Today I charged my first client using Paddle and realized that VAT ate quite a chunk of it.
What’s the common practice here? Should I charge VAT on top?
#ask-ih
I'm also using paddle on 2 of my websites, on there the VAT is not included in the prices on the landing page. It is added at the checkout by paddle automatically.
On another website where I use other payment processors, I don't even have to take VAT, I have a company in Romania and if I earn under a specific amount per year, I don't have to pay VAT. Maybe it's the same in your country?
Anyway, paddle has to take the VAT, because they technically "buy" your product, and then they resell it, but this has its advantages.
Ok, I see. I double-checked and it seems like in the EU it's around 40k EUR of profit before VAT must be included.
In Romania is 88k EUR.
But still, using Paddle, you will have to take the VAT from your customers, because they are the company that resell your products, so they earn a lot more, and they must pay VAT, if you have a lot of customers from EU, you may look for alternatives.
It makes total sense what you're saying @MMike. It feels like I'll be going with Stripe with no VAT for the time being. 😀
Update: I'll be going with Paddle because being compliant for anything you do in my country when it comes to money is a big deal. And apparently Paddle keeps all the records.
I'll also be adding VAT on top of my pricing. The good thing is that since my customers are all VAT-registered, in most cases they can get VAT off directly during the checkout process.
We don't include VAT in our pricing - think it's the right move otherwise you'd have to either take a hit selling to certain countries or make people self report their location on your pricing page.
Invoices have any relevant tax added on top. (We use Chargebee, in case useful)
This might not even be your sole decision. For example, in Germany you need to display all prices towards consumers with VAT already included. I don't know if this extends to companies from abroad, but there's a good chance it does. Also, there might be regulation from other countries that legally obligates you to include VAT in the price displayed.
Of course, you can get quite far without anyone noticing. Where there's no plaintiff, there's no judge, as they say in Germany ;-)
Key question: Are your customers consumers or businesses?
Larger businesses will all be vat registered so can claim this back, or you can avoid charging depending on jurisdictions. For these Vat on top is no issue.
For consumers Vat ontop feels like cheating that should have been declared from the start since no choice anyway.
Small non vat-registered businesses being the edge case.
In my case, those are VAT registered companies. Btw, what are rules when it comes to them claiming VAT back?
Talk to your accountant (if you don't have one, find one, early!).
But generally in cases that you need to charge VAT, any VAT registered business can deduct this from VAT they are due to pay from their own sales. So VAT becomes a non-issue for mid to large businesses. Consumers or small non-vat-registered will feel the hit though.
Hey Anton, just want to follow the thread to see if anyone else has experienced this. Is there any reason why you decided to choose Paddle over Stripe?
Paddle does automatic Sales Tax calculation and that’s the only reason.
By default, you are the one to set up the tax value in Stripe and I have no idea how it works given eg that VAT is calculated based on where your customer is.
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What is an international sale?
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That’s not always true though. Eg it doesn’t matter where the seller is located in case the buyer is in the EU. Here the buyer’s country VAT is applied.
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Oh, right. I missed the word “typically”. 😅
Thanks for sharing your experience and the article!