Fonoa raises $60 million to automate tax compliance for global companies like Uber and Zoom – sure naira
phonoaa tax automation platform used by companies such as Uber and Zoom has raised $60 million in a Series B funding round.
Founded in Dublin, Ireland, in 2019, Fonoa focuses on digital service providers operating globally and automates many of the processes involved in managing sales tax, VAT and goods and services tax (GST), where the company’s wares also sells.
One of Fonoa’s services is: tax ID validation, which allows Fonoa’s customers to instantly know the tax status of their own users and suppliers so that they can apply the correct type of tax at checkout. This is important because many governments collect taxes based on where a service is consumed, rather than where the service provider is located. And so Fonoa synchronizes with the European VAT information exchange system (DIRTY) among other national databases around the world, so that the digital service provider immediately knows what types of taxes are to be levied.
In addition to knowing which taxes apply to a particular transaction, Fonoa also calculates how much GST, sales tax or VAT is applicable based on the respective locations of the sellers and end users. It can then generate tax-compliant invoices and receipts locally for more than 100 countries.
Automation is the main selling point of all this. With companies like Uber or Zoom processing millions of transactions in dozens of countries each month, manually figuring out all applicable taxes is a labor-intensive process. This becomes all the more complicated when you consider all the possible variables – this includes the location of the customer, whether a transaction is B2B or B2C, and even the type of product or service being sold.
For example, some countries charge VAT for audiobooks, but not for digital or paper books. And in the e-learning industry, the tax implications of live and interactive courses are very different from those pre-recorded – the latter are subject to tax in the EU, but the former are not. But in Australia and New Zealand, all online courses are subject to tax regardless of how they are taught.
“Normally, e-learning companies have users in almost every country around the world, so you can see how much resource and effort it would take to manually work out the laws in each country, and it could really hinder their global expansion plans,” Fonoa co-founder and CPO Filip Sturman explained to sure naira. “But with Fonoa, all they have to do is enter minimal transaction data and our tax engine will automatically calculate the correct tax and what type of tax it is.”
According to data of the Organization for Economic Co-operation and Development (OECD), consumption taxes make up about a third of tax revenues for OECD countries, including the US, UK, most of Europe, and other countries in the Americas and Asia . But collecting and accounting for all these taxes can be difficult for companies operating in dozens of countries — most would rather remain legally compliant with each jurisdiction in which they operate. And that is, in fact, the problem that Fonoa wants to solve.
Fonoa had raised a $20.5 million round of funding less than a year ago, and in the intervening months, the Irish company has doubled its workforce to 130 people in 20 countries. But perhaps more importantly, Fonoa has sought to move its product from what was essentially a set of APIs that companies integrate into their existing financial applications and systems, to a more comprehensive end-to-end platform – this is to that would typically benefit from a service like Fonoa. What we’re talking about here are web-based user interfaces that are good to go out of the box and don’t require complex integrations and developer involvement.
“Now we offer a full platform, a full service effectively with a better user interface design,” said Sturman. “The reason for this is that our primary customers, whether tax managers or tax directors do not primarily communicate with an API, so we wanted to enable them to get all the benefits of Fonoa as quickly as possible, without a huge amount of technical help.”
There are other companies with a similar proposition, insofar as they help international companies comply with their taxes – but Sturman said his company’s focus on digital service providers (vs. physical products) and the multiplicity of products (tax ID valuation , calculations, billing and reports) is what sets it apart from the rest. So any company looking to replicate Fonoa would probably have to merge several different products together, according to Sturman.
“Other players are targeting companies that sell physical products in physical locations and then try to expand their offerings to cover digitally as well,” Sturman said. “But it’s not that simple, because digital transactions are often more complicated.”
Fonoa’s Series B round was led by Coatue, with participation from Dawn Capital, Index Ventures, Omers Ventures, FJ Labs and Moving Capital. Sturman said the additional increase, which comes about nine months after the previous increase, was not essential, but it will allow him to accelerate his recent growth, which he said saw revenues grow sevenfold in 2021.
“While our existing revenue and limited burn rate would have allowed us to scale further without the additional increase, we see an opportunity to pick up the pace,” Sturman said. “To build a truly global and dominant offering of tax technology that is part of every internet transaction, we have no time to lose.”