As discussed previously on this blog, some countries around the world levy tax on digital goods and services sold by established and non-established businesses. This means that even if you do not have an office in a given country, but are selling to consumers there, you may still need to pay sales tax.
In some of those countries, you can choose or may even be required to work with a tax agent, or tax representative, for your sales tax returns. Hiring someone like that is an expense for your business, so you will want to have a solid understanding of what a tax agent is, how their work benefits you, and who to hire. Let’s take a look at this.
What is a tax representative
First of all, what is a tax agent, or tax representative, and what do they do?
A tax representative acts on a client’s behalf when dealing with the tax authority in question, and often times need to be certified or licensed to do so. As an example, tax representatives in the US are typically tax attorneys, certified public accountants (CPAs), certified tax resolution specialists (CTRSs) or enrolled agents. Not only can they represent a client on the state level, they can also help resolve tax problems or assist during an IRS audit on a client’s behalf.
Put simply, a tax agent files all your tax-related paperwork for you. They will also keep up with changes in formalities or legislation to make sure all your tax returns are filed correctly.
Where do you need to hire a sales tax agent?
Some states and countries have made it mandatory for sellers of digital goods and/or services to hire a tax representative, while others simply give you the option to do so.
Currently none of them make it mandatory to hire a tax agent, but given the complexity of the US tax system, you are well-advised to work with a knowledgeable, certified local who you can represent you on the ground.
Along similar lines, there is no “one size fits all“ when it comes to taxation in the EU. Sales tax is called VAT, or value-added tax, in the EU, and is levied on all digital goods and services sold there by any business with or without a physical presence.
That said, rates and procedures vary between the different EU member states, so you do need to take an individual look at each of the countries in which you do business.
As a business based outside of the EU, you need to get VAT-registered, but are not usually forced to hire a tax representative. While some countries such as France do require a tax agent to represent non-EU businesses, there is a way to bypass this: You can choose to obtain your VAT registration in an EU country without this requirement and file your overall European VAT returns in that member state. Ireland is a good example here.
Sales tax is called “consumption tax” in Japan and is charged at a rate of 8%. Non-Japanese businesses selling digital goods and/or services to consumers in the country must register with the tax authorities starting at an annual threshold of JPY 10 million. Foreign businesses are required to designate a Japanese tax agent.
All foreign-based businesses selling digital goods and/or services in Albania must register with the local tax authorities regardless of any threshold. This means that you are VAT-liable from your very first sale. Albania requires non-established businesses to work with a local tax representative.
Every foreign business selling digital goods and/or services is liable for sales tax, or GST, in India from the first sale, i.e. there is no threshold for registration. Non-Indian businesses must hire a tax representative, and GST is charged at 15%.
Serbia requires all non-resident sellers of digital goods and/or services to charge the standard VAT rate of 20%. In the absence of a threshold, non-Serbian businesses are required to register from their very first sale. They must also hire a local tax agent and it is not possible to pay Serbian tax liabilities from abroad.
GCC (Gulf Cooperation Council)
The six GCC member states (Saudi Arabia, Kuwait, the United Arab Emirates [UAE], Qatar, Bahrain, and Oman) have a unified VAT agreement that is gradually being rolled out across the individual countries. Generally, the tax threshold will be SAR 375,000 or its equivalent in the other currencies. Once past the threshold, foreign businesses must register through a local tax representative and must charge 5% VAT.
Here’s the current status of each member state:
Saudi Arabia has the VAT laws in full effect. Their initial threshold of SAR 1,000,000 will reduce to SAR 375,000 after December 20, 2018.
The UAE also has VAT in effect, with a threshold of AED 375,000.
Bahrain has pledged to implement VAT in October 2018. The tax registration threshold will be $100,000 USD.
Kuwait is obliged to implement VAT by the end of 2018.
Oman plans to implement VAT in 2019.
Qatar is a holdout.
What to look for in a tax representative
How to find the perfect match? Like with so many things in life, which tax agent is right for you depends on your individual business needs and preferences.
On a general scale, however, the first thing you will want to check for is whether the agent possesses the necessary and desired professional qualifications for the job. Some states and countries require tax representatives to hold a certification or license, while others may need them to have a certain type of university degree.
Of course, you will also want your representative to be proficient in your area of business. Ask who they have worked with previously, and check if they have relevant expertise for your business needs. Taxation for digital goods or services can vary greatly from that of physical goods, so make sure your tax agent knows the ins and outs of this.
How Quaderno helps you work with your sales tax agent
A tax agent can only be as good as the data you provide to them. In order to file your tax returns correctly and to your maximum benefit, your tax representative needs accurate, precise, and timely information.
Putting together all those figures previously took hours, days, or even weeks, and came with a lot of headaches. Quaderno automates those tedious tasks for you and provides you with all the information you need in real time. Neatly organized, absolutely error-free, and ready to be sent to your tax representative(s) anywhere in the world. Sounds magical, doesn’t it?
Note: At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or the Tax Agency.