Education Series Key Considerations for Expanding Your Subscription Business Internationally November 18, 2015 Presented by Ben Bowler - Director Product Management, Recurly Alexa Boyce - Senior Manager of Global Tax, Avalara Powering Subscription Billing Success
Expanding Your Subscription Business Internationally Ben Bowler Director of Product Management, Recurly ben@recurly.com Alexa Boyce Senior Manager of Global Tax, Avalara alexa.boyce@avalara.com Introduction: The ever-changing international business landscape Key considerations for scaling your subscription business internationally Common challenges and proven strategies for handling global tax Q & A Recurly Education Series: Key Considerations for Expanding Your Subscription Business Internationally 2
The International Business Landscape
The International Business Landscape Subscriptions are going global Estimated 15M+ subscription businesses worldwide Recurly merchants have experienced 100+% growth internationally year-over-year OTT growth alone is expected to quadruple in Europe and Asia by 2019 Stringent and shifting regional regulations and compliance standards Recurly Education Series: Key Considerations for Expanding Your Subscription Business Internationally 4
Key Considerations Scaling Your Subscription Business Internationally
Key Considerations for International Expansion International Payments Payment Gateways Security and International Compliance Minimizing Declines and Reducing Churn Localization International Business Reporting Global Service and Support Global Tax Recurly Education Series: Key Considerations for Expanding Your Subscription Business Internationally 6
Accepting International Payments Pros and cons of establishing local presence Understand domestic acquiring service options Determine payment methods Must-have: flexible currency handling Recurly Education Series: Key Considerations for Expanding Your Subscription Business Internationally 7
Choosing the Right Gateway Pros and cons: choosing regional vs. global Pros and cons: one vs. multiple gateways Recurly Education Series: Key Considerations for Expanding Your Subscription Business Internationally 8
Security and International Compliance Major global card issuers Visa and MasterCard require PCI certification Secure mobile payments Prepare for Card Not Present (CNP) Fraud Recurly Education Series: Key Considerations for Expanding Your Subscription Business Internationally 9
Minimizing Declines and Reducing Churn Decrease credit card decline rates up to 10% by accepting local currencies Card account information constantly changes Take advantage of Account Updater features! Recurly Education Series: Key Considerations for Expanding Your Subscription Business Internationally 10
Localization Recurly Education Series: Key Considerations for Expanding Your Subscription Business Internationally 11
International Business Reporting Recurly Education Series: Key Considerations for Expanding Your Subscription Business Internationally 12
Global Service and Support Responsive service and support with global expertise and local know-how Deep relationships with a breadth of payment providers and local acquiring banks Keep merchants current with changing regulations and compliance standards Recurly Education Series: Key Considerations for Expanding Your Subscription Business Internationally 13
Global Tax ` International compliance simplified Avalara 14
Subjects we will cover What is VAT VAT Gap in Europe When to register Asia: a changing economy Things to consider when trading globally Making sales tax less taxing 15
Introduction Alexa Boyce Senior Manager, Global Tax alexa.boyce@avalara.com Making sales tax less taxing CONFIDENTIAL & PROPRIETARY 16
What is Value Added Tax? A tax on the final consumer BUT charged on most business transactions too when VAT registered Global guidelines set by OECD Countries then follow for local conditions EU sets rules centrally Companies must register prior to providing first taxable supply (exceptions) Monthly/quarterly/ annual filings with totals of sales and purchases Making sales tax less taxing CONFIDENTIAL & PROPRIETARY 17
A global tax love affair VAT regime or similar No VAT system/ Other indirect tax Making sales tax less taxing CONFIDENTIAL & PROPRIETARY 18
Why do governments love VAT? Shift tax burden to spenders instead of investment Cheap to collect Quick to change Helps avoid fraud! Making sales tax less taxing CONFIDENTIAL & PROPRIETARY 19
The VAT Gap The VAT gap is the difference between the amount of VAT that should, in theory, be collected by the Tax Authorities, against what is actually collected. The VAT total theoretical liability (VTTL) represents the VAT that should be paid if all businesses complied with both: The letter of the law; and The Tax Authorities interpretation of the intention of the European Commission in setting law (referred to as the spirit of the law). Making sales tax less taxing CONFIDENTIAL & PROPRIETARY 20
The VAT Gap VAT Gap Estimates, 2013 (million Euros)1 2013 Country Revenues VTTL2 VAT Gap VAT Gap % VAT Gap % Austria 24,953 28,170 3,217 11.40% 1.92% Belgium 27,226 30,412 3,186 10.50% 1.90% Bulgaria 3,775 4,560 785 17.20% 0.47% Czech Republic 11,694 15,070 3,375 22.40% 2.01% Denmark 24,360 26,850 2,489 9.30% 1.48% Estonia 1,558 1,873 315 16.80% 0.19% Finland 18,848 19,660 812 4.10% 0.48% France 144,414 158,510 14,096 8.90% 8.41% Germany 197,005 221,878 24,873 11.20% 14.84% Greece 12,593 19,090 6,497 34.00% 3.88% Hungary 9,073 12,003 2,930 24.40% 1.75% Ireland 10,371 11,596 1,225 10.60% 0.73% Italy 93,921 141,437 47,516 33.60% 28.34% Latvia 1,693 2,414 721 29.90% 0.43% Lithuania 2,611 4,192 1,580 37.70% 0.94% Luxembourg 3,485 3,672 187 5.10% 0.11% Malta 586 796 210 26.40% 0.13% Netherlands 42,424 44,276 1,852 4.20% 1.10% Poland 27,780 37,911 10,131 26.70% 6.04% Portugal 13,710 15,068 1,358 9.00% 0.81% Romania 11,913 20,209 8,296 41.10% 4.95% Slovakia 4,696 7,209 2,513 34.90% 1.50% Slovenia 3,045 3,232 186 5.80% 0.11% Spain 61,350 73,444 12,094 16.50% 7.21% Sweden 39,091 40,867 1,776 4.30% 1.06% United Kingdom 141,668 157,099 15,431 9.80% 9.20% Total EU-26 933,843 1,101,498 167,654 15.20% 100.00% 1: Sources: Eurostat (revenues); Own calculations. Figures in million Euros unless otherwise indicated. National currency figures for countries not using the Euro converted at the average Euro exchange rate (source: Eurostat). 2: VTTL = VAT Total Theoretical Liability Making sales tax less taxing CONFIDENTIAL & PROPRIETARY 21
When do I need to register for VAT? The Place of Supply is the key. - What am I supplying? - Who are my customers? - What are the delivery terms? - What are the industry-specific rules on my type of supply? Making sales tax less taxing CONFIDENTIAL & PROPRIETARY 22
Example: Holding Stock IC Dispatch EU B2B B2C Distance Sale Export EU RoW Making sales tax less taxing CONFIDENTIAL & PROPRIETARY 23
Example: Cross-Border Goods Movement B2B B2C Import Import VAT is due when goods clear customs If you sell goods on a DDP basis, your final sale is taxable at the destination VAT is calculated on the Tax Base which is item price plus duties, delivery and insurance. Import Import RoW Making sales tax less taxing CONFIDENTIAL & PROPRIETARY 24
Example: Cross-Border Goods Movement Unit Cost: $1,000 Duty: $47 4.7% Insurance $10 Delivery $100 Taxable Value: $1,157 VAT: $219.83 19% Landed Cost $1,376.83 Import RoW Making sales tax less taxing CONFIDENTIAL & PROPRIETARY 25
Example: Digital Services Broadcasting Services Radio, television, film streaming, terrestrial, satellite cable E.g. Telecommuni cation Services Transmissi on of messages for communica tion Electronically Supplied Services (e- Services) Online fan club membershi ps, dating websites, online Making sales tax less taxing CONFIDENTIAL & PROPRIETARY 26
2015 B2C digital services change 2015 EU VAT Package Place of Supply Changes: Place of supply of Digital Services to a private individual changed to place where consumer is based: Destination. Place of supply changes apply to transactions between EU supplier and EU consumer Non-EU suppliers: supply has been destination based in EU since 2003 Making sales tax less taxing CONFIDENTIAL & PROPRIETARY 27
Changes for EU suppliers UK LU Digital UK Digital Services Seller Services Seller Pre-2015 LU VAT 15% LU VAT Return Post-2015 FR VAT 20% MOSS Return Consumer Business Germany Germany France Consumer Making sales tax less taxing 28
Rules for non-eu suppliers UK US Digital UK Digital Services Seller Services Seller Pre-2015 FR VAT 20% VoES Return Post-2015 FR VAT 20% MOSS Return Consumer Business Germany Germany France Consumer VAT Calculation is the same Making sales tax less taxing CONFIDENTIAL & PROPRIETARY 29
The Mini One Stop Shop (MOSS) CONFIDENTIAL & PROPRIETARY Making sales tax less taxing 30
Digital Services Globally The rest of the world follows the EU Current Planned Norway New Zealand - Oct 2016 Iceland Australia - Jan 2017 Albania Switzerland - 2017? Morocco South Africa - 01.06.14 South Korea - 01.07.15 Japan - 01.10.15 Making sales tax less taxing CONFIDENTIAL & PROPRIETARY 31
Asia A changing economy India: New GST regime on the horizon To replace current antiquated & overlapping system of VAT, CENVAT, Service Tax & Professional Tax plus central and state sales taxes Rollout has been promised for 5 years Malaysia: GST replaced Sales and Services tax on April 1 st 2015 China: Going through major indirect tax reforms since 2012 Aim is to shift fiscal burden from Corporates to consumers Expected completion by end of 2016 Currently highly complex Making sales tax less taxing CONFIDENTIAL & PROPRIETARY 32
Asia How do I comply? Do I need to set up a local company? What other obligations will this create? Do I need a Fiscal Representative? What language do they use? Making sales tax less taxing CONFIDENTIAL & PROPRIETARY 33
Things to consider when expanding globally What is my Place of Supply? What are the local rules? How do I register? What are my ongoing obligations? Making sales tax less taxing CONFIDENTIAL & PROPRIETARY 34
Thank You Questions? marketing@recurly.com recurly.com /recurly @recurly /company/recurly-inc- Powering Subscription Billing Success