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PaaS and VAT: A Growing Industry with growing tax pitfalls

The rapidly evolving PaaS (Platform as a Service) industry has experienced significant growth in recent years as more organisations look to leverage the potential of cloud capabilities with agility and flexibility. 

For example, the worldwide public cloud services market is forecast to grow 17% in 2020 to a total of $266.4 billion, up from $227.8 billion in 2019, according to Gartner. In fact, growth in the cloud computing industry has been so substantial, that 96% of organisations now use cloud computing. 

And while Software as a Service (SaaS) remains the largest market segment, the PaaS sector is rapidly rising as a force to be reckoned with in the sector.  Valued at approximately $29.58 billion in 2018, the PaaS market is expected to grow to $52.4 billion at a CAGR of 15.4% through 2022. 

But, according to VAT compliance specialists, Vatglobal, navigating the VAT and tax implications of the sector can be complex.  

Playing catch-up in the digital VAT space

VAT authorities have been trying to play catch up within the digital VAT space to ensure they acquire taxes fairly from non-resident companies selling to their locals. And as the cloud-based economy has developed, tax authorities have struggled to recoup the indirect taxes — such as VAT and GST due to them. 

With that in mind, if international sales and expansion are at the heart of your business, are you up to speed with what’s required regarding your tax compliance for your digital products and services? Because if you’re not, you could face hefty penalties down the line, that have the potential to decimate a major chunk of your revenue.

The Consequences for Non-Compliance

Avoiding digital service VAT penalties early in your business growth is critical. A lack of knowledge in this Digital Services VAT area or purposely avoiding these tax obligations has consequences and the potential for penalties further down the line. Furthermore, VAT authorities with current digital service VAT laws in place, are using their own technology to ensure non-resident businesses comply with their laws. For example, Germany’s and Australia’s VAT authorities are developing technology that identifies non-compliant businesses and are approaching those companies directly.

Non – Compliance Penalties

While each country has its own punitive measures, if your business does not actively seek 100% VAT compliance in the foreign countries (or simply ignores foreign VAT laws), the following may arise:

  • Fines and penalties with interest accruing.
  • Decrease valuations of business wishing to sell.
  • Reduce business’s ability to raise financing.
  • Increase the likelihood of hidden liabilities.
  • Tarnished brand reputation.
  • Potential criminal implications.

Navigating a rapidly changing sector

As technology advances, the cloud computing sector continues on a path of rapid growth.  It can therefore be very difficult to navigate the waters of digital VAT in this space, especially as legislation changes continuously. 

It is also vital to understand the laws in multiple countries. This can be difficult for your finance team as well as a major drain on resources. Using an outsourced expert such as vatglobal, will guide you through the complex world of digital services VAT while at the same time removing the stress of potential non-compliance. You can read more about SaaS, cloud computing PaaS and VAT here.

About vatglobal

vatglobal is a leader in VAT Compliance & Registration solutions. They assist businesses to manage multi-jurisdictional VAT and GST registrations, compliance and reporting, with expertise and ability to assist on tax matters in all 28 European Union member states, as well as over 40 other jurisdictions around the world.

Vatglobal can assist your PaaS company with all VAT registration and compliance needs. We have been working within the PaaS and VAT space for many years. Therefore, we’re able to offer sound advice and reliable consulting. 

For more on digital services VAT, read here.

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