If you sell a digital product to anyone outside your home country, you owe sales tax or VAT somewhere. Most solo builders find this out the hard way — after the first international sale, not before.
There are two ways to handle it, and picking the wrong one costs you either money or months of registration paperwork you didn't sign up for.
Payment processor vs. merchant of record
A payment processor (Stripe, in its default configuration) moves money from buyer to seller. That's it. You are still the legal seller of record, which means you owe sales tax and VAT registration in every jurisdiction where you cross that country's threshold. Stripe Tax can calculate what you owe — it does not register you, remit on your behalf, or take on the liability.
A merchant of record (Lemon Squeezy, Paddle, Polar) is structurally different: they become the legal seller. The buyer's receipt says their company name, not yours. Because they're the seller, they're the one who has to be tax-compliant everywhere — so they register, collect, and remit VAT/sales tax across dozens of jurisdictions, and you get paid out net of their cut.
The actual cost difference
- Raw Stripe: roughly 3% + fees, tax compliance is your problem
- Merchant of record: roughly 5% + fees, tax compliance is not your problem
That ~2% delta is the price of not building or hiring for tax compliance yourself. For context: EU VAT registration alone can mean dealing with OSS (One-Stop-Shop) filings, and a handful of countries still require local registration outside that scheme. None of this is optional once you're selling digital goods to consumers there — it's just usually invisible until a tax authority notices you weren't doing it.
Who should use which
Merchant of record, if:
- You're a solo seller or small team with no dedicated finance/tax function
- You don't have (or want) a relationship with a tax accountant in every market you sell into
- You'd rather pay 2% more and never think about VAT thresholds again
Raw Stripe (or Stripe + Stripe Tax), if:
- You have the volume and margin to justify an internal or outsourced tax-compliance process
- You want lower fees and are willing to own the registration/remittance work (or already have that infrastructure from another product line)
- You're US-only or selling B2B with reverse-charge VAT (much simpler than B2C)
The common mistake
Assuming Stripe "handles" this because Stripe Tax exists. Stripe Tax calculates the tax owed at checkout — a genuinely useful feature — but calculation is not registration, and registration is not remittance. If nobody registers you in a jurisdiction, having the correct number on an invoice doesn't make you compliant there.
The practical rule most solo digital-product sellers land on: start with a merchant of record. It's the boring, slightly-more-expensive choice that removes an entire compliance surface you don't have the headcount to own. Revisit only once volume and margin make the 2% delta actually significant — and by then you'll likely have the operational maturity (or the budget for an accountant) to make the switch deliberately, not because you got a notice from a tax authority you'd never registered with.
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