Tax laws and regulations change frequently. In 2022 we’ve seen more than 600 sales tax rule and rate changes in the US and many more VAT changes in the EU. This is one of the reasons why maintaining tax compliance can be challenging and time-consuming for businesses.
To help you prepare for 2023, we analyzed the regulatory updates going into effect to identify the biggest global tax trends and what they mean for your business. In addition to covering top trends, we’ll also share a few resources to help you navigate tax compliance.
New and inclusive tax laws
It all comes down to the fact that the economy often evolves more quickly than state tax codes do. Digital downloads and streaming were exempt from sales tax not because lawmakers decided that they deserved to be tax exempt, but because those things didn’t exist at the time the sales tax statute was written.”
Tax laws are often archaic and lagging behind tech advances, especially for digital goods and services. For example, some US states only tax services if a physical good, like a flash drive or a blueprint, was exchanged. In other states, like Louisiana, services are almost always exempt from sales tax, with a few exceptions such as the service of furnishing hotel rooms and amusement park ticket sales. Canada has recently created special rules for foreign companies supplying digital goods and services, expanding the tax registration requirements that they need to follow.
While tax is not the only revenue stream for governments, it is an important one, and governments are not exempt from the hardships that have come as a result of rising inflation and pandemic-related issues. Many jurisdictions are beginning to evolve to the modern economy by taxing more products and services that had not previously been subject to tax.
What this means for you: Businesses selling goods and services that had not been subject to tax in the past, like SaaS and other services, should be prepared for changes to tax requirements and should plan on monitoring how these changes impact where they have tax obligations.
Streamlined tax filing requirements
Businesses are becoming increasingly frustrated by complex filing requirements, and they are taking action. In 2022, Colorado and Louisiana were sued by sellers, who noted the intricate sales tax obligations as an impediment to interstate commerce. While these cases are still ongoing, there could be changes made as a result of the lawsuits.
Diane Yetter, founder of the Sales Tax Institute, spoke about these hardships during a senate hearing earlier this year. She explained how these elaborate filing requirements are especially damaging for small businesses, who might not have the resources to maintain compliance. These lawsuits could encourage local US tax authorities to create a more streamlined process, so that businesses can meet their tax obligations with fewer resources.
What this means for you: Staying on top of tax law and rate changes is only one part of compliance. The filing and remitting process is subject to change as well. While streamlined filing requirements would benefit sellers, businesses need to adapt to new filing requirements as they are announced.
Tax rate changes outside of the US
Governments are reducing tax rates to address continued supply chain disruptions and high inflation. Although most countries are reducing VAT/GST rates on basic necessities like energy and food, Luxembourg will temporarily reduce its general VAT rates (17%, 14%, 8%) by 1% as a part of an anti-inflation package. The reduced VAT rates will be effective starting January 1, 2023 and will last through December 31, 2023.
Not all governments are taking this approach. A few countries plan to raise their general tax rates to address potential revenue deficits. For example, Singapore is increasing its GST rate for the first time in 15 years. The current GST rate of 7% will be first raised to 8% from January 1, 2023 and then to 9% beginning January 1, 2024. Even after both rate increases, the Singaporean GST rate will still be lower than those of its neighboring countries. Rate increases are also expected in Thailand (from 7% to 10%) and in the Maldives (from 6% to 8%).
What this means for you: With any tax rate change, businesses should consider the impact on product pricing, invoicing, and ERP systems, since these are all places where tax rates would need to be updated for accuracy. In particular, companies applying the VAT small business exemption need to ensure that they are not paying more VAT than required since VAT paid on their purchases cannot be deducted.
Continuous transaction controls
Typically, businesses need to file and remit their tax returns on a monthly, quarterly, or yearly basis. Governments prefer to have near real-time reporting of all business sales so that they can better track the amount of tax due. To do this, certain European tax authorities have created something called “Continuous Transaction Controls” (CTCs). CTCs are different ways in which businesses could be required to report their sales data in real time (or near real time).
One example of a CTC is called an invoice clearance model. This model is for business-to-business transactions and is a way for businesses to register an invoice on a government platform. Some countries requiring this approach are Spain, France, Italy, and Belgium, and we expect more countries to follow. These changes are not likely to go live before 2024.
On December 8, 2022, the European Commission unveiled a comprehensive reform package called “VAT in the Digital Age” (ViDA). Under the proposal, all businesses will be required to issue e-invoices for B2B sales of goods or services to customers in other EU member states and report certain invoice data to the tax administration no later than two working days after issuing the invoice. EU member states wishing to implement transactional reporting requirements for domestic sales will have to ensure that they conform to these reforms for cross-border sales. For member states where transactional reporting requirements are already in place, alignment with the new EU standard must occur by 2028.
What this means for you: If you are established in countries that are implementing the invoice clearance model like Spain, France, Italy, or Belgium, you must make sure that you are able to issue and receive electronic invoices.
Change in remote service taxability
Over 90 countries have some kind of economic nexus laws imposing obligations on foreign businesses to register and collect tax. In non-US countries, these tax requirements usually apply to digital services.
However, more countries are expanding their tax collection requirements to remote services like accounting, legal, consulting, and low-value goods. From January 1, 2023, Singapore will follow the example of Australia and New Zealand in requiring non-resident businesses to charge and remit GST on consumer (B2C) sales of low-value goods and non-digital services if they exceed certain revenue thresholds. Norway is planning to impose a tax collection obligation on foreign businesses providing remote services to local consumers, but it is not yet clear when it will take effect.
Taxing all remote services is consistent with the VAT principle that tax should be levied at the place of consumption. This change will eliminate the need to distinguish between “digital” and “non-digital” services.
What this means for you: As more countries begin to tax remote services, the number of businesses with foreign tax compliance obligations will increase. Companies that were previously not filing taxes in foreign countries will need to ensure their tax reporting process is updated to reflect regulatory tax changes.
New and expanded marketplace facilitator laws
More countries are enacting new marketplace facilitator laws and expanding the reach of their existing ones. Missouri will be the final US state with a state sales tax to introduce economic nexus and marketplace facilitator laws. In 2022, British Columbia became the final Canadian province to implement marketplace facilitator liability rules.
Certain countries and states are also expanding the reach of their marketplace facilitator laws to other types of transactions and industries. New Zealand recently passed a law that makes electronic marketplaces responsible for collecting and returning GST on accommodation, ride-sharing, and food and beverage delivery services beginning in 2024. In the EU, the reform proposal on “VAT in the Digital Age” introduces tax collection obligations for platforms in the short-term accommodation rental and passenger transport sectors. These obligations will apply to sales by non-registered sellers. VAT-registered businesses who provide the platform operator with their VAT identification number will be excluded from this regime. The proposed rules on the platform economy will take effect in 2025.
When marketplace facilitator legislation was first introduced, it generally applied to sales of tangible personal property (in the US) or to sales of digital services (in the EU). Marketplace facilitator laws reduce the number of businesses responsible for collecting tax, increasing the efficiency of the tax collection process and reducing the potential for tax evasion in the platform economy. However, it does add a layer of complexity for marketplaces as they are now responsible for tax collection.
What this means for you: Changes in marketplace facilitator laws mean that beginning January 1, 2023, qualifying marketplaces will have to collect sales tax on behalf of sellers in all US states that have a sales tax.
Tax compliance resources
Keeping up with these tax changes can feel overwhelming, so here are some resources to help guide your compliance process:
- Introduction to sales tax, VAT, and GST compliance
- Introduction to US sales tax and economic nexus
- Introduction to EU VAT and VAT OSS
- Navigating the sales tax registration process in the US
- Navigating the tax registration process in Europe
- Navigating the tax registration process in Canada
- How to file sales tax returns in the US
Remember: Ensuring your business stays tax compliant begins with understanding where you have tax obligations. Then, you need to register with the local tax authority, calculate and collect the right amount of tax, and finally, file and remit the tax collected.
How Stripe can help
Staying on top of tax compliance trends and changes is complex and time-consuming. Stripe Tax reduces the complexity of global tax compliance so you can focus on growing your business. It automatically calculates and collects sales tax, VAT, and GST on both physical and digital goods and services in all US states and more than 30 countries. Stripe Tax is natively built into Stripe, so you can get started faster—no third-party integration or plug-ins are required.
Stripe Tax helps you:
- Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions and, after you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration or add tax collection to Stripe’s no-code products, such as Invoicing, with the click of a button.
- Register to pay tax: Stripe Tax provides links to the websites where you can register once you exceed the threshold to register.
- Automatically collect tax: Stripe Tax always calculates and collects the correct amount of tax, no matter what or where you sell. It supports hundreds of products and services, and is up to date on tax rule and rate changes.
- Simplify filing and remittance: Stripe generates itemized reporting and tax summaries for each filing location, helping you easily file and remit taxes on your own, with your accountant, or with one of Stripe’s filing partners. For automating filing in the US, we recommend using TaxJar’s AutoFile solution. Consult with your tax advisor to understand how specific requirements might apply to your business.