Zero tax amounts and reverse charges

Stripe Tax returns a tax calculation result on every request. However, Tax isn’t collected on a transaction in some situations, and the resulting tax amount is zero. For example, if you’re expanding tax_amounts on an invoice, you might see something like:

{
  "id": "in_1HF0KNFsnTpWVWVzFDgSizOj",
  "object": "invoice",
  ...
  "total_details": {
    "amount_tax": 0,
    "breakdown": {
      "taxes": [
        {
          "amount": 0,
          "taxability_reason": "not_collecting",
          "rate": {
            "id": "txr_1HHwa4Jm3J7Jh9FBnYJ9glJZ",
            "object": "tax_rate",
            "description": "VAT Germany",
            "display_name": "VAT",
            "country": "DE",
            "created": 1597863856,
            "inclusive": false,
            "jurisdiction": "DE",
            "livemode": false,
            "metadata": {},
            "percentage": 0.0,
            "state": null,
            "tax_type": "vat",
            "active": false,
          }
        }
      ]
    },
  },
  ...
}

The API returns the reason for a tax result in the taxability_reason field.

The most common reasons for a zero tax result are the following:

The tax outcome for each payment is available when viewing a payment in the Dashboard under Taxability.

Situations where Stripe calculates zero tax

Stripe Tax calculates zero tax in the following situations:

Not registered

Taxing authorities require businesses to obtain a license or otherwise register before starting to collect tax in their jurisdiction. Each jurisdiction has their own rules regarding when you’re obligated to register and begin collecting and remitting tax. Obligations can arise from, but are not limited to, a physical presence in the jurisdiction or from reaching a threshold of sales into a jurisdiction. For example, as of February 2021, for businesses based outside of California (for example, no physical presence), you only need to register when you surpass 500,000 USD in sales.

Stripe automatically aggregates and analyses your transactions and compares them to local thresholds. See Thresholds to get insights about your potential tax registration obligations.

Learn more about how to register for sales tax, VAT, and GST in each location and, if you’re a Connect platform, how to use the Registrations API to manage tax registrations. You can also use Stripe to register on your behalf.

Exempt or zero rated products

Products might be exempt or non-taxable in some jurisdictions. For example, as of February 2021, the state of California considers software as a service to be a non-taxable service. The buyer pays no tax and the seller usually can’t reclaim any credits from costs associated with producing the product.

Products can also be zero-rated, meaning while they’re technically taxable, the applied rate is 0%. For example, as of February 2021, children’s clothing is zero-rated in Ireland. The buyer pays no tax, however the seller might be able to reclaim credits from costs associated with producing the product.

The tax treatment of products not only varies by jurisdiction but is subject to change. If you don’t want to collect tax on a given product, you can assign the product tax code Non-taxable (txcd_00000000) to it, to make sure Stripe Tax treats it as a non-taxable product. Otherwise, Stripe Tax automatically determines when a product is exempt or zero-rated.

Reverse charges

While in most transactions, the seller is responsible for collecting and remitting tax owed by the buyer, in a reverse charge transaction the buyer must calculate and remit the tax. In that case, the seller’s invoice specifies that the transaction is a reverse charge and doesn’t include tax in the total amount. A reverse charge is common in cross-border B2B supply of services. For example, for businesses with an origin address in the EU, the following logic applies:

Stripe Tax automatically applies the right logic depending on the presence of a tax ID and the jurisdictions involved in the transaction.

For transactions with inclusive tax behavior where reverse charge applies, the buyer pays the full unit_amount Price, but isn’t charged tax. In these cases, a “Reverse Charge” indicator appears in the Stripe Dashboard, and the Invoice reads “Tax to be paid on reverse charge basis” instead of zero.

You can set a customer’s tax_exempt attribute to reverse even if you haven’t collected their tax ID in Stripe.

You can also instruct Checkout to collect tax IDs from your customers by setting tax_id_collection. For one-off Checkout purchases not associated with a Customer object, Checkout collects and stores the customer’s tax exemption status and supplied tax IDs in customer_details on the completed Checkout Session object. You’re responsible for making sure that customer information is accurate (including their supplied tax identification numbers).

The following examples show invoices generated with and without a known customer tax ID:

• Customer’s tax ID automates reverse-charge (PDF)
• Explicitly set reverse-charge (PDF)

Stripe displays the provided customer tax ID on an invoice, regardless of whether it’s valid. Stripe Tax automatically validates the tax ID format against the expected format and the tax ID value against external tax authority systems for certain countries.

Learn more about Tax IDs

Exempt customers

Exempt customers are those who under a jurisdiction’s rules can make tax-exempt purchases. Each taxing jurisdiction determines the type of individuals or entities who can make tax-exempt purchases. Common examples are non-profit organisations and government entities.

If you have customers that are exempt from paying tax, set their tax status to exempt and provide the customer ID when creating a subscription, invoice, or Checkout Session. To set a customer’s exempt status, use the API to set tax_exempt to exempt or use the Dashboard:

1. On the Customers page, select the customer.
2. Open the overflow menu () and select Edit information.
3. Scroll to the Tax status section and select Exempt from the dropdown.

For transactions with inclusive tax behaviour where the customer is exempt, the buyer pays the full unit_amount Price, but there’s no tax charged. In these cases, an “Exempt” indicator appears in the Stripe Dashboard and the Invoice reads “Customer is tax exempt” instead of zero.

Download example exempt invoice PDF

Stripe Tax automatically calculates an exemption on the transaction when you set tax_exempt on the Customer object, but it doesn’t perform any validation of required documentation for supporting an exemption, such as customer exemption certificates. You are responsible for determining and fulfilling any obligation to validate your customer’s exempt status and collect any required documentation, such as an exemption certificate. EXEMPTAX offers a Stripe App that you can use to collect and verify exemption certificates.

Excluded territories

Some countries include administrative subdivisions or territories that are outside the scope of their general VAT system. In some of these territories no tax is levied, while others may have their own tax regulations and rates.

Stripe Tax does not calculate tax in the territories listed below even if you’re registered in the country where the territory belongs to. Stripe Tax automatically determines if your customer is based in an excluded or unsupported territory using the postal code and jurisdiction name.