Ask HN: Do most startups simply ignore international taxes?

https://news.ycombinator.com/item?id=39349889

by seabass • 2 years ago

60 41 2 years ago

news.ycombinator.com

I sell a subscription-based Chrome extension as a side project and now have about 10 customers. Like many hobby-level businesses, I'm using Stripe for payment processing.

I got a customer from the UAE, so Stripe Tax showed I needed to register for their VAT. When I completed that process, the UAE immediately hit me with a 10,000AED ($2,722) penalty for not registering sooner. Now, if I'd known this would happen I would have just blocked all payments from that country and refunded the customer.

At my scale (hobbyist, $50 MRR) I can't afford international tax lawyers or these massive penalties. A little Googling shows I'll need to register and keep on top of VAT for dozens of countries once I have more customers, which isn't something I can expect to manage solo or afford to pay an expert to do.

I'm thinking of blocking all non-US payments with Stripe Radar, even though I want global customers and prefer to avoid the extra cost for Radar. But other startups seem to manage without this hassle. What am I missing? Are people just not registering for VAT?

meheleventyone• 2 years ago

You use another company as a Merchant of Record (like Stripe) and they handle all of that for you for a larger fee. Are you setup correctly or is UAE some kind of exception?

seabass6• 2 years ago

I do currently use Stripe, but I don't see a way to allow them to handle it for me. Other processors like Paddle or Lemon Squeezy appear to offer this service, but I prefer to continue using Stripe. Considering the number of other side-projects and small businesses on Stripe that don't seem to have the issue I am, how are they doing it?

brudgers4• 2 years ago

Paying professionals to handle accounting is a cost of doing business. It’s best if your prices cover that cost.

Charging real money is one of the problems with hobby businesses. Segmenting the market to exclude people who can’t pay real money is another. Because neither is just plain fun (because both are business decisions).

A hard lesson: building an unsuccessful business is hard work. About as much as building a successful one but with the added stress of failing.

veeti• 2 years ago

Stripe doesn't do merchant of record processing.

mytailorisrich4• 2 years ago

Don't block international sales but do ignore international taxes of you are that small. And use the likes of Stripe only to handle payments, not tax.

seabass6• 2 years ago

The problem is that a lot of countries, UAE and Mexico included, have a minimum sales threshold of 1. Ignoring those obligations seems wrong, but maybe that is standard practice.

ipaddr• 2 years ago

Ignore until you are big enough for it to matter.

thelittlegoat3• 2 years ago

Yip agree, I have been struggling with this with my ecomm business. I'm thinking of launching https://www.outpostnow.co/, which calculates and files your taxes for you, leaving you to use a checkout eg Stripe that you prefer. What do you think?

sudo_su_pg• 2 years ago

As a rule do not take advice on tax evasion from random strangers. This should be a quick consult with a professional.

seabass6• 2 years ago

Agreed. I'm just going to go with a Merchant of Record to handle it, but since the vast majority of side-project and hobby-level online sales (or even startups and businesses with 50-100 employees) don't do that, I'm also wondering if I'm just missing something obvious.

mytailorisrich4• 2 years ago

The obvious thing others do has already been explained: they ignore. There is no sensible reason to rush into registering for tax, and all the consequences, in a random foreign country just because someone located there may have sent you $5.

alexdanilowicz• 2 years ago

What MoR are you going with?

janosdebugs• 2 years ago

At your scale you may just want to give it to them for free or not take the customer. It's unlikely they will come after you for this amount I'd say, but if you grow bigger I can imagine this coming back to haunt you. I also don't know if you'd be subject to UAE commercial law if you take a customer from there, there are some jurisdictional norms in place you may have to explicitly disclaim in your terms of service. You can get sued internationally and that gets really expensive.

Talk to a lawyer, talk to a tax attorney. Don't take legal advice from the Internet since your situation is likely not going to match the person's who answers.

seabass6• 2 years ago

Absolutely, I want to do everything by the book, which is why I went through their VAT registration process despite it being only $5 in UAE income. The other point you raise you raise about commercial law I will keep in mind.

An attorney for something earning me $50 isn't doable for me right now, but I am surprised this isn't a more commonly discussed issue. The number of small-time sellers of all sorts of global online products is massive. Anyway, current plan is to get an MoR to handle foreign taxes going forward.

jimkleiber3• 2 years ago

I can't speak for others but I'll say that I haven't wanted to discuss it in public very often, and even fear typing this now, because of fear of accidentally breaking the law and having public record of me being aware of it.

At the same time, how do we change the laws if we don't talk about them?

I find the governance of the internet to be absurd, especially as it relates to VAT/sales tax. I think it's mostly non-global governments trying to govern a global space.

BilalBudhani• 2 years ago

AFAIK, UAE has a minimum threshold of ~$100k of turnover to get eligible for VAT so I'm not sure why were you penalized.

Besides, is your stripe + company registered in UAE?

tothrowaway• 2 years ago

Small businesses do not routinely send pennies to the UAE. Countries do not have unlimited resources to chase after you. The law cannot be universally enforced, so the government has to pick and choose its battles. And they aren't going to bother with you. You need to be concerned about the tax law in the country you reside and have citizenship.

HenryBemis• 2 years ago

And/or/but do remember to never go to that country, because it won't be fun to be picked up from the airport on a Friday evening and be locked up until Monday morning when the tax office will be open.

csomar• 2 years ago

Do you have a specific case or are you making that up? Apart from the fact that they probably don't have his passport, authorities usually don't follow through few digits liabilities using "arrest at airport".

remyp• 2 years ago

I'm a bootstrapper. I use a merchant of record service to handle this because I need to spend my time building and growing, not doing paperwork.

Yes, it sucks that it costs more. Yes, it sucks that I have more platform/vendor risk. Yes, it sucks that I can't use the platform I know best (Stripe).

But yes, it's worth it to know that if our efforts succeed and we grow a lot then we won't have to drop everything to get compliant with the 87 countries and countless local jurisdictions we've made sales in.

lbhdc• 2 years ago

Can you share which vendors you looked and which one you chose? Just curious what pros/cons you considered and who the right puzzle piece for you is :)

thelittlegoat3• 2 years ago

Would you use something that's tax only, ie not payments like https://www.outpostnow.co/? That way you wouldn't have to pay 6-10% from eg Lemonsqueezy.

seanwilson• 2 years ago

What am I missing? Are people just not registering for VAT?

That's the impression I got when I researched it. I found lots of post of people explaining their tech stack and payment workflows, but almost none about how they handled country specific tax and VAT.

Paddle, Gumroad, Lemon Squeezy and Fastspring all handle this for you. I went with Paddle for payments for a Chrome extension and I haven't had to think about country specific tax since.

I occasionally check Paddle's changelog (https://new.paddle.com/) to see what new countries and tax changes they're having to deal with weekly to remind myself why I went with them.

There's meant to be SaaS products that work with Stripe to help with tax but is it worth the hassle compared to refunding the existing customers and moving to one of payment the providers above? Ignoring the problem until you grow bigger and then having to correct tax errors in retrospect is an incredibly bad idea imo (fines, paying accountants to sort out missing tax filings, untangling the mess, having to contact old customers about it), that's going to get in the way of you growing your product and cause a lot of stress.

fruktmix• 2 years ago

Which of those options are best? Heard that Lemon is new to the game but Paddle have been in the game for the long run. Never heard of fastspring.

jimkleiber3• 2 years ago

Maybe a little off topic: I see a lot of the benefits in using a Merchant of Record (MoR) and yet I really like using Paid Memberships Pro (PMP) for Wordpress.

Does anyone know of an MoR that might connect to Wordpress in a similar way to PMP? Or even how to hook up an MoR to function through PMP?

Maybe just in general, an MoR that does membership sites well?

Lastly, an MoR that does nonprofit sites?

thelittlegoat3• 2 years ago

Hey Jim, I'm working on something that does the calculation & remittance of sales tax for you. We could do PMP, does this help? https://www.outpostnow.co/

gorillataxi• 2 years ago

I've looked into MoR's before but the fees are very high. For SaaS specific global sales tax compliance, I'd look at Anrok. They support sales tax globally (U.S., VAT, GST, etc.)

Ask HN: Do most startups simply ignore international taxes?

Related Stories