Ask HN: Do most startups simply ignore international taxes?

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?

59 points | by seabass 12 days ago

11 comments

  • seanwilson 11 days 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 10 days 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.
  • tothrowaway 11 days 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 11 days 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 9 days 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".
  • mytailorisrich 12 days 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.
    • seabass 12 days 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.
      • thelittlegoat 10 days 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?
        • japhyr 9 days ago
          Why do you say "thinking of launching" here, but the page you link to makes it sound as if this is an existing service?

          From the page: "Our team has set up entities across the world servicing millions of customers"

      • ipaddr 12 days ago
        Ignore until you are big enough for it to matter.
        • goenning 11 days ago
          And then the fine would be proportionally much higher. No thanks, I use a MoR to sleep in peace. Also having a single revenue invoice for accounting makes things much easier
          • rl1987 10 days ago
            Most of the startups and side projects are dead before reaching that point. When you're just starting something there are more immediate problems to worry about.
  • sudo_su_pg 11 days ago
    As a rule do not take advice on tax evasion from random strangers. This should be a quick consult with a professional.
    • seabass 11 days 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.
      • mytailorisrich 11 days 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 11 days ago
        What MoR are you going with?
        • seabass 11 days ago
          Probably LemonSqueezy or Paddle, but still looking into alternatives
          • CSharpSteve 11 days ago
            Went with Cleverbridge last year. Heard more about Paddle than LemonSqueezy
  • remyp 11 days 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 11 days 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 :)
  • meheleventyone 12 days 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?
    • seabass 12 days 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?
      • brudgers 11 days 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.

        • seabass 11 days ago
          I'm trying to figure out how people are able to earn side-income from their hobbies so commonly on this website. If I do what you suggest, a quick google shows $2,000-$5,000 per year per country for foreign tax accounting to handle things like VAT. While I agree with your points about accounting, there's also no way this is standard practice for people earning less than $100 selling software and services online to a global audience.
          • DarrenDev 11 days ago
            You need to use a reseller type company like Fastspring. There's no alternative - you either do the tax yourself or you make it so that you don't have to.

            It's an extra 5% or so, but well worth it to avoid all the work and hassle of learning about and then paying sales tax in every country and region.

            If you ever move beyond the "beer money" phase, you should be able to afford the experience required to do all this correctly using Stripe.

          • brtkdotse 11 days ago
            This has been my main gripe with the “indie hacker” flavour of entrepreneur-porn.

            If you’re doing international sales and not trusting a MoR service you’re 100% committing tax fraud in multiple jurisdictions.

            • jimkleiber 11 days ago
              I hope one day we start governing the internet like a global commons, where we have global laws that apply to global interactions here. Because if I post something for sale on the web, it is almost global/international sales by default.

              As I see it now, I have to intentionally (and sometimes through a lot of hurdles) restrict people from buying it from some countries. And then what if they use a VPN? Or I use an MoR who keeps up with all of these tax laws just because our governance is based on geographical when the internet blurs away geographical borders.

              MoR just seems like a workaround for not having global governance of a global space, but maybe that's the best way for now.

          • brudgers 11 days ago
            A person wants to do business on the cheap.

            Now they have two problems.

            All the time you have spent in this thread, could have been spent figuring out how to make enough money to make the problem go away. Money solves all business problems.

            My advice: Segment the market to avoid problems you can't afford. Because avoiding problems is the easiest way to solve problems. If you can't afford to solve the VAT problem, avoid it.

            • mytailorisrich 11 days ago
              Good points.

              I think, though that in this case @seabass may have suffered from information overload by subscribing to too many Stripe services. IMHO he got this notification about UAE tax and somewhat panicked. Frankly, the best thing to do was to be grateful for this customer and to move on instead of shooting himself in the foot by rushing to manually register for tax in a country he knows nothing about over a $5 sale. He didn't really have a problem, IMHO.

              • brudgers 11 days ago
                Serving customers who are not worth serving is a mistake.

                For most businesses that’s most people.

                The mistake is only charging $5. If it were $5000, the overhead of accountants fees, would be covered. At $50k, the fine would turnout fine.

                • mytailorisrich 11 days ago
                  My point is that it is over the top to say that the customer in this case, and many others, is not worth serving. The mistake here is panicking over nothing, though it seems a bit too late now...
                  • brudgers 10 days ago
                    Apple segments the market to avoid people who aren’t worth serving. Ferrari too of course.

                    It’s a thing successful companies do. Think of all the Japanese electronics sold only in Japan.

    • veeti 10 days ago
      Stripe doesn't do merchant of record processing.
  • BilalBudhani 11 days 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?

  • janosdebugs 11 days 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.

    • seabass 11 days 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.

      • jimkleiber 11 days 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.

  • gorillataxi 3 days 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.)
  • jimkleiber 11 days 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?