Marketplace payment system that handles VAT/taxes
Hi all, I've had a few trawls round the different marketplace payment products around when considering writing my own marketplace but the place I get stuck every time is handling of VAT and other sales taxes.
In a system where sellers on my system sell services (e.g. lessons) to buyers, I would need it to calculate the VAT part of the sale and quote it to the buyer on their invoice. Then I would need it to do the same on any commission paid to my site according (presumably) to the country where the seller was based. It seems like I would end up having to manually calculate the VAT on a LOT of small commission payments which puts me right off. As a sole developer I'd obviously prefer something that does the lot for me.
For apps with a straight monthly SaaS subscription model I use the excellent Paddle.com for this as they work it all out for you, but I've yet to see anything that does the whole job in similar way for a marketplace setup.
Anyone have any experience here? Thanks in advance :)
Hey, just saw this and wanted to share something that might help others still wrestling with this:
We built VATFix Plus a fallback EU VAT validation API when VIES fails or when you want no UI distractions. It plugs into your logic and tells you if a VAT number is valid or not.
For commission logic or seller billing (e.g. invoices or payouts), you can layer this on top of whatever PSP (Stripe, Paddle, PayPal) you're already using.
It doesn’t calculate VAT % (like Paddle does), but it helps automate validation and compliance checks if you’re self-handling VAT invoices or building custom logic for split payments.
If you’re a dev or indie builder trying to keep it lean, I’d love to hear if this fits your use case.
No dashboards. No ads. Just backend power.
Hi. Did you find anything?
Sadly not. However I think that as long as I don't directly handle payments within my app and e.g. add a PayPal button on the user's behalf and let PayPal handle the payment then I would be out of the loop regarding tax responsibility.
I could charge a simple monthly service fee to sellers via Paddle and the users would keep 100% of what they charge using PayPal which would probably be preferable to them anyway.
I think that would remove any tax compliance responsibility from my app though I do plan to chat with my accountant about that :D
Sounds right.
I imagine you could support commission-based in a similar vein where you charge sellers % of sales (assuming visibility of their sales) but check with accountant.
Services like Paddle are interesting. I believe they act as (aggregate) seller for multiple customers. Implies customers who could otherwise be under tax thresholds are bundled up into a 'joint' account, which is then above threshold.
Does that matter? Doubt it. The low-cost of these platforms to make the VAT headache just go away seems very reasonable to use them.
FYI, I believe some platforms support sub-merchants (e.g. your sellers) but those sub-merchants would need to open a merchant account with the platform.
Yes, there are two scenarios I want to avoid:
Obviously I want the simplest thing from my point of view as the interesting work lies elsewhere for me and not in the tax/accounting part. So my proposed model is currently:
Like a host not a marketplace.
Re-structuring your model may work; where you take payments from buyers. All VAT relationships should then be between you and a buyer or you and a seller and handled by paddle or alternative. You prob know PSD2 is in play which implies use of a Payments Service Provider if you act for both buyer and seller.
I'm trying to see if Paypal has reasonable solution but docs tricky to wade through as they have legacy offerings that makes it confusing.
This is what paddle or alternative does right? If you sell to buyers then all seller/buyer VAT handled for you.
You are given time (e.g. 1 month after formal warning) to exclude an errant seller before you become liable.