Tax categories

Tax laws care not just about where you sell, but also about what you sell. Airwallex Billing uses tax categories to capture this information and apply the correct tax treatment to each product.

Why what you sell matters

Tax rates and exemptions vary significantly by product type. For example:

• Some countries treat digital books at a reduced rate compared with other digital services.
• B2B SaaS may be taxed differently from B2C SaaS or downloaded software.
• Children's clothing is often taxed differently from adult clothing.

This variation is too complex to manage manually per product and jurisdiction. That's why Billing uses product tax categories and delegates rate logic to the tax engine.

What is a tax category?

A tax category is a standardized label that describes a product or service in a way that tax engines and authorities can interpret.

When you assign a tax category to a product, Billing uses it as one of the four pillars of Automatic Tax Calculation. The tax engine then determines the correct rate for that category in each jurisdiction based on your registrations and the customer's location.

Business versus Personal tax categories should align with the customer type set on each customer record: business customers map to Business categories, and individual customers map to Personal categories.

How Billing uses categories and rates together

When you create an invoice or subscription with automatic tax:

1. Billing reads the product's tax category.
2. It looks at your registrations and the customer's billing address.
3. It queries the tax engine with the product category, seller registrations, and customer location to determine the correct tax treatment and rate.
4. The tax engine returns the applicable jurisdiction(s), tax rate(s) and amounts, and the reason (for example, standard-rated, reduced-rated, exempt, or reverse charge).
5. Billing applies the rate(s) to the line item and stores the details for reporting and exports.

Best practices for assigning tax categories

• Choose the closest match: Use SaaS – Business rather than a generic "Software" category when you're offering cloud-hosted SaaS. Differentiate between Downloadable, Streaming, and Subscription bundles when those distinctions exist.
• Be consistent: Similar products should use the same category across your catalog. If you have tiered plans of the same SaaS offering, keep them aligned.
• Review periodically: As you expand into new countries or regions, check with your tax advisor whether any new or updated categories are needed. If regulations change, your underlying category mapping can be updated centrally.

Supported tax categories

When assigning a tax category to a product, use the Product Tax Category ID below and choose the category that best describes what you are selling. Each category maps to an underlying tax engine code that determines the correct tax treatment in each jurisdiction.

Choose the most specific category available. For example, use SaaS – Business rather than a generic digital services category if your product is a cloud-hosted SaaS application for commercial use.

Software and cloud services (SaaS, IaaS, PaaS)

Professional and creative services

Downloadable and custom software

Digital publications and creative assets

Gaming and education

Digital media and subscriptions