Tax registrations and nexus

Automatic Tax Calculation relies on the tax registrations you configure in Billing to determine where to charge tax. This guide explains what a tax registration is, what nexus means, and how to manage your registrations as your business grows.

What is a tax registration?

A tax registration is your business's formal record of registration with a tax authority. It authorizes you to:

• Collect tax (such as VAT, GST, or sales tax) from customers.
• Report and file periodic tax returns.
• Remit the tax you collected to the authority.

Examples:

• Registering for VAT in an EU country.
• Registering for sales tax in a US state.
• Registering for GST in Australia.

What is tax nexus?

Tax nexus describes the level of connection between your business and a jurisdiction that is strong enough to require you to:

• Register for tax.
• Collect tax from customers in that jurisdiction.
• File returns and remit tax.

You might establish nexus by:

• Having an office, warehouse, or employees in the jurisdiction.
• Reaching certain economic thresholds, for example annual revenue or transaction counts into that region.
• Owning or leasing inventory in the jurisdiction.

Nexus examples

US state sales tax

A SaaS company based in New York:

• Has an office and employees in NY, so it has nexus there.
• Sells to customers in California and Texas from that NY office.

Many US states have economic nexus thresholds (for example, USD 100,000 in sales or 200 transactions per year), after which remote sellers must register and collect tax. Once the company crosses the threshold in CA or TX, it must:

1. Register with that state's tax authority.
2. Start collecting the correct local sales tax.
3. File periodic returns.

EU VAT

A non-EU company selling digital subscriptions to EU consumers may be required to register and collect VAT from its very first sale into some EU countries. It might register via a simplified scheme, such as the One-Stop Shop regime, to handle multiple countries through a single filing.

How registrations and nexus relate to Automatic Tax Calculation

Airwallex does not determine where you have nexus. That decision comes from your tax team or tax advisor, based on local rules and thresholds.

However, Automatic Tax Calculation needs to know:

• Where you are registered, for example AU, UK, EU countries, and US states.
• Since when those registrations apply (effective dates).

You model this in Billing by adding tax registrations in your tax settings. Those registrations are one of the four pillars of Automatic Tax Calculation:

• If you are registered in a jurisdiction relevant to a customer, Billing can calculate and apply the appropriate tax.
• If you are not registered there, Billing normally applies 0% tax for that jurisdiction, even if that jurisdiction has taxes in principle.

Practical guidance

Work with your finance team or tax advisor to:

1. List the jurisdictions where you have a physical presence, hold inventory, or have high or growing volumes of cross-border sales.
2. For each jurisdiction, confirm whether you:
   • Are already registered.
   • Need to register now.
   • Should monitor for thresholds and delay registration until they are exceeded.
3. In Airwallex Billing, add a tax registration for each jurisdiction where you are registered, and keep registration details (including effective dates) up to date as your situation changes.

For setup instructions, see Set up Automatic Tax Calculation.