You got a new idea for your side project. You spend few weeks on the implementation working in your free time after work. Right now you want to integrate a payment system but you realize about this mysterious topic: taxes. You start reading about it and you find out about VAT, GST, different rates depending on multiple conditions. What's more, you're a European Union citizen - VAT MOSS and your country's regulations don't make things simpler... But you wanted to focus on the product, not on taxes!
I've been in that place. That's why I abandoned one of the recent projects. If I had known about handling taxes in the EU a bit earlier, probably I would have chosen a different idea.
Defining a monetization strategy is a crucial step when you plan your next side business. Being able to earn money while not spending a ton of time on taxes and bureaucracy is invaluable. Dealing with all the paperwork can kill your inspiration.
That's why I wanted to list out the payment providers that can help you with taxes so you can focus on your product.
Merchants of Records
A merchant of record is an entity that sells goods or services on your behalf. It handles all the various taxes for you. You don't need to worry about different VAT taxes, rates, and so on. If you earn money, it pays you out on regular basis (i.e. once per week) and you only need to handle income tax on your own.
Here's a nice explanation https://paddle.com/blog/what-is-merchant-of-record/
⚠️ If you decide to use a Merchant of Records, remember to check if the type of your business is supported! For example, various human services (like consultations) are not welcomed.
- What you can sell on Gumroad https://help.gumroad.com/category/232-what-you-can-sell-on-gumroad
- Dealing with VAT https://help.gumroad.com/article/10-dealing-with-vat
- Not supported types of businesses https://paddle.com/support/aup/
- How Paddle handles VAT on your behalf https://paddle.com/support/how-does-paddle-handle-vat-on-my-behalf/
- A brand new solution on the market.
- Sales Tax & VAT https://docs.lemonsqueezy.com/article/57-sales-tax-vat
Payment Service Provider
Payment Service Provider offers services for accepting payments by various methods. In comparison to Merchant of Records, it handles only the whole transaction process.
- Released recently Stripe Tax https://stripe.com/docs/tax. Now it's possible to calculate and collect sales taxes, VAT, GST automatically. Previously as an EU citizen, you had to calculate it on your own which made Stripe not the best choice for EU-based indie hackers.
- You still need an accountant to help with any tax payments.
- Supports a lot more business types than Merchants of Records. A list of restricted businesses https://stripe.com/en-pl/restricted-businesses
Apple App Store
- Handles all the taxes for you (similar to Merchant of Records) in return for the 30% commission rate.
- There is a Small Business Program with a 15% commission rate https://developer.apple.com/app-store/small-business-program/
I hope that helps a bit. If you know about any other solution, please let me know. You can find me on Twitter https://twitter.com/kwcodes.