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- What is a Merchant of Record?
What is a Merchant of Record?
Number X acts as a Merchant of Record, which means that we handle all local taxes for you (VAT, GST, Service Tax and the likes) worldwide, including collecting, accounting for and paying it to the Tax Authorities.
We make sure you are 100 % compliant with local laws and regulations and protect you from fraudulent transactions + handle all chargeback-related support queries for you.
How do we operate?
We act on your behalf as a Merchant of Record (MOR). From a legal point of view, this means that we sell physical/virtual goods on your behalf.
Contracting with MOR gives considerable benefits to you, because you don’t need to do anything, when it comes to dealing with compliance and taxes anywhere in the world: we handle everything for you automatically as part of our normal service.
This is very different from a regular Payment Service Provider like PayPal, Stripe or Adyen, that do not act as a Merchant of Record.
They process your payments just as we do, but you still need to handle all compliance issues, charge and and remit taxes by yourself. Not doing this properly in any country you’re selling, exposes you to potential fines and penalties, especially in the US and EU.
In practice, your customers are still your customers. They’re buying your physical/virtual goods, they see your name, your design, your website or app. Number X just facilitates the operations for you by handling the payment processing, compliance and end-to-end taxes.
How complex can tax compliance be?
Very complex - and getting more complex each year.
First, it is important to know that this applies to everyone, so it doesn't matter whether you are a sole proprietor working on your app or a large multinational business.
In 2015 the European Union changed their VAT rules: taxes are now charged based on where your customer is based, rather than where your company is located. Some other countries is Asia decided to follow the same route, which means that there are now 40+ countries where you need to deal with local taxes.
The rates applied vary. The type of transactions where taxes apply (with individual customers, companies or both) vary. Minimum thresholds vary (in most countries you need to collect taxes from your very first local customer).
At Number X, we have a dedicated accounting and legal team that handles all of that for you.
What exactly should I do, if I choose to sell by myself?
If you sell using DIY solution, rather than a Merchant of Record like us, please note that you must handle all of this yourself if you want to comply with the local laws enacted in Europe, Singapore, New Zealand, Australia, South Africa etc.
- Monitoring the Sales Tax thresholds in the jurisdictions where Sales Tax is introduced and applying for Sales Tax registration once the threshold is reached;
- Applying for Sales Tax registration in jurisdictions with no threshold;
- Appointing Tax Agents and Tax representatives in jurisdictions where it is mandatory to have one (this additional external cost of compliance can exceed thousands of dollars annually);
- Reporting and remitting the Sales tax to the Local Tax Authorities (a monthly / quarterly process with 40 different countries, involving cross-border funds transfers in multiple currencies);
- Monitoring all the changes with regards to the Sales Tax rates in jurisdictions where the Sales Tax has already in place as well as all the proposed changes for the new jurisdictions around the world;
- Ensuring the supporting documentation / receipts / invoices that are issued to both B2C and B2B customers are also fully compliant with local Sales Tax laws.