Foreign Exchange Management and VAT Compliance: Why Getting It Right Matters for Cross-Border Businesses

For businesses operating cross-border, the importance of the intrinsic bond between VAT compliance(primarily that of VAT reporting) and payments including foreign exchange (FX) management isn’t addressed as much as it should be.

Get the FX rate wrong, and a tax return can become inaccurate overnight. Choose the wrong FX tools, and discrepancies between trading partners can trigger costly disputes with tax authorities. Yet for many businesses the strategic importance of aligning these two areas remains largely overlooked.

Large corporations, or medium-sized companies that have branches spread across different countries, are mainly well-aware of the importance of having in place a customized, smartly chosen payment solution for their cross-border transactions.

The majority of SMEs, however, aren’t fully aware of the benefits that could be reaped if the correct payments and FX solution is integrated into their business processes, and the associated risks that come when it is not.

This is precisely the challenge that 1stopVAT, a specialist VAT compliance firm serving cross-border e-commerce vendors and digital service providers, has been working to address. Founded to simplify complex indirect tax obligations across multiple jurisdictions, the firm has built its reputation on combining deep regulatory expertise with a practical, technology-driven approach to compliance.

In this interview, Donatas Stasytis, Chief Commercial Officer at 1stopVAT, walks us through the importance of VAT compliance, challenges that face cross-border vendors, and what tax reforms we can expect in the years to come. To finish his interview, he will also say a few words on the importance of having a proper cross-border payments process in place, to avoid tax issues that could be the result of the incorrect application of the exchange rate, calculation logic, and other factors.

What are the principal services offered by 1stopVAT to its clients?

Our principal area of specialization lies in the digital economy. Our main groups of clients are e-commerce vendors and digital service providers.

Our services are established to cover the full scope of indirect tax compliance, which starts with tax registration, to tax calculation, tax reporting, reconciliation, voluntary disclosure agreements, and customized tax advisory services.

Compared with other EU-based tax compliance service providers, what are the key differences between 1stopVAT and other players?

I would say our customer-centric approach and many years of experience in the digital economy. Over the years, we have established a great network with tax representatives from all around the world.

What are the current biggest challenges that cross-border providers of digital services experience when they have customers in different regions?

In recent times, we have witnessed that more and more jurisdictions are introducing one or more tax regimes within their boundaries to tax overseas providers of digital services. Cross-border providers of digital services face many challenges before them, if they want to establish and maintain tax compliance in a highly regulated digital economy.

Besides “traditional” tax compliance that they need to achieve for their cross-border sales, they are often mandated to align with domestic digital tax reporting requirements, which inevitably add an entirely different layer of complexity and costs.

Will VAT in the digital age (ViDA) reform call for readjustment of the compliance service offerings by 1stopVAT and other key VAT compliance service providers in the EU?

I would say yes. The EU’s VAT in the Digital Age(ViDA) reform calls for it. The offered compliance services should move more into digitalization to be able to align with future compliance requirements. To note a few, the B2B cross-border EU reporting will move from paper-based to digital reporting, relying on e-invoicing infrastructure.

Do you think that there is a future for traditional tax compliance services?

I wouldn’t say that traditional tax compliance services will “disappear,” but they will experience significant readjustment in the next 5 to 10 years . In that period, automation of tax processes, aligned with automation of business processes, will “trigger” necessary changes. The experienced tax professionals who are open to improving their IT skills and approach to tax compliance challenges from an engineering perspective will definitely be “more” influential in making relevant decisions.

When it comes to foreign exchange rates and tax compliance, could you elaborate a bit on the importance of aggregation of the correct tools for tax calculation and submission of tax returns?

Integrating the correct Foreign Exchange(FX) tools into business processes means using up-to-date  methods for converting foreign currency transactions into the required reporting currency.

This is of pivotal importance when there is a difference between the invoiced currency and the currency used to report a transaction.
Differentiation between the FX rates used by vendors, financial institutions, and tax authorities can lead to under-payments, and over-recovery of VAT, just to name a few.

Can you share with us some examples of what consequences could potentially come around for a vendor that uses the incorrect FX tools for invoicing and for the preparation of tax returns?

The integration of the business processes with without the correct cross-border payment solution in place for invoicing and tax reporting can lead to financial, operational, and legal consequences for a vendor. One of the examples that crosses my mind is underpayment of taxes and the connected fines.

If the business applies a lower FX rate to report gross sales, and that results in “lower taxes,” it often leads to underpayment of taxes, with accompanying fines issued during the audit.

Bridging the gap: How Fexco turns compliance into a competitive advantage

The risks Donatas outlines are real — and they are exactly what Fexco International Payments is built to prevent. At Fexco, we have spent decades helping businesses of all sizes manage the complexity of cross-border payments and FX, and we understand better than most what happens when the payments layer is not properly aligned with tax compliance obligations.

For cross-border e-commerce vendors and digital service providers, our platform simplifies currency settlement and ensures that tax liabilities are paid in the correct currency, on time, and with complete transparency. Through an intuitive online portal backed by automated workflows and real-time reporting, businesses gain full visibility into their settlements, cash flow, and FX exposure — giving them the confidence to make smarter operational decisions and scale sustainably.

A critical but often underestimated part of cross-border tax compliance is the settlement itself: payments to tax authorities must arrive with the correct references, in the right currency, before deadlines that vary across jurisdictions. A missed reference or a late payment can result in rejected submissions, misallocated funds, and penalties that compound quickly. Our team monitors tax authority requirements continuously, ensuring liabilities are settled straight- through and on time , removing one of the most operationally demanding aspects of international compliance from our clients’ processes.

Our reach extends well beyond SMEs. Fexco International Payments connects with global marketplaces — including platforms of the scale of Amazon — through API integration, enabling simultaneous payments to thousands of vendors and partners across multiple countries and currencies. This eliminates the burden of managing fragmented banking relationships while offering more competitive exchange rates that protect revenue on high-volume cross-border flows, a commercial advantage that compounds meaningfully over time.

We also integrate directly with multiple blue-chip tax compliance solution providers , including 1stopVAT  to close the gap between compliance strategy and payment execution. That integration delivers automated FX controls, faster settlement, real-time reconciliation, and regulatory-ready reporting that supports VAT and GST obligations across jurisdictions. The result is an end-to-end payments lifecycle where compliance and cash flow work in concert, not in conflict.

As the regulatory landscape for cross-border commerce continues to evolve — with reforms like the EU’s ViDA pushing businesses towards real-time digital reporting and tighter compliance standards — the margin for error on cross-border payments and FX management is shrinking. The partnership between 1stopVAT and Fexco reflects a clear-eyed understanding of this reality: that VAT compliance and payments infrastructure are two sides of the same coin, and that businesses who treat them as separate concerns do so at their own risk.

For cross-border e-commerce vendors and digital service providers looking to scale confidently, the message from both 1stopVAT and Fexco is consistent: get the right expertise and the right tools in place early — before a tax authority audit, a misallocated payment, or a currency discrepancy forces the issue.

This article was written by Aleksander Delic, Indirect Tax Manager-Ecommerce, 1stopVAT.