Polar as a Merchant of Record
Introduction
What is a Merchant of Record?
We take on the liability of international sales taxes globally for you. So you can focus on growing your business vs. accounting bills. Leave billing infrastructure and international sales tax headaches to us.
PSP vs. MoR
Payment Service Provider (PSPs)
Stripe and other Payment Service Providers (PSPs) offer an accessible and convenient abstraction to faciliate transactions on top of underlying credit card networks & banks.
- Powerful, flexibile & low-level APIs to facilitate transactions
- Can be used to power all business- and pricing models under the sun.
- You are responsible for all liabilities associated with transactions, e.g international taxes
- Low-level APIs require more development even for common use cases
Merchant of Record
Merchants of Record offer yet another layer of convenient abstraction to facilitate digital orders on top of the underlying PSPs and transactions.
- Powerful, Higher-level Dashboard, APIs & SDKs to better facilitate digital products, services & orders beyond the underlying transactions
- Can be used to power all business- and pricing models under the sun.
- Less flexibility & control in terms of advanced business- and pricing models.
- Higher fees per payment
Go with a PSP if...
- You're comfortable & prefer absolute control with low-level APIs.
- You're looking for the lowest fees possible.
- You want to register & file for international taxes yourself.
Go with Polar if...
- You want product-, customer-, order- and subscription management via an intuitive and easy dashboard
- You want to offer file downloads, license keys, Discord- and/or private GitHub repository invites with ease - with more built-in automations to come.
- You prefer a more high-level API optimized for making monetization easier.
- You want us to handle international taxes for you
International Sales Tax
Most countries, states and jurisdictions globally impose sales taxes on digital goods and services (VAT, GST, US Sales Tax etc). Regardless of whether the merchant (seller) is a resident there or not - they're doing business there.
For example, a $10/month subscription should cost $12.5/month for a Swedish (25% VAT) consumer, but $10/month for a Swedish business with VAT registration (reverse charge).
Merchants are responsible for capturing & remitting sales taxes to the local tax authorities. What does that mean in our example?
Capturing
Charging the Swedish consumer $12.5/month and saving $2.5/month for the Swedish tax authorities. Stripe Tax is an excellent service to automate this and the one Polar uses today.
Remitting
Filing & paying the captured sales taxes with the tax authorities on time. Stripe Tax does not do this, i.e the merchant is liable to register, file and pay taxes to local tax authorities.
Many jurisdictions, however, don't require this until you reach a certain threshold in terms of sales volume. But others require registration even before the first sale - or after a very low threshold. In addition to having different rates and rules on which goods are taxable and whether they're deductable or not for business customers.
For example, United Kingdom and EU countries require upfront registration for international companies, but Texas (United States) does not until you've sold for more than $500,000.
In short: It's complex and hard. Even large and well-known businesses don't do it perfectly. Arguably, it's almost impossible and at least highly impracticle and expensive to comply perfectly upfront. Many companies even delay compliance as a calculated risk, i.e focus on validating & growing their business with the risk of paying back taxes + penalities later.
PSP
- Your volume alone is what counts towards international thresholds vs. the MoR platform, i.e customers might not need to pay sales taxes with you, but would via a MoR.
- You can deduct inbound VAT against purchases your business does with VAT
- You're liable for capturing & remitting international sales taxes
- Stripe Tax is great to monitor & automate capturing, but registration and remittance is up to you.
Merchant of Record
- We are liable for all of the above as your reseller.
- Offer EU VAT for B2B sales (expected and desired within EU for businesses) without having to register, capture and remit it yourself.
- Sales taxes would be added for more customers vs. with you selling directly.
- You cannot leverage inbound VAT towards VAT expense deductions yourself.
Ready to make the switch?
Join thousands of teams who have already transformed their payment infrastructure with Polar.