How Tax works
To be tax compliant, you need to:
- Understand which locations require you to collect tax
- Register for tax in those locations
- Calculate and collect tax
- Report, file, and remit the tax you collected
Introduction to indirect taxes with Stripe Tax
Each country handles tax on sold products and services differently, often calling it by a different name. In the US, businesses deal with sales tax. Throughout Europe, it’s called value-added tax (VAT). Canada and most countries in the Asia Pacific region refer to it as goods and services tax (GST).
Taxability and tax rates vary by location and category of products you’re selling. For example, children’s footwear is zero rated in Ireland, but adult footwear isn’t. Digital services are usually taxed at the standard rate in most EU countries. However, e-books are subject to the reduced rate.
Stripe Tax uses your business address, tax registrations, product tax categories, customers’ locations, and customer status to determine the correct tax rates for products you sell, in all supported locations. Read more about tax categories and how we calculate for different jurisdictions.
Monitor your obligations and register
You have a responsibility to identify the states, provinces, or countries where you have sales tax, VAT, or GST obligations and need to register to collect tax. If you sell into multiple locations, you need to be familiar with the tax laws in all of those locations because the place where your transaction takes place determines where you’re required to collect tax. This can be the seller’s country, the buyer’s country, or another location.
You must register in a location to collect taxes there. In some countries you have to register before your first transaction, while other countries have a registration threshold (either number of sales or sales volume). Stripe Tax tracks your registrations and uses them to calculate and collect taxes. Read more about registrations and Stripe Tax.
As your business grows and you sell to more locations, you will have to register to collect tax in more locations. Stripe Tax tracks your Stripe transactions and helps you monitor your tax obligations. Read more about tax obligation monitoring.
As Stripe Tax uses the registrations you specified in the tax settings to decide when to calculate and collect taxes, you have to make sure that you’re registered to collect tax in a location before you add the registration in the Stripe Tax settings. Take a look at the locations Stripe Tax supports, along with links to their respective tax authorities’ websites.
Calculate and collect
After you set up Stripe Tax in the Dashboard, Stripe automatically calculates and collects taxes on your transactions. To determine which taxes to collect, you or your customers have to provide customer location information. Read more about how Stripe calculates tax.
If you sell to other businesses, your transactions might be subject to reverse charges. This means that the tax liability shifts to the customer and we don’t charge tax on the transaction. Stripe Tax uses customer tax identification numbers to determine whether a transaction is B2B. Read about supported tax ID formats.
Some individuals or entities might be tax exempt. For example, some US states have a reseller exemption. You can set an exempt status on customers to reflect this. Read more about reverse charges and exempt customers.
Report, file, and remit
If you’re collecting taxes, you must report, file, and remit (transfer) the taxes collected in every location that you’re registered in. Make sure you understand and comply with obligations of each state or country and consult your tax advisor if you need help. Stripe Tax supports exporting your transactions in an itemized format to aid with tax reporting. Read more about Stripe Tax reports.
Stripe Tax doesn’t currently file or remit taxes on your behalf. Submitting tax returns is key to your tax compliance. You can use TaxJar’s AutoFile solution for filing in the US. In Europe, we recommend Taxually or Marosa. To get started, visit Taxually’s partner page or Marosa’s partner page