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12 Comments

Handling EU / UK VAT Tax In Stripe

Online marketplaces and tax; what's the best way to approach this problem?

Hi all, for those who don't know, I'm in the process of building a game artist driven platform enabling game artists to build portfolios, tender for work and sell assets. It's all been going swimmingly so far, but now I've realised that I'll likely need to handle how VAT tax is calculated depending on where the seller is based.

Have people had experience with this before? Do you launch in only one country initially and then expand out, or do you tackle it all in one go?

If anyone has any experience tackling tax for marketplaces then I'd love to hear all about it, along with what mistakes you made in the process.

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    Hey there! I'm Kelly a product manager at Stripe working on taxes. As some folks noted below, there's actually a few different routes you can take with VAT, especially in terms of the charge flow you are trying to enable and whether you think your business would classify as a marketplace facilitator under EU laws.

    For instance, using Stripe Connect terms, you could charge directly on the connected account, making them the settlement merchant of record, their name is appearing on the buyer's statement descriptor, they pay the Stripe processing fees, etc. In this charge flow, if you don't consider yourself a marketplace facilitator, then really the "burden" of collecting and remitting tax is actually on your seller. On the flipside, if you are planning to have your platform be the settlement merchant of record, likely using destination charges, your name is on the statement descriptor, etc. then indeed you would be responsible for VAT.

    In both cases, we currently do offer Tax Rates, which allow you to create tax rates to apply to transactions. We're also working on some more automated tooling whereby we'd automatically calculate the right rate and you wouldn't need to create Tax Rates.

    All and all, the answer to your question is a bit of "it depends". If you want to chat more, shoot me an email ([email protected]) and I'd be happy to share some more thoughts and share a bit more about what we've been working on. (That offer goes for anyone seeing this post that is struggling with anything Stripe + VAT/sales tax related as well!)

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      Hi Kelly! This could actually solve all my problems as I have currently built the integration using destination charges which likely means the platform will be acting as the merchant of record. This is fantastic if that is the case as I want to make the process of selling assets as easy as possible for my sellers.

      I'll take you up on that email offer if that's okay as I have loads of extra questions that I'd like to fire your way about handling tax in Stripe. I'll pop you an email over in a few minutes.

      Thank you so much! :)

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    Hey Max - welcome to the annoyance of VAT - it pays for a lot of great services in the countries that use it but it's not easy to handle as a business.

    One correction I would add to your assumption is that VAT is calculated based on where the buyer is based, not the seller - again, you can get that info from Stripe. Even if you decide to launch in one country, if you have buyers from another you still have to account for VAT - this is the annoying bit.

    If you end up working and issuing invoices through Stripe then I believe you can make use of their Tax Rates feature which should automatically apply the correct VAT on your invoices and subscriptions.

    I couldn't use that so I had to make something custom. Thankfully, the Stripe API makes this process a bit easier to handle. For my product, Thankbox I spent a couple of days to make my own accountancy reporting tool. The way it works is that whenever Stripe pay me, it generates a report that says how much revenue I made in the different regions.

    I'm based in the UK so before Brexit this was UK, EU and "Rest of the world"(aka no VAT). I can then easily plug those numbers into my accountancy tool (Xero).

    With Brexit now I had to register for VAT MOSS in Ireland and will have to quarterly report how much revenue I made in every single different EU country 🙄. It's annoying, but not that hard to do. Again, with the Stripe API it's really easy to do something which retrieves all charges for a period and keeps a total of the different countries.

    If you're building a marketplace it might be slightly more complicated.

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      What if someone is not living in UK or EU and doesn't charge VAT with buyer? Is that going to affect my business in any way?

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        I may not be the best source here but I'll share what I know.

        If you are supplying services to EU citizens then you need to pay VAT. The best way is to register for the EU VAT Mini One-Stop Shop (or MOSS) service in an EU country - I did it in Ireland - https://www.ros.ie/vatmoss-web/vatmoss.html?execution=e1s1

        Using VAT MOSS you have to quarterly report how much taxable revenue you made in each different EU state and it will tell you how much VAT you have to pay in total. Each EU state has a different VAT rate so that's why you do this.

        From what I understand it also depends on whether you are providing a B2C or B2B service. I think for most B2B services you can just use the so-called reverse-charge for your EU customers. Meaning that the VAT in the end is cancelled out and your customer needs to account for it.

        Source: https://quaderno.io/blog/what-you-must-know-about-vat-if-you-have-customers-in-europe/

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          I am in B2C category. I didn't cared much in starting about taxes in foreign countries but now from some weeks I decided to do it organised way and legal way.
          So what I understood is I have to charge VAT from customers and pay it back to EU Governments.

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            Yes, you have to. You can either include the VAT in the price or charge them extra based on their country's rate.

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      Thank you for this, I didn't realise it based on the buyer's location rather than the sellers. I guess this means I might as well launch everywhere rather than just start with a single country!

      I am tempted to also custom build something which handles it all for me. Perhaps that's the best way to go.

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    tl;dr; consider Octotax Plaza to calculate taxes for your marketplace app.

    I'm assuming that one of your selling points is that it should be a "just works" solution for your users. Kind of like how selling on Gumroad is super simple and they handle all the tax stuff for you.

    I gave up on a marketplace-style side-project because the tax stuff was going to be a major part of running the business. It wasn't what I wanted in an indie-project so I gave it up. Maybe you feel differently!

    Gumroad-simple style
    If doing it Gumroad-style you'll be the Merchant of Record. You technically act as a reseller of your users products, and then you do payouts to your users. If you do this you could potentially use Paddle, FastSpring or something like Avatax or Quaderno in combination with Stripe. This might work, but it's a bit "hacky" and requires a lot of accounting work. I think.

    This solution is best if you think that you'll be dealing mostly with people who "just want to sell something online" and not think too much about tax and business stuff.

    Stripe Connect marketplace style
    If you imagine that your customers create a Stripe account via Stripe Connect and then you calculate the right taxes for them based on their location and so on. When I was researching options the only one was a yet-to-be-announced product from Octotax. It looks like they've come further, so check out Octotax Plaza. It might be the way to go. I haven't seen (or researched) any other services that does what you need to do.

    This solution means that you provide tax documentation for your customers so they can easily file their taxes on their own.

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      I hadn't even considered the Merchant of Record approach and I'm currently knee deep into a Stripe Connect integration. However, I can see the potential benefits of switching up that approach so I'll do some research on both in more detail before I decide what route is best to take.

      Thank you for the detail in this, it's been very helpful! :)

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        I too was knee-deep in Stripe Connect. Good luck!

        Maybe @sahil can chime in with pointers?

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