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| 1 | --- |
| 2 | name: saas-digital-products |
| 3 | description: > |
| 4 | Use this skill whenever a SaaS company, digital platform, app developer, marketplace, or other digital-product business asks about sector-specific tax / accounting / cross-border issues. Trigger on phrases like "SaaS revenue recognition", "ASC 606 SaaS", "IFRS 15 SaaS", "subscription revenue", "ARR", "MRR", "deferred revenue", "termed license vs subscription", "ASC 985-20 software", "SaaS sales tax US", "Wayfair nexus SaaS", "EU OSS digital services", "marketplace facilitator", "permanent establishment server", "EU place of supply digital", "EU MOSS", "VAT digital services B2C", "GST low-value imported services", "US state sales tax SaaS", "MTD VAT SaaS UK", or any SaaS-specific tax / accounting question. Covers IFRS 15 / ASC 606 SaaS revenue recognition, US state sales tax SaaS nexus (Wayfair post-2018), EU OSS / IOSS for digital services to consumers, EU VAT place of supply for cross-border B2B/B2C SaaS, Australia GST low-value imported services, India OIDAR / Equalisation Levy, Canada digital service GST/HST. Does NOT cover: software development methodology, app store revenue share economics, SOC 2 / ISO 27001 audit procedures. |
| 5 | version: 0.1 |
| 6 | jurisdiction: GLOBAL |
| 7 | category: vertical |
| 8 | depends_on: |
| 9 | - corporate-income-tax-workflow-base |
| 10 | verified_by: pending |
| 11 | --- |
| 12 | |
| 13 | # SaaS & Digital Products Sector Tax & Accounting v0.1 |
| 14 | |
| 15 | ## What this file is |
| 16 | |
| 17 | A sector overlay for SaaS, digital platforms, app developers, marketplaces, and other digital-product businesses. |
| 18 | |
| 19 | --- |
| 20 | |
| 21 | ## Section 1 — Revenue recognition (IFRS 15 / ASC 606) |
| 22 | |
| 23 | ### 1.1 Five-step model |
| 24 | |
| 25 | **[T1]** |
| 26 | 1. Identify the contract with a customer |
| 27 | 2. Identify the performance obligations |
| 28 | 3. Determine the transaction price |
| 29 | 4. Allocate the price to the performance obligations |
| 30 | 5. Recognise revenue when each performance obligation is satisfied |
| 31 | |
| 32 | ### 1.2 Key SaaS issues |
| 33 | |
| 34 | | Topic | Treatment | |
| 35 | |---|---| |
| 36 | | **Subscription / SaaS access** | Generally one performance obligation, satisfied over time (stand-ready obligation) — straight-line revenue over the term | |
| 37 | | **Implementation services** | Distinct (separate PO) only if customer can benefit from the SaaS without them; otherwise combined and recognised over the SaaS term | |
| 38 | | **Right of use license vs hosted service** | If the customer has a right to use the underlying software (e.g., download), revenue at point in time; if hosted, recognise over the contract term (stand-ready) | |
| 39 | | **Setup fees / activation fees** | Combine with subscription if not distinct; recognise over the customer's expected life | |
| 40 | | **Discounts and ramps** | Allocate to all POs proportionately, not just to specific period | |
| 41 | | **Variable consideration** | Constrain to amount unlikely to require significant reversal; commonly estimated for usage-based | |
| 42 | | **Customer acquisition costs (commissions)** | Capitalise per IFRS 15 ¶91-94 / ASC 340-40; amortise over expected customer life (often longer than contract term) | |
| 43 | | **Hosting agreement under SaaS arrangement (customer-side accounting)** | Cloud Computing Arrangement (CCA) — generally expensed as incurred; ASU 2018-15 allows capitalisation of certain implementation costs aligned to ASC 350-40 | |
| 44 | |
| 45 | ### 1.3 Examples of common SaaS issues |
| 46 | |
| 47 | **[T1] Multi-year contract with discount in year 1:** |
| 48 | Contract: 3 years; $100k year 1, $150k years 2 and 3. Total $400k. |
| 49 | - Straight-line allocation: $133k/yr recognised |
| 50 | - Year 1 deferred revenue $33k; recognised in years 2/3 |
| 51 | |
| 52 | **[T1] SaaS + implementation services:** |
| 53 | - If implementation specific to SaaS and customer can't benefit without it → one PO, recognise both over SaaS contract term |
| 54 | - If implementation could be sold separately and customer can use other vendors → separate POs, implementation recognised on completion |
| 55 | |
| 56 | --- |
| 57 | |
| 58 | ## Section 2 — US state sales tax on SaaS (post-Wayfair) |
| 59 | |
| 60 | **[T1] South Dakota v. Wayfair (2018)** overturned the physical presence test for sales tax nexus. Economic nexus now applies — typically $100,000 in sales or 200 transactions to the state. |
| 61 | |
| 62 | ### 2.1 SaaS taxability by state (sample) |
| 63 | |
| 64 | | State | SaaS taxable? | Notes | |
| 65 | |---|---|---| |
| 66 | | **California** | No (generally) — service not tangible personal property | But certain "canned software" downloads taxable | |
| 67 | | **New York** | Yes — sales tax on SaaS to NY customers since 2010 | |
| 68 | | **Texas** | Yes — "data processing service" since 1980s; 20% exemption under §151.351 | |
| 69 | | **Florida** | No — service, not tangible | | |
| 70 | | **Washington** | Yes — Retail Sales Tax + B&O Tax | | |
| 71 | | **Illinois** | Generally no for SaaS but specific products taxable | | |
| 72 | | **Pennsylvania** | Yes — Sales and Use Tax on "computer services" | | |
| 73 | | **Massachusetts** | Yes if "prewritten" but no if customer-specific | | |
| 74 | | **Ohio** | Yes if "electronic information services" | | |
| 75 | | **Virginia** | No — service | | |
| 76 | | **Tennessee** | Yes — Telecommunication Sales Tax also applies | | |
| 77 | | **Georgia** | No — service | | |
| 78 | | **North Carolina** | Yes — "digital codes" but SaaS itself contested | | |
| 79 | |
| 80 | **[T1] Marketplace facilitator laws** — most states require marketplaces (Amazon, Etsy, etc.) to collect on behalf of sellers above thresholds. |
| 81 | |
| 82 | --- |
| 83 | |
| 84 | ## Section 3 — EU VAT for digital services |
| 85 | |
| 86 | ### 3.1 Place of supply |
| 87 | |
| 88 | **[T1] Article 58 PVD:** |
| 89 | - B2C electronic services: place of supply is **where the customer is established / has permanent address / usually resides** |
| 90 | - B2B electronic services: place of supply is **where the customer is established** (reverse charge) |
| 91 | |
| 92 | ### 3.2 OSS (One-Stop-Shop) and IOSS (Import OSS) |
| 93 | |
| 94 | **[T1]** |
| 95 | - **Union OSS**: EU established supplier registers in home MS, declares all B2C cross-border EU sales of services + intra-EU B2C distance sales of goods |
| 96 | - **Non-Union OSS**: non-EU supplier registers in chosen MS for B2C EU electronic services |
| 97 | - **IOSS**: import OSS for goods ≤ EUR 150 imported into EU |
| 98 | |
| 99 | ### 3.3 VAT rates by country |
| 100 | |
| 101 | Country-specific. For digital services to consumers, the destination MS rate applies. See country VAT skills. |
| 102 | |
| 103 | --- |
| 104 | |
| 105 | ## Section 4 — Other major SaaS VAT/GST regimes |
| 106 | |
| 107 | ### 4.1 United Kingdom |
| 108 | |
| 109 | **[T1]** Post-Brexit, UK applies own VAT regime: |
| 110 | - Same place-of-supply rules as EU but UK-specific |
| 111 | - VAT on Electronic Services (VOES) registration for non-UK suppliers |
| 112 | - Standard rate 20% |
| 113 | |
| 114 | ### 4.2 Australia — GST low-value imported services |
| 115 | |
| 116 | **[T1]** Since 1 July 2017 (digital services) and 1 July 2018 (goods ≤ AUD 1,000): |
| 117 | - Non-resident suppliers must register and collect 10% GST on supplies to Australian consumers if turnover ≥ AUD 75k |
| 118 | - B2B reverse charge |
| 119 | |
| 120 | ### 4.3 Canada — GST/HST on digital products |
| 121 | |
| 122 | **[T1]** Since 1 July 2021: |
| 123 | - Non-resident suppliers register and collect GST/HST on B2C digital services if Canadian sales ≥ CAD 30k |
| 124 | - Provincial PST/RST/QST may also apply (BC, MB, QC) |
| 125 | |
| 126 | ### 4.4 India — OIDAR + Equalisation Levy |
| 127 | |
| 128 | **[T1]** |
| 129 | - **OIDAR (Online Information Database Access or Retrieval)** services to Indian consumers — non-resident supplier registers and collects GST (18%) |
| 130 | - **Equalisation Levy 2.0 — 6% on advertising income** (the 2% e-commerce levy was repealed 1 August 2024) |
| 131 | |
| 132 | ### 4.5 Other notable |
| 133 | |
| 134 | - **New Zealand** — 15% GST on remote digital services from non-residents (since 2016) |
| 135 | - **Singapore** — 9% GST on B2C digital services from non-residents (raised from 7% in 2024) |
| 136 | - **Japan** — 10% consumption tax on B2C digital services |
| 137 | - **South Korea** — 10% VAT on B2C digital services |
| 138 | - **Mexico** — 16% VAT on digital services from non-residents (since 2020) |
| 139 | - **Chile** — 19% VAT on digital services |
| 140 | - **Argentina** — 21% VAT plus 8% withholding on digital services |
| 141 | |
| 142 | --- |
| 143 | |
| 144 | ## Section 5 — Permanent establishment risk for SaaS |
| 145 | |
| 146 | **[T1]** OECD Model Article 5 — physical presence threshold. Pure SaaS without local server typically does not create PE. Risk areas: |
| 147 | - Dependent agents soliciting business |
| 148 | - Customer success / support staff in country |
| 149 | - Co-located servers (Article 5 commentary: server can be a PE if customised, owned, and CIGAs performed there) |
| 150 | - Marketing / sales offices |
| 151 | |
| 152 | **[T1] BEPS Action 1 / digital PE**: OECD Pillar One Amount A would create a new taxing right for "market jurisdictions" — pending ratification. DSTs continue in 25+ countries (see `digital-services-tax-matrix.md`). |
| 153 | |
| 154 | --- |
| 155 | |
| 156 | ## Section 6 — IFRS 15 / ASC 606 acquisition cost capitalisation |
| 157 | |
| 158 | **[T1]** Sales commissions paid on customer acquisition: |
| 159 | - Capitalise if incremental and recoverable (IFRS 15 ¶91-94 / ASC 340-40) |
| 160 | - Amortise over the **expected customer life** (often longer than initial contract — including expected renewals) |
| 161 | - Practical expedient: expense if amortisation period < 1 year |
| 162 | |
| 163 | This typically generates a significant balance sheet asset for high-growth SaaS companies. |
| 164 | |
| 165 | --- |
| 166 | |
| 167 | ## Section 7 — SaaS-specific KPIs interaction with accounting |
| 168 | |
| 169 | **[T1] Non-GAAP / management measures:** |
| 170 | |
| 171 | | Metric | Definition | Accounting interaction | |
| 172 | |---|---|---| |
| 173 | | **MRR / ARR** | Monthly / annual recurring revenue | Often gross; differs from GAAP revenue (which is subscription net of discounts, recognised over time) | |
| 174 | | **Bookings** | New contract value signed | Pre-recognition | |
| 175 | | **Deferred revenue** | Cash received before service delivered | Balance sheet liability under ASC 606 / IFRS 15 | |
| 176 | | **RPO (Remaining Performance Obligations)** | Contractually committed future revenue | ASC 606 ¶54 / IFRS 15 ¶120 disclosure | |
| 177 | | **Customer churn / NRR (Net Revenue Retention)** | Customer departures and expansions | Drives expected customer life for commission amortisation | |
| 178 | | **CAC (Customer Acquisition Cost)** | Total sales+marketing ÷ new customers | Forms basis of LTV/CAC ratio | |
| 179 | | **LTV (Lifetime Value)** | Gross margin × expected customer life | Critical for impairment testing | |
| 180 | |
| 181 | --- |
| 182 | |
| 183 | ## Section 8 — Self-checks |
| 184 | |
| 185 | - [ ] Revenue recognition timing matches IFRS 15 / ASC 606 — over time for hosted SaaS |
| 186 | - [ ] Implementation services tested for distinct PO status |
| 187 | - [ ] Setup fees combined or separated per distinct test |
| 188 | - [ ] Multi-year contracts allocated for ramps and discounts |
| 189 | - [ ] Customer acquisition costs capitalised and amortised per expected customer life |
| 190 | - [ ] US state sales tax registration where economic nexus thresholds met |
| 191 | - [ ] EU OSS / IOSS registration if cross-border B2C |
| 192 | - [ ] Non-EU VAT registration (UK, Australia, Canada, India OIDAR, Singapore, Japan, Korea, Mexico, Chile) |
| 193 | - [ ] DST exposure assessed per `digital-services-tax-matrix.md` |
| 194 | - [ ] PE risk assessed for any country with local employees / customer-facing roles |
| 195 | - [ ] Deferred revenue reconciled to bookings and contract value |
| 196 | - [ ] Output flags every [T2]/[T3] item for reviewer judgement |
| 197 | |
| 198 | --- |
| 199 | |
| 200 | ## Section 9 — Disclaimer |
| 201 | |
| 202 | SaaS sector taxation involves substantial cross-border complexity. Outputs must be reviewed by credentialed practitioners. The most up-to-date version is at [openaccountants.com](https://openaccountants.com). |
| 203 |
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About
Use this skill whenever a SaaS company, digital platform, app developer, marketplace, or other digital-product business asks about sector-specific tax / accounting / cross-border issues. Trigger on phrases like "SaaS revenue recognition", "ASC 606 SaaS", "IFRS 15 SaaS", "subscription revenue", "ARR", "MRR", "deferred revenue", "termed license vs subscription", "ASC 985-20 software", "SaaS sales tax US", "Wayfair nexus SaaS", "EU OSS digital services", "marketplace facilitator", "permanent establishment server", "EU place of supply digital", "EU MOSS", "VAT digital services B2C", "GST low-value imported services", "US state sales tax SaaS", "MTD VAT SaaS UK", or any SaaS-specific tax / accounting question. Covers IFRS 15 / ASC 606 SaaS revenue recognition, US state sales tax SaaS nexus (Wayfair post-2018), EU OSS / IOSS for digital services to consumers, EU VAT place of supply for cross-border B2B/B2C SaaS, Australia GST low-value imported services, India OIDAR / Equalisation Levy, Canada digital service GST/HST. Does NOT cover: software development methodology, app store revenue share economics, SOC 2 / ISO 27001 audit procedures.
GLOBALty-2025
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