the movement of goods between countries. It also expanded the reverse charge mechanism.
- New deemed supplier rules for platform sellers. More platforms will now be covered by rules requiring them to act as deemed sellers, so they will be required to collect and remit tax on transactions they facilitate. This shift can occur voluntarily beginning July 2028 and is required by January 1, 2030.
- New digital reporting requirements. By July 1, 2030, companies will need to shift to compliant e-invoices that meet specific specifications. E-invoices must be issued and supplied to tax authorities on short deadlines to ensure near real-time compliance.
SaaS companies should build their invoicing process with these upcoming changes in mind.
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