In online sales, especially abroad, a company runs into the complex world of taxes, VAT and legal obligations in various countries. This is exactly what a Merchant of Record service solves. Let us explain what it is, how it works and when it is worth it for a company.

What a Merchant of Record is

A Merchant of Record (MoR for short) is a company that, in a sale, acts as the official seller to the customer instead of you. The customer buys your product, but from a legal and tax standpoint it is sold by the MoR, who takes responsibility for it.

In other words, the MoR stands between you and the customer and handles everything around payment, taxes and compliance, while you deliver the product.

What the MoR handles for you

This is the main value and at the same time the main difference from an ordinary payment gateway:

  • Taxes and VAT. The MoR calculates, collects and remits the correct VAT and taxes in various countries. This is the biggest advantage when selling abroad.
  • Invoicing. It issues documents to customers in line with local rules.
  • Payment processing. It accepts payment by card and other methods.
  • Compliance and legal obligations in individual countries.
  • Refunds and disputes (chargebacks).
  • Fraud protection.

MoR versus a payment gateway (for example Stripe)

This is the key difference many do not know:

  • With a payment gateway like Stripe, you are the seller. The gateway processes the payment, but you handle taxes, VAT, invoicing and compliance yourself.
  • With a Merchant of Record, the MoR is the seller. It takes over taxes, VAT and legal obligations, and you do not deal with them.

Simply put: Stripe lets you accept a payment, an MoR takes the whole administration around the sale off your shoulders, including taxes.

When an MoR is worth it for a company

  • Selling digital products and services abroad, where you would otherwise have to deal with VAT in many countries. This is the most common reason.
  • SaaS and subscriptions for customers worldwide.
  • Small and medium companies without their own tax and legal department, which do not want to deal with complex international administration.
  • A fast start to selling without building your own payment and invoicing infrastructure.

Well-known services of this type are, for example, Paddle, Lemon Squeezy and Polar. They differ in conditions, fees and in what they cover.

When you do not need an MoR

  • You sell mainly at home, where you handle taxes and VAT yourself or with an accountant.
  • You want full control over payments and the customer relationship and the administration does not bother you.
  • You have the resources to handle taxes and compliance.

In that case, your own payment gateway like Stripe may be cheaper and more flexible.

What to keep in mind

  • Fees. An MoR usually charges a higher percentage than a payment gateway alone, because it does much more work. In return it saves you time and risk.
  • The customer relationship. Since the MoR is the seller, part of the relationship (documents, some disputes) goes through it.
  • Compliance with GDPR and data protection is also handled by a good MoR.

Conclusion

A Merchant of Record takes over a company’s responsibility for payments, taxes, VAT and legal obligations in online sales, especially abroad. For companies selling digital products and services worldwide that do not want to deal with complex international administration, it is a huge relief. But if you sell mainly at home, a classic payment gateway is often enough.

Dealing with online sales, payments or expansion abroad and unsure whether to choose a payment gateway or a Merchant of Record? Get in touch, we will advise based on what and where you sell.