Going Global with Your Startup
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I am in Europe and want to start a SAAS service that caters to individuals and small companies. I wonder if it is feasible to do so in Europe. Do I really have to ask each customer where he is based, if he is an individual or a company and then tax him accordingly? Do I have to create invoices?
US based startups seem to simply not care. Even big companies don't. They just ask for your credit card number and thats it. For example I used Amazon Mechanical Turk recently to outsource some work. And there simply is no way to get an invoice from them.
Do European startups have a big disadvantage in this regard or am I missing something?
Are there services that abstract that away? Deal with all the invoicing and tax issues?
In short: If you're supplying digital services to consumers, you need to charge them Value-Added Tax (VAT) in the country they're in, not the country you're in. If you're supplying to businesses, you charge them VAT where you are. You need to collect certain evidence with each transaction, to prove which category/country your customer is in.
The search term you probably want is "VAT MOSS". This officially refers to the "Mini One-Stop Shop" provided by HMRC (the British tax authorities), which tries to ameliorate the situation. You still need to charge people the right amount of tax, but then you can just upload a quarterly spreadsheet saying how much revenue you got from each EU country. But "VAT MOSS" is also used as a catch-all term for the whole cross-border digital VAT kerfuffle.
It started out as a well-intentioned attempt to close a tax loophole, but it was clearly drafted by people with no understanding of how computers work. (There are actually "FAQs" about how, precisely, to handle a German citizen with a British SIM card making a mobile transaction from a train journey crossing the Italian-Swiss border...as if this were something a website could reasonably detect.) But, as I say, there are decent solutions you can use, and you just spend a couple of days implementing one of them.
A couple of days seems very optimistic!
The situation today is certainly better than it was for those of us who got hit by the new rules before the payment services had caught up and had to do it all ourselves.
However, even the payment services today typically concentrate on adding the correct VAT rate onto initial purchases and possibly doing some sort of look-up to try to keep the required proof of location. They still won't do much to help you keep up to date with different tax rates for different types of service or in different territories, filing (and, if necessary, later re-filing) the MOSS returns themselves, knowing which location and therefore which tax rate to use for later payments after a customer starts an automatic recurring subscription of some kind, and so on.
And of course it's all relatively simple if you collect all your payments through the same payment method, such as Stripe and a plugin as you mentioned. If you're collecting through different channels then you're still going to have to reconcile all the figures yourself as well, at least with any payment systems I've ever seen.
Do you not record your users' GPS, connection point, roundtrip delay, microphone, and camera at all times?
Because I stepped into a restaurant the other day and my brand new Android phone asked me to take a picture of the specific booth I had sat down in (by number and floor plan) for Google. Get with the modern analytics stack bro.
You could probably ameliorate that by changing it to "improve".
(While I'm making a new comment, and since the last one is out of its edit window, I should acknowledge I mangled my attempt to summarise the place-of-supply rules. Sorry. Don't get your tax advice from HN comments, kids.)
If you cater to companies, it is easier. You ask for the VAT number and only if the company is from your own country, you add the VAT, otherwise its 0%.
If you cater to individuals, you need to use two different mechanisms to identify where the user is from (IP Address + Geo location and another one) and store this information, then you need to charge the VAT from that country and you need to signup for the EU Mini One Stop Shop (MoSS) with your local tax office, report your european VAT earnings quarterly.
Selling to a customer (business or individual) from outside the EU you can charge 0% VAT, so that is easy as well.
I recommend that you use either Recurly or Quaderno in combination with Stripe, because they generate the invoices for you and handle the VAT calculation perfectly.
I don't know about other countries than Germany (were we are located), but we also have to submit monthly VAT report to our tax office, all in all we pay our tax attorney 400-500 Euros per month, plus another 1000 for the yearly report. Maybe other EU countries allow startups to report quarterly or yearly? Idk.
In the UK it's usually quarterly, but you have to file separate returns and make separate payments for VAT MOSS and domestic (UK) VAT, which might be out of phase unless your VAT quarters happen to fall on calendar quarters anyway.
No, it is not 0%, it is VAT deferred.
I mean to help others with their Googling, I'm not trying to be overly pedantic :)
B2B sales between EU nations are out of the scope of VAT in the supplier's country, and in scope in the customer's country (the customer must account for VAT using the reverse-charging rules)
There is an endless supply of people who are willing to do this work for you, for a fee. Essentially this is the classic get an accountant advice.
You could also do all of this yourself if you consider yourself smart and limited on cash. Frankly it isn't that complicated to understand. There's plenty of information available online. In my case (Estonia) the local tax authority is even giving regular education classes for free that you can attend.
The basic principle is easy enough to understand.
I doubt that there is a single person alive who fully understands the technicalities, and I doubt that there is a single person who worked on the scheme at the EU who understands why full compliance is essentially impossible for most if not all businesses.
To put it bluntly, you're right. We have to do more work just to get started accepting money than our American counterparts. Yes, the insanely complex EU-VAT rules actually need to be followed. Yes, a lot of your customers will want to pay via bank transfer and not through credit card. Yes, the American folks will still want to pay in USD and not in EUR.
We use ChargeBee (https://www.chargebee.com/) to abstract away most of the pain. I would greatly suggest using such a service (Recurly and Chargify are more enterprisey alternatives). We had a selfmade implementation before switching to ChargeBee, and one EU rule change caused us to have to re-issue all customer invoices for one quarter. Not fun. ChargeBee prevents you from doing the biggest blunders in taxation, and also allows you to keep track of invoices paid through credit card or through bank transfer (and specify the Dunning rules accordingly). Overall, I'd greatly recommend it.
I tried your site and I saw that it adds the VAT when the user selects their country. Since the order page makes network requests to ChargBee, I guess they provide all that functionalilty.
Would you say ChargeBee is also a good solution for small one-time-payments?
When you say it abstracts away 'most of the pain' - what pain is left?
My startup uses ChargeBee and deals with one-time-payments as well as subscriptions. It's definitely geared towards the subscription model, but you can make the one-off payments work by using the API and utilizing add-on products.
First, the customer would need to be signed up for a subscription plan that has a trial set to expire X years out (I think the maximum is 10). ChargeBee's pricing model is based on the total number of invoices per month (or at least that's how our plan works), so signing them up for a trial does not result in an invoice being generated.
Then you would set up an add-on product in ChargeBee that is of the "Quantity" type and has a price of $.01. When the customer makes a one-off purchase, you would call use the ChargeBee API to purchase a quantity of X of the add-on. So if the total charge is $10, you would use a quantity of 1,000 (1,000 x .01 = 10).
If you have products that have a set price, you can just add each one as an add-on and reference that product ID when calling the API.
It sounds kind of hack-ey, but I'm very happy with our decision to go with ChargeBee. Their customer support is awesome as well.
Regarding what pain is left: I'm approaching this from an end-to-end perspective, so answering the question "Even when using ChargeBee, what additional work do we have to do compared to a similar business based in the US?":
- You still have to code in UI-level support for multiple currencies. ChargeBee handles the backend.
- ChargeBee gives you a nice UI for keeping track of paid and unpaid invoices. Nonetheless, for payments via bank transfer [which your EU business customers will want to use], you still have to manually confirm in ChargeBee that you've received payment.
- You still have to supply quarterly MOSS tax returns to your local tax authorities (though ChargeBee does all it can to make that process quick).
Free tier for new businesses, $99/mo and up (up up) nonlinearly.
Beyond the subscription and invoicing side (in which they seem to have thought of everything) it also manages all our reconciliation in Xero. The payments come in to a holding account from Stripe in big transactions so you don't know which invoices should be mapped against the transactions. Chargebee have a chrome extension that will match everything up and automatically reconcile it all for you.
Also, the team have always been awesome to work with. Could not recommend them highly enough.
What's the relational behind such a complex tax system? Sounds like a good way to discourage people from trying out business ideas.
Tax authorities systematically underestimate how much they harm the economy through complexity.
There is absolutely nothing about this scheme that is better than before it was introduced. Nothing.
Several years after it was introduced, as others have noted, some of the payment handling services have kind of caught up, to the point where if you can use one of them then you'll probably fly under the radar.
You'll still have to spend time/money on the integration itself. You almost certainly still won't be fully compliant, because 100% compliance is practically impossible. You'll potentially be giving up a significant chunk of your margin in extra fees. And you'll still have the extra paperwork to do and the potential for an expensive audit by any of 28 member states' tax authorities if your number comes up. But at least you can carry on doing business in the meantime and hope for the best.
This tax scheme is my go-to example of what happens when politicians who see a problem but have no idea what they're doing try to fix the problem anyway. Your final sentence is right on point, sadly.
Under the previous scheme Luxembourg/Ireland would get a gigantic share of VAT. I guess you could argue that this money can be redirected by EU support programs to countries in need. I think that having the VAT go directly to the country closest to the buyer is a more optimal solution. Less dependence on EU welfare to know that your tax money is benefiting your community.
[0] https://en.wikipedia.org/wiki/General_Data_Protection_Regula...
This isn't actually true. There are quite a few dependent territories and the like that are part of the same country but have different tax arrangements. There are also multiple VAT rates for different types of product or service in a lot of countries, with different rules from place to another about which products or services attract a lower rate.
In the US you basically can be sure that sales-tax varies by zip-code. I worked for a telecom company in the US that sent all their invoices to a specialized company, to have them calculate the tax, before sending them out to their customers. It was too complicated to do that on their own. Also because tax rates can and do change at the whim of some local city-government for example. And as far as I know tax rates in the EU are determined by the country-governments only, which means not very often.
[1] https://ec.europa.eu/taxation_customs/sites/taxation/files/r...
As for locations, there are plenty of potential gotchas there too. Would you like to guess the rule if the person who bought an e-book did so while on holiday on a cruise ship in the Mediterranean?
And as for not changing very often, I think the shortest notice so far was just over a week from legislating the change to the new rate coming into effect (Greece in summer 2016). To this day, I'm aware of no standardised mechanism for alerting merchants to future changes in the relevant rates, nor any authoritative list of current rates available in a machine-readable format for automation purposes.
So while I agree that we shouldn't pretend it's more complicated than it is, the current EU VAT situation is a complete mess full of traps and technicalities to catch out the unwary, and full compliance is effectively impossible. It's a bad system, made by people who don't understand how either digital markets or small businesses actually work.
Dear SaaS vendors | https://news.ycombinator.com/item?id=16180545
>dtech: As an European, my biggest wish for most SaaS vendors is an alternative to credit cards payments. SEPA Direct Debit
>throwaway2016a: Lack of PDF invoices
This is why you have to keep in mind of possibility of setting up a fulfillment centre outside of EU economic area and countries with which EU has tax deals with, but on the border with it.
Of course, but that applies to everything, web hosting, email hosting, etc
> easter EU countries
Eastern
> what if you have thousands of tiny amounts
The card companies are eating your profit already in this case.
irrelevant. EU doesn't have complicated email system, it has complicated tax systems compared to anywhere else in the world.
> card companies are eating your profit
Also irrelevant. they might be paying in raiblocks i d still have the same problem.
I'm glad you've shown your lack of knowledge here, VAT on digital services has some complexity, but overall taxation in the EU is simpler than what a lot of other countries require.
The drawback is that customers see your reseller company name in invoices, which can be problematic for some, but we haven't yet hear complains.
ps. here is a startup that is supposed to help companies with this minefield: http://taxdoo.com . We shouldnt need these things.
> Cookies clearly exempt from consent according to the EU advisory body on data protection- WP29pdf include:
> user‑input cookies (session-id) such as first‑party cookies to keep track of the user's input when filling online forms, shopping carts, etc., for the duration of a session or persistent cookies limited to a few hours in some cases authentication cookies, to identify the user once he has logged in, for the duration of a session > user‑centric security cookies, used to detect authentication abuses, for a limited persistent duration multimedia content player cookies, used to store technical data to play back video or audio content, for the duration of a session > load‑balancing cookies, for the duration of session
> user‑interface customisation cookies such as language or font preferences, for the duration of a session (or slightly longer) > third‑party social plug‑in content‑sharing cookies, for logged‑in members of a social network.
Still, some cookie notices keep coming back even after you acknowledge them
C'mon man the cookie thing is a silly PR gesture, with measurable economic cost in the time it takes to dismiss all those dialogs in your tiny phone screen. It has done nothing, absolutely nada measurable in attitudes towards tracking.
If I could start fresh, I would probably set up a company in Singapore. Moving an existing business is FAR more complicated... There’s a pretty great post from the Ghost founder about it (on mobile so can’t look it up easily). Worth considering in my opinion.
Not only it is cheap, 1 week deliveries are some times possible on Finpost, Singpost, Swedish Post and most well known, HK Post.
Establish small warehouses in those countries.
2. Do not have legal presence in as many countries as possible. Countries do not tax purchases of their citizens abroad (no VAT, hooray)
3. Be secretive (or at least until you can afford to do things the way "big co." do)
4. If you 100% need to have physical presence in the country, you are doing something wrong.
5. If you 100% need to have a team meeting in person with an ability to rent an office for work for some time, only consider no hassle visa countries. Singapore was once super hospitable to internationals: hire whom ever you want, from where ever you want, but now they did a U turn. They also largely cancelled their legendary high income individual visa (a de facto residentship permit given just for agreeing to live and spend money in Sing.)
Vietnam, Thailand, Malaysia, PRC, Pakistan have no problem at all giving out long term business visit visas to all and everybody. For as long as you get your body on their side of the border, you are free to do whatever you want for the duration of the visa unless you do something really stupid.
6. If you are really insistent on having a single physical workspace, consider places out of beaten path: look for countries that are cheap to live in, yet fancy, and without bureaucratic culture. For example, say Kazakhstan (their capital ranked 1 in Economist's list of cheapest megacities to live in) or Pakistan (they have an actually working FDI assistance and protection program.) There, locals are ready to almost worship the few foreigners who want to spend money in the country, plus they are the kind of countries where you can buy anything for money including the disposition of authorities. Also check for possibility to do split tax/salaries legally in the country (pay base in the country, and a project premium/stand alone consulting payment to a proprietorship in their home or third countries.)
7. Consider the fact that the majority of world's middle class lives outside of the West today and that you get more opportunity for the money in markets that are not yet as mature as in the West.
8. Middle class outside outside of the West is easier to cater to: in the West, you gave a plethora of different classes all qualifying as paying middle class, with their own subclasses, and vastly varying demographics. Compare this to Central and South East Asian middle class: age 25-35, 90% technical professional occupation, %60-%70 with families/couples, highly geographically clustered, employed full-time, mid to high property ownership, mid to high light vehicle ownership, almost all with higher education and second language knowledge.
9. P.S. Pakistan has fabulous 200GB 4G data plans for only ~$90 a month.
That is not a positive. And you will get into trouble on more advanced countries for taking that route on those countries. As you should.
Yes, this is very important. There's still nothing like human contact. I use video calls constantly all day, but still fly a tremendous amount because so much communication happens non-verbally or with higher fidelity than video provides.
Humans are, by nature, social beings. Even though, as a civilisation, we've come a long way and have created ways of communicating across huge distances, we still feel like the personal contact is so much more powerful.
Never underestimate personal contact, especially when running a business.
If you're interacting with a text-based chat interface you get one thing, pieces of text, not only that's all you have to make decisions, but you have no idea how much effort and time went into designing those messages for you, this translates into the simples human interactions.
If you are talking on the phone, you get words and maybe a tone of voice, you get more timely information, but that is all.
If you are doing video chat, you get to see the persons expressions, which is a plus, but not much more(and how many times have I seen audio/video data issues).
But, if you are meeting in person, you get all of that and then some, plus it signals commitment and effort to allocate time to physically attend a meeting considering how much other options you have. These do not have precise metrics, but it drives people gut decisions.
A hypothesis I haven't seen falsified is that smell or pheromones are part of the human bonding mechanism, even for business relationships.
Another thing you lose through videoconference is the potential for violence. Even though it almost never happens in business meetings, perhaps there is a part of our evolved brain that's active when interacting with someone who could, in principle, punch you if you offended them, and even business relationships are affected by this. Underneath our sophisticated neocortex lives the brain of a small mammal.
1) Issuing employee equity across countries is difficult: There are good US solutions to prevent employee equity/ option holders from needing to pay taxes before liquidity, and similarly for good German solutions to the same problem. Getting these two systems to "play nice" with each other is challenging.
2) Time zones: If possible, I'd think about time zones when expanding internationally. SF->Europe is brutal (8-9 hours), which is a major reason we put our US office in NYC. I wake up at 6, check email, and have half a day to work with the Germans during their work day. If I were to be on the West Coast, even by starting at 6am it's already 3pm in Germany.
3) Visas: A good option for international companies expanding to the US is an E-2 "investor" visa- these make it easy for employees of the foreign HQ to come over to the US for a few years as long as the foreign company is investing substantial money in the US organization (I think over a couple hundred $K is enough)
I had a few more things that helped with a platform that I built that went global:
- Internationalization - bake it into the bread from the beginning, the cost is marginal, relatively speaking. Internationalize the UI for sure, and make design decisions relative to having reasonable multi language support for any user type content. It won't be perfect out of the box, but you will have a huge head start when you have to optimize rendering of languages.
- Localization: The forgotten sibling of internationalization can be critical when going for an experience to show a native experience that is local and inviting to the user.
- Equality for the international user: Consider your browser configuration globally and not just North America, which is typically better equipment, higher screen resolution, faster internet connections, the latest browsers, etc. This doesn't mean avoiding using the latest and greatest, but consider it. As much as I like React, lighter libraries like Vue can be a little less heavy. Lean, mean, and fast go a long way when you have a user on an off-shore platform needing to access something required to do his job.
- Mobile first - the world is mobile first, North America is a mix. For many people, depending on the country, the mobile is the only device they have, through which they have to accomplish tasks that others may complete on tablets or laptops. Consider this in your design and also try using only a phone for a week to do what you do normally on a laptop - it can be eye opening.
Thanks to folks who have reccomended services like Chargebee - sharing current resources that solve neccesary problems like this help a lot. It's great to be able to take money in any form rather than force a user down a particular path.
Many advantages from going US only first: same currency & language, homogenous culture, huge market, etc. The main disadvantage though is that you don't learn how to operate in an international environment until later in the business life cycle, at which point the institutional DNA is harder to change.
Your competitors will be taking a global-first mindset, so it's something to think about.
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Apache/2.2.24 (Unix) mod_hive/5.5 mod_ssl/2.2.24 OpenSSL/1.0.0-fips mod_auth_passthrough/2.1 mod_bwlimited/1.4 FrontPage/5.0.2.2635 mod_fastcgi/2.4.6 mod_fcgid/2.3.6 Server at blog.ycombinator.com Port 80Also, managing a 40 person team across many time zones created interesting communication issues. Be prepared to dial in processes far earlier than you would expect to need them and learn how to manage / archive conversations that happen in chat effectively. I've found that voice / video chat is still very challenging due to time zones, varying internet connections, and spoken accents vs text.
I definitely expect to see much more of this going forward though. Asian markets are on fire right now and many US companies, large and small, are focused on growth there.
Although I'm German I can't recommend DHL to anyone in good conscience.
Really?
That's pretty much business 101. Doesn't need to be one person exclusively, there are offices that combine both services, but yeah.
Unless you're subcontracting them.
Oh and "work visas are complicated", they are, but H1Bs are much more complicated than the average (and abused by big players as well).
So overall, it's a nice writeup, but pretty, pretty basic.
Personally I know various companies that have employees all over the world but DON'T have accountants and lawyers anywhere. These "employees" are both "contractors" and "employees", depending on which angle you look from.
While management and team members might consider them selves BOTH employee and contractor. The legal and tax situation is that those are different employment states and you can't be both. For a recent example see Uber in the UK.
It's somewhat a tech industry thing the idea that employees can wander around the world and work from wherever they want - the tax and legal system isn't quite as fluid.
[0] statistically the chance of being noticed by the tax authority is pretty small at the start which is why it doesn't happen that much. But, if you start 'employing' tens of people in a jurisdiction and don't have company tax affairs in order then it gets increasingly risky.
1. You inevitably hire a local person to handle this market.
2. Because of the combination of language issues and timezone differences, communication suffers. All of your communication is via your one local person.
3. Your Chinese country manager decides that the Chinese market is significantly different from every other country in the world, so your product needs to be rebuilt to address the local market. Fortunately they can hire lots of people very quickly and relatively cheaply. You don't really have any insight to say whether they are right or wrong.
Comment: I feel this tends to be a combination of a) empire-building strategies and b) ignorance of the rest of the world, and a specific assumption that China is special in some specific way, which often turns out to be false.