The burden of selling globally from the EU 💸

Every successful venture has to have a steady income flow. That means you need to collect money, ergo you need to pay tax. But how much? To whom?

Income Tax

As far as I know, almost all countries do have some income tax, whether it's PIT (Personal Income Tax) or CIT (Corporate Income Tax), depending on the form of a company. Some exceptions exist, like tax havens with 0% income tax or countries with Estonian tax schemes.

That's "easy", you pay that tax to the tax office of your primary country (where you live over 50% of the time, which is important in the case of digital nomads! 🧳).

Let's leave the income tax, here comes the real hell - VAT, aka. Value Added Tax. Our European specialty, the dark queen of taxes, business slayer, and headache-causer.

VAT

Let's assume you sell B2B (business-to-business) - that's not as bad as it could be. You invoice the other party with reverse-charged tax, and it's not your problem what the other side does with that money. You don't add any VAT to your invoice.

B2C (business-to-customer) sales are what cause the most issues. You need to find out whether you're selling goods or services. If services, what's the origin place of providing the service? Your place or the customer's place? That gets interesting, considering you're selling, for example, software licenses. Think about it for a moment. Is it the server location, your location as a seller, or the customer's location because it uses that license from his location?

I found a great tool on the EU website that allows you to see how you should charge VAT.

There are a bunch of exceptions, of course, so (╯‵□′)╯︵┻━┻

You're at the mercy of your accountant if they have enough experience and if you have money to afford that service.

The solution

While working on a business model for our micro SaaS app MadNotes, we stumbled upon something called Merchant of Record. We're sick of handling the taxes on our own at Department of Web because we make quite a few B2C transactions monthly. That costs us a lot to manage it and brings a huge risk of being not compliant.

The Merchant of Record seems to be a solution to our problem. We want to handle many microtransactions at $3 per month in our App. That almost doesn't make sense.
But the thing is, we'll be issuing only one invoice monthly. How is that? The Merchant of Record handles all the transactions, customers, taxes, complaints, reports, etc. We're performing only a single B2B transaction for that record. And, as you probably remember, a B2B invoice is much simpler for us.

The most popular solution like that seems to be the Paddle. I've read different opinions about it, some very bad and some very good. The downside? That 3rd party provider is in charge. It literally owns your customer data, and sometimes it locks it in, so you cannot change your provider. That's a trade-off.

I'm keen to hear how you mitigate the risk of incorrectly paying VAT or being not compliant with various legislations. Do you think it's a good idea to use a Merchant of Record to handle our transactions? Or maybe you have a hack no one knows about? Share that in the comments section below 👇

Note: I'm not a legal advisor or a lawyer. I might be wrong, and the above post is based only on my own knowledge or personal opinion.
Note²: I'm not an affiliate of any of the services mentioned in the post. Except for my own 😎