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The challenges of global tax management

February 29, 2024
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Our first blog on taxes introduced the basics and gave you a solid foundation on which to build your tax knowledge. Now, we turn to the challenges that global tax management brings to game development. And the overarching challenge is that settling taxes in countries where you sell digital products, like games or in-game items, is difficult. Why is that? Taxation is a highly regulated field - just ask any tax expert. The scale of the business makes it even more complicated. Imagine all the complexity and bureaucracy of taxation multiplied by the number of countries where you might want to sell your digital goods. It might seem manageable to handle taxes in a couple of countries besides the domestic one, but dealing with taxes on a global scale requires a team of dedicated professionals. That's where Xsolla can step in. Xsolla acts as a merchant of record (MoR), serving as the face of game sales for tax purposes in all available jurisdictions. As an MoR for over 1,000 game developers and publishers worldwide, Xsolla has a skilled team of tax professionals and efficient tools to deal with taxes for all your sales. Because while selling your digital games and goods worldwide sounds exciting, the tax side can quickly become overwhelming. Each region and country has its own tax maze, with unique rules, deadlines, and endless forms. To make things worse, you might need to file tax returns in every country you sell. Below are some common challenges you might face as a digital goods and services supplier. Tax landscape analysis Tax legislation is complex and varies significantly between countries. To understand the nuances of specific rules, you must analyze tax laws through the lens of general taxation concepts, regional trends, and common weak points. All that requires significant expertise in taxation. Local tax registration Most countries require you to register for local tax purposes, even if you only sell online. Registering in each country where you sell your games may be necessary, and that may depend on your business exceeding a certain number of local transactions or reaching a certain local revenue level. Some countries may only approve your registration under special conditions, for example, appointing local tax agents or representatives. Filing tax returns Every country has its own unique rules, deadlines, tax return forms, and specific requirements for who can file tax returns and how to do them. Tax payment rules Taxes must be paid by specific deadlines, using the correct requisites. Some countries need different requisites for each tax payment and may even require opening a local bank account to pay taxes. Local tax representatives In some countries, appointing a fiscal agent, a tax representative, or another responsible person to handle local tax obligations is mandatory. In the absence of a representative, some countries require a bank guarantee or the appointment of a local third party to comply with the fiscal document retention requirements. Rules for invoicing Certain countries, like Taiwan or India, impose mandatory invoicing rules. That means you must issue invoices to consumers in a prescribed format or use specific state-developed software to register each invoice. Tax audits Local tax authorities conduct regular tax audits after tax return submissions. They sometimes require additional information, explanations, or meetings to discuss the company's operations and local tax compliance. In addition, countries impose different document retention requirements, for example, obligations to keep invoices or accounting records for a certain period, which may last for up to 10 years as they do in the EU. Employing tax consultants Companies often encounter legislation ambiguity, and finding and hiring a local tax consultant to handle tax-related questions is necessary.

Key takeaways

Successfully navigating the complexities of tax regulations across different jurisdictions requires a strong grasp of tax expertise:
  • Staying informed and ensuring strict compliance with local tax authorities is essential.
  • Conducting thorough research and comprehensively understanding the specific requirements is crucial.
  • Seeking professional guidance and utilizing specialized tax management tools can significantly streamline the process.
  • Compliance is critical in avoiding penalties and non-compliance issues in each country.

Staying compliant

You can confidently navigate the digital tax maze by understanding the different tax types, regional complexities, and available resources. Working with a reliable business partner that has extensive expertise in global tax regulations can significantly ease the burden. Xsolla actively tracks global tax laws and updates its systems to ensure compliance - and takes care of all the backend logistics for you. Create a free Xsolla Publisher Account and get started today, or explore our next blog on how taxes are calculated and paid.
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