A SaaS company selling to customers in the EU, UK, Canada, and Australia faces a layered international tax compliance picture that most US-based founders discover only when a foreign tax authority sends an assessment. The core mechanism to understand first is the reverse charge - the rule that, in B2B transactions, shifts the VAT liability from the seller to the buyer, eliminating the seller's registration requirement in the buyer's country. Once you understand reverse charge, you can map which of your revenue streams require foreign registration and which do not.
What it is: In most countries, when a business (not a consumer) purchases digital services from a foreign supplier, the buyer "self-assesses" the VAT - calculates it, reports it on their own VAT return, and pays it to their own tax authority. The foreign seller (the US SaaS company) does not collect, charge, or remit any VAT on that transaction.
What it means for US SaaS: A US SaaS company selling a $10,000/month enterprise subscription to a German GmbH does not need to register for German VAT, charge German VAT, or file German VAT returns. The German company handles its own VAT through its local return.
The catch: This only applies to B2B. Sales to European consumers (B2C) require the seller to register and remit VAT. The EU has made this manageable through the OSS regime.
Since July 2021, US SaaS companies selling to EU consumers (B2C) can use the Non-Union One-Stop Shop (OSS) to manage EU VAT compliance through a single registration in one EU member state. Without OSS, a SaaS company with B2C customers in France, Germany, and Italy would need separate VAT registrations in all three. With the Non-Union OSS (registered in one EU state - Ireland is common), the company files a single quarterly VAT return covering all EU member states and remits to the single registration state, which distributes to the others.
VAT rates vary by EU member state - from 17% in Luxembourg to 27% in Hungary - and the applicable rate is the rate of the customer's country. The OSS handles the calculation and reporting, but the SaaS company must still charge the correct country-specific rate to each customer at the point of sale.
The reverse charge benefit for B2B requires the buyer to be a taxable person (VAT-registered business) in their country. The US SaaS company must collect and verify the buyer's VAT identification number. In the EU, a valid VAT ID can be verified against the VIES (VAT Information Exchange System) database. Selling to a buyer who provides a VAT number that validates = B2B reverse charge applies. Selling to a buyer with no VAT number = B2C, OSS VAT applies.
The UK is no longer part of the EU VAT system after Brexit. A US SaaS company selling B2C digital services to UK consumers must register separately for UK VAT if it is a non-established taxable person making taxable supplies in the UK; the UK registration threshold (currently £90,000 for UK-established businesses) does not apply to it, so registration is required from the first taxable supply. UK B2B sales are handled by the UK domestic reverse charge - the UK business buyer self-assesses. The mechanics parallel the EU but the registration, rates (standard UK VAT is 20%), and filing are entirely separate from the EU OSS.
Canada requires non-resident digital service providers to register for GST/HST under the simplified registration regime if they supply digital services to Canadian consumers and cross the CAD $30,000 threshold. The simplified regime requires registration and collection but does not require appointment of a Canadian agent or extensive Canadian entity formation. B2B sales to GST/HST registered Canadian businesses are zero-rated (reverse charge equivalent) - no Canadian GST/HST charged by the US seller.
For US corporations, the Foreign-Derived Intangible Income (FDII) deduction, renamed the foreign-derived deduction eligible income (FDDEI) deduction by P.L. 119-21, under IRC §250(a)(1)(A) and (b) provides a deduction for a portion of income derived from services and intangible property sold to foreign customers. For SaaS companies with significant foreign B2B or B2C revenue, FDII can meaningfully reduce the effective US federal tax rate on that foreign income below the standard 21% corporate rate. For tax years beginning after December 31, 2025, the deduction is 33.34% of foreign-derived deduction eligible income, which is deduction eligible income (gross income with specified exclusions, less allocable expenses and deductions other than interest and research or experimental expenditures) derived from sales to non-US persons for foreign use or services to persons or property outside the United States; the deemed intangible income and 10% qualified business asset investment routine-return construct was removed. At 21%, that implies an effective US rate of about 14% (21% x (1 - 33.34%)) before the taxable income limitation of 250(a)(2). For earlier years, the prior law percentage of 37.5% and the DII construct apply.