The moment you sell into the EU, UK, or Australia, someone has to register for VAT in each place. The only real question is whether that someone is you or Paddle — and what you're willing to pay to make it not you.

Key Numbers to Know (2026)

• Merchant of Record (MoR) platforms — Paddle, LemonSqueezy, FastSpring, Cleverbridge — are legally the seller of record

• Stripe or PayPal, used directly: you are the legal seller, and you handle all indirect tax compliance yourself

• MoR typical fees: 5–8% of the transaction, all-in, including tax handling and payment processing

• Stripe typical fees: 2.9% + 30¢ for cards, with tax compliance a separate cost you pay for elsewhere

• EU VAT threshold for non-EU sellers of digital services: zero — you register from your first EU sale

• UK VAT threshold for non-UK sellers of digital services: zero

• Australia GST threshold for non-resident digital sellers: AUD 75K

• US sales tax: economic nexus applies in roughly 45 states, with thresholds that vary by state

The Trade-Off

A Merchant of Record is legally selling your product to your customer. It handles every VAT, GST, and sales tax registration worldwide, and pays you a net-of-tax amount. Simpler, more expensive, and less control over the checkout experience.

Direct payment processing means you're legally the seller. You need VAT registrations in the EU, the UK, Australia, and any other jurisdiction that requires one. You keep control of checkout, own the full customer relationship, and pay lower processing fees — but you carry the tax compliance cost yourself.

At USD 2M ARR, that trade-off has a real price. MoR's all-in 5–8% fee costs roughly USD 100,000–160,000 a year at that revenue. Direct processing's 2.9% card fee costs roughly USD 58,000, before you add the cost of registering and filing VAT and GST across every jurisdiction you sell into. Which side wins depends entirely on whether your own compliance cost — in money, or in your time — comes in above or below that gap.

Which Model Fits

• ARR
  Merchant of Record: Under roughly USD 500K
  Direct processing: High enough that 3–5% of revenue is meaningful money

• Customer geography
  Merchant of Record: Global, many small transactions across jurisdictions
  Direct processing: Concentrated in one or two jurisdictions

• Team bandwidth
  Merchant of Record: No dedicated compliance or finance function
  Direct processing: Existing tax compliance infrastructure in place

• Checkout control
  Merchant of Record: Willing to trade control for simplicity
  Direct processing: Wants full ownership of checkout and the customer relationship

• Typical picks
  Merchant of Record: Paddle, LemonSqueezy, FastSpring, Cleverbridge
  Direct processing: Stripe or PayPal, direct

Some businesses run both: Stripe for direct-to-business sales, where the business customer handles its own tax, and an MoR for consumer sales, where the tax burden is highest. It takes careful accounting to keep the split clean, but it can optimise for both simplicity and cost at once.

Where This Interacts With Your Structure

Your MoR platform reports revenue to your business entity, and that entity's location still determines your corporate tax base. An MoR doesn't change where you're taxed — only what compliance work you personally handle.

It can also affect chargeback economics, refund policies, and dispute handling, so check the details before committing to one.

Pricing Out Your Own Numbers

If you're weighing Merchant of Record against direct processing, book a scoping call. Bring your ARR, customer geography, and current compliance setup, and we'll model the real cost difference for your numbers — not the generic 5–8% versus 2.9% comparison.

Related: Bank Accounts for Online Businesses Operating Across Borders (A16); Stripe, PayPal, and Wise for Non-US Business Owners (A18); EU VAT for Non-EU Online Business Owners (A20).

General information, not tax, legal, or financial advice. Fee structures and VAT/GST thresholds change by jurisdiction — confirm current terms with your provider and adviser before switching models.