One of the beautiful things about selling software as a service – especially when your product is self-serve – is that you're open for business from customers located anywhere in the world by default. You really see the benefits of this on occasions like Black Friday.
With software sellers running discounts of 35% on average, customers from over 190 countries got involved on Black Friday this year, resulting in an uplift of over 4% $GMV across all software sellers compared to a typical day. Top performers saw an uplift of over 15,000% 🚀
A strong Black Friday weekend is plenty of reason to celebrate, especially in 2020. But before you go winding down for the holidays, we strongly recommend you take a minute to consider what the success you saw last weekend could mean for your tax liabilities around the world. I know, even the word tax is taxing. But future you will not be happy if and when you get slapped with a juicy fine right when you least need it (trust me, we’ve been there... But more on that some other time).
If you’re thinking this doesn’t apply to you because you’re only actively marketing to one particular country, you might want to double-check your traffic and sales data. The biggest slice of the pie when it comes to SaaS customer location on Black Friday came from the US, but it only accounted for thirty percent of the $GMV we processed from our global pool of sellers. Germany followed with 12% and Great Britain with 8%. The other half of all Black Friday SaaS customers came from a plethora of locations.
The kicker is, different countries have different rules around taxing software, and different sales tax thresholds to boot. They also have different penalties for businesses and execs that fail to comply – from fines to imprisonment. Do you know where you’ll need to file and how? Did you account for what you might owe when charging customers on Black Friday?
Here’s a little flavor of what that Black Friday tax agony could be looking like:
Software Sales Tax in the US
Agony rating: 🌶🌶🌶🌶🌶
Downloadable applications are taxable in 80% of states and cloud-based SaaS products are taxable in about half of them.
The rate of tax you’ll owe per sale varies by state, from 2.9%-6.63%. The sales tax threshold also differs by state, starting from $10,000 or 200 transactions.
Software Sales Tax in Germany
Agony rating: 🌶🌶🌶
You’re liable to pay tax in Germany if your software or digital download sales there exceeds €17,500 a year. While filing isn’t too complicated, you do need to do it quarterly and the penalties for getting it wrong are high.
Software Sales Tax in the UK
Agony rating: 🌶🌶🌶🌶
If you’re based outside the UK, then you’re liable to pay tax from your very first sale to a UK customer. The one exception is if you’re selling eBooks. All other software and digital products are taxable.
What’s particularly scary about the risk of non-compliance in the UK is that as a director of the business, you are personally liable for any tax issues. Penalties include up to 7 years in prison and an unlimited fine 😱