[abelr]

We currently handle VAT for services (in this case we pass the correct VAT to send to Stripe via their tax rate API [1]). We have not yet expanded it to physical goods as they are a bit trickier to manage from a tax perspective. However you make a really good point on exploring this. I'd be curious to hear more about your experience actually, what were the biggest pain points you faced when growing internationally?

[1] https://stripe.com/docs/api/tax_rates

[Chris_Newton]

Full disclosure: This experience is mostly gathered from a side business run by a small team in a niche market over a decade or so. I am probably a lot more “by the book” in how I like to run my businesses than your average startup founder. My personal experience and views may be atypical.

Adding VAT to bills at local standard rates is only one small aspect of VAT compliance. You also have the actual reporting and remittance processes everywhere they apply. You might have some complications if any special rate applies to your product or service. Then there are the perennial questions of jurisdiction and extra-territorial enforceability, which I will leave to the lawyers and accountants because they make my brain hurt and I just want a definitive answer to what our true obligations are so we can comply with them. The worse part, particularly for a smaller business with no dedicated staff to work on this stuff, is how often the situation changes, sometimes at very short notice, and with no central authority you can monitor or that will notify you when you need to act.

I have spent far too much time over the years updating our systems to get the implementation as close to exactly right as we reasonably can. I have spent even more time just watching things and trying to keep up with what our obligations were. The opportunity cost of that time alone must have been several orders of magnitude greater than the total difference in taxes ever collected and remitted as a result. That was, with hindsight, an absurd way to run the business. Being by-the-book, we should probably have just stopped all sales to the rest of the EU, which has only ever been a relatively small market for us, as soon as they introduced the more onerous VAT rules. (No doubt many businesses instead took a pragmatic view and simply ignored the rules and didn’t comply, and I suspect few of them have suffered significantly for it in practice.)

That is a lesson learned, and it’s not a mistake I will make again. Fortunately, we don’t have to, because there are now several services that will collect payments but also handle sales tax/VAT compliance transparently. Their value proposition appears compelling: we can sell everywhere, be fully compliant, and not be responsible for maintaining the implementation, all at the same time. So these services are where we are looking as we start the new business, and time will tell whether the reality meets expectations. I imagine that if we do settle on one and we are still happy with it after using it for a while, we will start using it for other businesses any of us run as well, and services like Stripe will move to a legacy role and ultimately be phased out entirely.

[javajosh]

there are now several services that will collect payments but also handle sales tax/VAT compliance transparently

An interesting case of privatizing the enforcement of government regulation! But yes it does sound like a compelling value-add; note that this value is required by any world-wide marketplace, even the small ones, if they don't want to be at risk. It kind of sucks that VAT is like 20% but that's still not enough to pay for a public version of one of those VAT compliance services.

[Chris_Newton]

Just my personal opinion now: I think VAT as a form of taxation doesn’t fit into the modern global economy very well. VAT has long been criticised as a regressive tax anyway, but the basic principle of calculating value added by looking at the difference between the incoming and outgoing columns and then taxing that amount becomes difficult both to implement and to practically enforce if those columns fall in different jurisdictions. Then you end up with additional measures for cross-border trade that cause headaches for businesses and consumers alike, and you can create perverse incentives that punish businesses for trying to comply while rewarding those that do not with a competitive advantage. At the same time, we do live in that global economy now, and enforcing VAT domestically if you didn’t try to impose analogous rules internationally would also cause a big competitive disadvantage for domestic suppliers.

I don’t know how you solve those problems without scrapping VAT entirely, with some profound implications for your entire tax system given how much tax revenue governments currently bring in this way that would presumably be shifted to other sources. (I can’t help wondering whether removing VAT would also increase productivity enough by itself that it would offset at least some of the lost tax revenues automatically.) Whatever the plausible alternatives might be, it seems obvious to me that the current system doesn’t work very well for anyone.

[neophocion]

Chris these are some fascinating points. If you don't mind, we would love to connect with you. My email is: [e-mail]

[Chris_Newton]

You have mail. :-)

[neophocion]

Yay, thanks!