VAT remittance: Why an end-to-end digital tax compliance offering needs the right payments partner
The advanced features offered by sales tax software solution providers are driving the demand for sales tax process automation. In fact, recent Insight Partners research reveals that the global sales tax software market is expected to reach $13.13Bn by 2027, from $10.9Bn in 2019.
But what are businesses looking for from a tax software solution? What key features do they need, and how can tax solutions stay competitive in this rapidly changing market?
Highly Fragmented and Competitive
As businesses face demanding tax obligations imposed by tax authorities around the world, efficient and accurate solutions to manage those requirements and to remain compliant are now a necessity.
Advances in cloud computing have enabled businesses to embrace cloud- based sales tax software, making a once complex process more efficient and manageable. The market is ripe for the right tax software solutions.
However, the market for tax software is very competitive: leading players in the market like Vertex Inc, Avalara Inc, and Sovos Compliance LLC are facing competition from both start-ups and established players capitalising on the shift from traditional to digital and automated processes.
What will separate successful players from the competition is the ability to offer end to end tax solutions customised to an organisation’s requirements, regardless of location.
The importance of getting ‘the final hurdle’ right
The digitisation of tax regimes worldwide is pushing companies much closer to real-time reporting and remittance, which requires absolute accuracy more-or-less instantaneously.
Whilst calculation, registration and filing of sales taxes are integral parts of an automated sales tax compliance offering, the ‘final hurdle’ or remittance, is often viewed as simply an add-on service.
But making VAT payments can be a really stressful task for businesses, especially when there are practical barriers like country specific-banking rules to consider.
Making the tax remittance operation as seamless as possible ensures that businesses remain compliant and keeps their business reputation intact, removing the risk of late payments and fines.
This reflects positively on the tax service provider also, so a solution that delivers remittances efficiently needs to be a pivotal part of your overall offering.
Common remittance challenges
Cross border payment services should be fast, transparent, and cost effective while maintaining safety and security. For Tax remittance, on-time delivery of payment is essential to avoid penalties, but the process also needs to be compliant and transparent.
Some of the challenges in global VAT remittance include:
Complex global formats: Complex VAT/GST payment formats vary per region. Furthermore, tracking multiple remittance dates, currency accounts and payment channels increases missed payment deadline risk.
Low speed: the challenge of speed involves the processing time of a payment from end to end, including factors such as the time required for dispute resolutions, reconciliations as well as Anti-Money Laundering/ Combating the Financing of Terrorism (AML/CFT) checks; With a lengthy series of steps to complete, cross-border payments are often delayed as a result.
Limited access to currencies: Merchants need to build a payment network to settle in multiple local currencies. For example, the Turkish authorities require liabilities to be paid in Lira. Sourcing and executing remittances in exotic currencies can be difficult and often require manual intervention.
Limited transparency: limited transparency about costs, speed, and payments status present challenges for end-users.
Greater transparency gives people confidence when using payment services. There is added assurance when they can check on the status of their transaction, see any upfront fees and know when payment has arrived safely.
In a competitive market, people and businesses will choose providers which can give them this level of service, choice, and control.
Choosing the right partner for VAT Remittance
As a tax service provider, you may have been asked some questions around executing VAT remittance.
‘Are there special rules for payment to this country?’ ‘Does my bank even do payments in that currency?’ ‘I know the base tax amount, how do I calculate the local currency amount preferred by the tax authority?’
All these questions are relevant and align with those of digital tax service providers when seeking a partner to streamline its tax remittance operation.
There are, however, some common traits of a more efficient international payments provider which will enhance your offering in VAT remittance processing:
• Partnership experience in VAT remittance
This is an obvious but important factor when choosing your remittance partner. Look for those with a proven track record in the provision of payment solutions for established VAT Compliance software services. Research the company and look for any case studies or references to help you decide which solution is a best fit.
• Payments innovation
Companies who Invest in technology demonstrate a commitment to develop and deliver the best solutions to meet customer and partner needs. Expertise in governance and risk management, as well as relationships with international financial institutions and banks should be a good indicator of how established a payment provider can be.
• Exemplary Straight Through Processing rates
Businesses need assurance that their payments are delivered on time, every time. Automated payment solutions offer the best service in terms of seamless processing and error free delivery. Look for providers with Straight Through Processing (STP) rates in excess of 99%; the industry standard of 95% means that 1 in 20 payments will encounter a challenge.
• Wide choice of currency
The new reality of a digitally connected global economy means businesses will have a requirement to payout in multiple currencies. This naturally extends to exotic or less traded currencies like the Indian rupee, Thai baht, or Mexican peso.
Most banks and payment providers do not facilitate the delivery of exotic currencies due to lack of reach and legacy systems that cannot process these payments efficiently. Choose a provider with experience in the successful delivery of exotic currencies. Also look for a multi-currency solution that facilitates settlement in a range of currencies.
When businesses know that their payments arrive on time, every time, there is assurance that they are compliant whilst avoiding any penalties for late payment.
• Variety of payment method
Look for a provider with multiple banking partners to fulfil payments through various rails like Global ACH, SEPA, Faster payments and wire transfers. Businesses need the right payment method to fulfil their remittance obligations, particularly around paying on time.
Your Tax compliance software service needs to leverage a payment network that completes the end-to-end filing and remittance experience to ensure that your client’s payments are delivered in full and on time.
When an efficient remittance process aligns seamlessly with registration and filing, businesses are fully compliant without the worry of late penalties for failure to pay on time. By offering a full end to end service to organisations, you will stay one step ahead of the competition in a growing and lucrative market.
Fexco is a leading provider of FX and global payment solutions for SMEs, corporate clients and individuals with high value money transfer needs. Its client base includes leading institutes of higher education across Ireland and the UK as well as government departments.
Our focus is on providing solutions for financial transformation, removing the frictions in global payables and receivables and freeing finance teams to make more of a strategic impact for their organizations.
Businesses in the provision of Tax compliance services leverage Fexco’s payment technology to ensure remittances are paid on time every time, regardless of currency and destination.
If you would like to see how Fexco can provide added value as a remittance partner for your business, talk to our payments consultants Eileen Bucke (Ireland) or John Dolan (UK). Alternatively, if you are interested in becoming a partner, find out more on our partnership page.