Do US Software Businesses Need to Pay VAT?

The confusion is understandable. The US is one of the only major economies without a national VAT, so a founder selling SaaS from San Francisco rarely encounters the concept until a customer in Berlin asks for an invoice with German VAT on it — or, worse, until HMRC sends a back-assessment letter for two years of unregistered UK sales. This guide answers the question end to end: when the obligation kicks in, where it applies, what happens if you ignore it, and how to actually start collecting.

Why a US software business owes foreign VAT at all

VAT and GST are destination-based consumption taxes. They are collected by the country where the consumer lives, regardless of where the supplier is established. For physical goods, this has always been administered at the border by customs. For digital services — SaaS, downloadable software, streaming, e-books — there is no customs checkpoint, so since roughly 2015 most of the world has shifted the registration and collection burden directly onto the foreign supplier.

The legal mechanism varies by country (the EU calls it "Electronically Supplied Services," the UK calls it VOES, Australia calls it the "Netflix tax," India calls it OIDAR), but the rule is the same: if you sell software to a consumer in their country, you owe that country's VAT.

When the obligation triggers

Three factors decide whether a specific sale creates a registration obligation:

1. Customer location. If the customer is outside the US, the foreign jurisdiction's rules apply.
2. Customer type. Most regimes apply only to B2C sales. B2B sales typically use the reverse charge, where the customer self-assesses VAT — provided they supply a valid VAT number.
3. Threshold. Some countries register from the first sale (EU, UK). Others have a small annual threshold (Australia A$75,000, Canada C$30,000, Singapore S$100,000).

The 12 jurisdictions a US software business is most likely to hit first

This is the high-volume tail. Add another 50+ countries (Mexico, Brazil, Chile, Colombia, Indonesia, Malaysia, Thailand, South Africa, Turkey, Saudi Arabia, Egypt, Kenya, Nigeria, the Philippines and others) that have either implemented or scheduled non-resident digital-services regimes since 2017.

What about B2B sales? Don't I just reverse-charge?

Often yes — but only if the customer can prove they are a registered business by providing a valid VAT/GST number. A few important caveats:

• B2C is the default. If a self-described business cannot produce a valid VAT number, you must treat them as a consumer and charge local VAT.
• You still need to validate the number. The EU runs VIES for live validation; the UK runs an HMRC API. Charging zero VAT against an invalid number leaves you on the hook.
• You may still need to register for reporting. Some countries require non-resident sellers to file informational returns even when every transaction is reverse-charged. Others (notably India OIDAR) carve out B2B but still require a registration before invoicing.

What happens if a US software business ignores foreign VAT

Three things have changed in the last five years that make non-compliance materially riskier than it used to be:

1. Payment processor data sharing. Stripe, Apple, Google, PayPal and the major card networks share transaction data with tax authorities under DAC7 (EU), CARF (OECD), and similar frameworks. Tax authorities receive structured per-transaction data showing exactly which non-resident sellers have customers in their country.
2. App store withholding. Apple and Google deduct VAT/GST in many jurisdictions before paying out, but if you sell direct (Stripe, Paddle, custom), you are exposed.
3. Retroactive assessments. Most regimes assess back to the first taxable supply, not from the date of investigation. A US SaaS that has been selling to UK consumers for three years owes three years of UK VAT, plus interest, plus a penalty that ranges from 10% (cooperative disclosure) to 100% (deliberate behavior).

What you actually need to do

The compliance work breaks into four pillars. They run in this order, but each is a permanent obligation once you start.

1. Detect exposure

Pull your last 12–24 months of transaction data and segment by customer country. Apply each jurisdiction's threshold and customer-type rules. The output is a list of countries where you have already crossed the registration line, plus a watch-list of countries you are approaching.

2. Determine

For every transaction going forward, you need to decide: which country's rules apply, is it B2C or B2B, what rate applies, and what evidence are you storing to support the decision in an audit. Most regimes require two non-contradictory pieces of customer-location evidence (billing address, IP, payment country, etc.).

3. Register

One registration per jurisdiction in most cases — with one big simplification: a single EU OSS Non-Union registration (we recommend Ireland) covers all 27 EU member states. Outside the EU, each country is its own registration.

4. File and remit

Frequencies vary. EU OSS is quarterly. UK MTD is quarterly. Australia Simplified GST is quarterly. India OIDAR is monthly. Norway VOEC is quarterly. Filing typically requires authority-specific software or API submission (UK MTD is API-only) plus an international wire to the tax authority's bank.

Common shortcuts and where they leak

"We use Stripe Tax, so we're covered."

Stripe Tax computes the right rate at checkout and produces filing reports. It does not register your company in any foreign jurisdiction, and it does not file or remit. You get an accurate number; you still owe the rest of the work. See our deep dive on VAT for Stripe users.

"We're a Merchant of Record customer (Paddle, Lemon Squeezy, FastSpring)."

An MoR is the legal seller of record. They register, charge, file and remit in their own name — you sell to them. This genuinely removes the foreign VAT obligation, but only for transactions actually routed through the MoR. Direct Stripe sales, enterprise contracts you bill outside the MoR, and Apple/Google revenue all sit outside that umbrella. Compare MoR vs self-remitting before assuming you are covered.

"We only have a few foreign customers, it's immaterial."

For threshold-based regimes (Australia, Canada, Japan, Singapore) this is sometimes true. For zero-threshold regimes (EU, UK, Norway, India, UAE, South Korea), the first euro of B2C revenue is the trigger. Materiality is a US tax concept; foreign VAT is binary.

Frequently asked questions

Does the US have VAT?

No. The US uses state-level sales tax. Federal VAT has been proposed multiple times and never adopted. But US software companies still owe VAT/GST in foreign countries on sales to those countries' consumers.

Is SaaS subject to VAT?

Yes, in essentially every country that has VAT. SaaS, downloadable software, hosted apps, APIs, and digital marketplaces are uniformly classified as Electronically Supplied Services and follow the customer-location rule.

Do I owe VAT in countries where I have no employees or office?

Yes. Modern non-resident digital-services regimes are designed exactly for sellers with no local establishment. Having no UK presence is not a defense against UK VAT.

What is the smallest country that requires US software companies to register?

Several have a zero threshold: the UK, EU member states (for non-EU sellers), Norway, India, UAE, and South Korea among them. The first sale triggers the obligation.

Can I register in just one country and call it done?

Only for the EU. The OSS Non-Union scheme combines all 27 EU registrations into one. Every other country is its own registration.

How do I know which countries I have already crossed thresholds in?

Run an exposure analysis on your billing data. DeterminedAI's free Exposure Check connects to Stripe (or accepts a CSV) and produces a per-country status board showing where you are safe, approaching, crossed, or overdue.