Why use a Merchant of Record instead of Stripe or any other payment service provider
Many of us creators like to built things. Whether those are 3D rendered panoramas, javascript code, virtual tours or whatever type of thing you're planning to sell online. And selling online is great, as you become more location indepedent if you're a solo creator. As well as generating passive income.
But.. Everything online gets tracked. And if you're selling for a few hundrerd euros or dollars, that might not be so much of a risk if you do something right or wrong according toyour tax authorities. But the nice thing about selling online, is how scalable it can get. Instead of the 100.000 or 1 million people physically located around you that you consider potential market, you now have potential access to billions of people. All in different countries.
When we as a creator intent to sell big, it's nice to know that we can do this properly for the long term. That also includes thinking of your tax authorities. Not just your own tax authoritie anymore, also the tax authorities of all your customers.
In short, depending on the country you're a citizen of, your country has contracts with other countries. Thresholds are numbers up to a certain amount of sales. When you reach that number, you're legally required to setup a jurisdiction. For example €100.000 in whatever country. Now before you reach that amount of sales in a country, you might be like: ohh. But certain countries have €0 threshold. So technically when you sell something for €50 in such a country, you need to submit the taxes in that country every x amount of time.
That means a lot of headache for you and your accountant/bookkeeper. Most accountants and bookkeepers from my experience are local-minded and usually don't know about these international laws of selling online. When based in Europe, most accountants know about the EUÂ VAT numbers and that you can reverse the VAT, but when it goes outside Europe, it's usually "no sales tax". While there's all these thresholds.
What happens when someone fills in a fake VAT number? You get to do the research or pay.
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Now it might not be important, as many don't know about it, so many others make these mistakes as well. Sure.
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But with the speed of how fast technology is growing, everything being tracked and saved in various databases. It's not that hard to imagine that tax authorities will use AI more to their advantages.
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So better do it right and let another company take care of these sales taxes, thresholds, EUÂ numbers etc. etc.
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This is where a Merchant of Record (MOR) comes in. They do the sale in their name, take a cut and you can invoice only this MOR. Like once a month. So even when you're selling 100 times €10, you only send 1 invoice to your MOR. The MOR generates all the invoices for your customers on behalve of you, in their own name. So they are responsible.
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So far I've been mainly interested in Gumroad &Â Paddle.
I have experience with Gumroad, as Gumroad also allows consultations and training hours to be paid through them.
Right now I'm looking more into Paddle with a 5% + €0,30 pricing. However, Paddle only allows fully automated digital products. So no consultations or training hours or any type of digital product that requires human interference.
Obviously you don't have to choose, you can use them both and feel what fits better for you. Paddle seems more code-oriented than Gumroad. Gumroad is made for a larger group of creators that do not code.
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Alternatively you can use something like Quaderno that will do the tax verification check during checkout. With Quaderno your company is still responsible, but you will know in which countries you're reaching which type of threshold. And unlike Stripe Tax, Quaderno actually verifies EUÂ VATÂ numbers on correctness.