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Tax compliance is a challenge for enterprises of any size, but particularly small businesses. According to a 2017 CNBC poll, 25% of small business owners didn’t know their effective tax rate in 2016. Another survey by the National Small Business Association found that administrative burdens are a substantial drain on resources, with 67% of small businesses reporting spending over $1,000 each year on federal tax administration.
In an attempt to ease the burden, entrepreneurs Davor Tremac, Filip Sturman, and Ivan Ivankovic founded Fonoa, a tax automation startup, in 2019. The Dublin, Ireland-based company offers an API for companies that helps to understand whether their customers and suppliers are taxable, determine and calculate what taxes apply to their transactions, and report their transactions to tax authorities.
Fonoa raised $25 million in a funding round with participation from Index Ventures, OMERS Ventures, FJ Labs, Moving Capital, and individual angel investors. CEO Davor Tremac says that the funding will be put toward international expansion and hiring across all areas of the business.
Tremac, Sturman, and Ivankovic are Uber alumni who experienced how difficult it was to calculate and report taxes to authorities around the world.
“In the digital world, businesses and customers transact on a global scale. Country borders are no longer a limiting factor, and technology drives global trade at an ever-increasing speed,” Tremac said in a press release. “Combined with the increased scrutiny by regulators, dealing with tax matters in a more automated and trusted way has become an ever-more pressing issue. We built a one-stop solution that handles the complexities of tax globally, allowing digital businesses to focus on growing their core business.”
Fonoa’s platform verifies the tax status of buyers and sellers and calculates the correct tax to charge, creating a locally compliant invoice after a transaction takes place. In addition, it allows for automatically reporting transactions in real time to a country’s government where needed.
Fonoa supports tax automation transactions across over 100 countries and aims to expand this to over 140 countries by the end of the year. Its customers span digital service providers, micromobility operators, gig economy platforms, and subscription-based companies, including Zoom, Uber, Lime, and GoStudent.
“Fonoa’s solutions have helped Zoom with expanding our global marketplace offerings by assisting with tax determination, invoicing, and tax compliance,” said Richard Alexander, global VAT lead, in a statement.
The tax management software market was worth an estimated $5.24 billion in 2018 and is projected to reach $11.19 billion by 2026, according to one source. Fonao competes in it with Vic.ai, a startup developing software to automate accounting and financial tasks, as well as Botkeeper, Candis, Mercury, and Auditoria.
Fonoa — which describes itself as “remote-first,” with a distributed team across 14 countries — says that it plans to hire more staff across the US, Europe, Asia, and Latin America in the coming months.