We are going to provide a subscription software service, similar in concept to www.saleforce.com, www.spotify.com, or www.dropbox.com, to customers in Brazil and India.
We are aware there may be sales taxes associated with this, but we do not know how we identify or settle our liabilities as a supplier.
Can anyone provide some information for either India (Maharashtra state) or Brazil (Pernambuco state) so that we can identify our tax liabilities and the appropriate collection authorities?
As background, there are two types of Indirect tax levies in India – provision of services are liable to Service Tax whereas sale of goods are liable to Sales tax/State Value Added Tax (‘VAT’).
It is important to understand the applicable Indirect tax on software. Sale of packaged software typically attract VAT levy as ‘packaged software’ is considered as ‘goods’ under Sales tax/ State VAT laws. However ‘software development’ generally attracts the Service Tax levy.
Furthermore, in the case of licensing software, there are further distinctions between Service Tax and VAT. While the Service tax and Sales tax/ State VAT law are mutually exclusive levies, the activity of licensing of goods is covered under the declared service list. Since software is regarded as goods, such licensing could be considered as services liable to Service Tax. However, activity of ‘transfer of right to use goods’ for any purpose (whether or not for a specific period) for consideration is considered as ‘deemed sale’ and accordingly liable to Sales Tax/ State VAT.
Typically the service provider or supplier of goods is liable to discharge Service Tax or Sales tax/ State VAT liability. However, in certain cases such as import of services or purchase of goods from an unregistered person (under State VAT laws) the buyer of such service/ goods is required to discharge the applicable Service Tax or VAT liability.
We suggest your next steps should be as follows:
– Determine which Indirect tax levy applies
– Determine the tax liability under the applicable Indirect tax.
– Outline the key compliance requirements required;
– Evaluate whether any exemptions or concessions are available under the applicable Indirect tax levy;
– Obtain help with the compliance requirements;
I hope this is helpful. We would be delighted to assist through our India Indirect Tax specialists.