Having a company with which to legally avoid taxes is fine, but what good is it if your customers can´t pay you?
Today we are going to talk about several ways in which to charge our clients, no matter where our company is located.
You will find several solutions to the VAT problem in the EU, information about sales platforms (you’ll even find a brief comparison), creating a subsidiary company for the payment procedure and how you can take money out of your paypal account without going bankrupt.
Distributors, intermediaries and sales platforms
Using sales platforms has different advantages, one of the main ones being that they allow us to forget about the absurdity of VAT in the European Union, since they are responsible for charging it (you can read about the VAT on digital products).
Of course, and as we will see further on, the main advantage of payment platforms is also its biggest problem.
Intermediating platforms are responsible for collecting the appropriate VAT according to the consumers country of residence, to keep data if at any time any State requires it, and to pay the VAT to the corresponding State.
The entrepreneur who uses these payment platforms simply receives their commission without any VAT. In addition, these platforms are usually quite open to receiving offshore companies as customers, companies that usually have greater difficulties in contracting a virtual POS service or some other type of payment gateway for card payments.
Intermediaries not only deal with charging VAT, but also often offer other additional services that can come in handy to online businesses. They offer affiliate systems for example, options of cross selling, upsells, downsells, joint ventures and many other ways of keeping track of your customers and contacts.
These platforms allow you to set your sale up in a flexible manner and are responsible for processing the payment.
If you dont want to spend time dealing with the different forms of payment collections, this is a very good option that allows you to accept payments from your customers with Visa, Mastercard, Paypal, bank transfer, immediate payments and bank charges.
Of course, this isn´t all free, these intermediaries usually require a commission for each sale that is often between 8 and 10%. Generally, you dont have to pay any fixed monthly rate, although in some cases you do.
Undoubtedly, in many cases these are worthwhile services despite the high commissions involved, but you may prefer to look for other alternatives depending on your turnover. Thus, with payment gateways such as Stripe we can lower commissions up to 1.4% to 3%.
If you obtain a certain amount of turnover it will undoubtedly be preferable to manually process the charges and the VAT, taking advantage of the MOSS scheme (mini one-stop shop) .
And so we come to the big problem of intermediaries (in addition to the fact that some of them have very high commissions). Unfortunately, they don’t give you the option of not charging VAT on the sales you make through them.
If you register as a resident company outside the EU, the platform will always add VAT on sales. This will continue to be the case with non-automated digital products (consultations, coaching and the like), in which case VAT from the consumers country is not charged.
Therefore, in the case of Tax Free Today for example, we are currently selling e-books (we will probably change this in the near future) through intermediaries such as Digistore or Elopage, but the consultancy service is charged through Sendowl and paypal instead, platforms that dont automatically add VAT.
Apart from the monthly payment to Sendowl and the commission for the payment gateway with Paypal of approximately 2%, there are no other costs. I.e. at the end we receive 98% of what has been paid instead of 70% if we used an intermediaries platform.
Currently, as far as I know, there is no sales platform willing or technically capable of including a differentiation for non-automated digital products.
As soon as you register on the platform you will have to consider the VAT of the products you sell.
Some people apply certain tricks to avoid this. For example, some enter an intra-European VAT number to receive the full amount, something that in principle would requiere you to pay the tax to the corresponding State Something you should do if you dont want to break the law.
That said, what sales platforms are there? You will find a comparison of the most common options below.
A brief comparison of sales platforms
Digistore is a well-known German platform for the sale of digital products. It offers all the features you need for affiliate marketing and so on. Digistore is very open, meaning that even the strangest of offshore companies can register there and can very easily receive the money in an account of their choice. Each product that you sell there has to be checked and confirmed by Digistore, which can easily cause delays in the products launch due to formal errors. Digistore charges 7.9% of the gross price + €1 per transaction and doesn´t have a base rate.
Elopage: This is a young and dynamic Berlin start-up that has been launched to compete with Digistore. Its features are not as sophisticated in comparison with Digistores, but their customer service is much better. In the case of Powerseller accounts (the only option available for companies outside the EU) Elopage charges 7.5% + €0.50 per transaction. For EU companies that deal with VAT themselves, there are cheaper options.
Moohpay: A very simple provider that you set up on your website using a WordPress plugin. Apart from dealing with the automatic collection and processing of VAT, you only have one system of multilevel affiliation. Rates depend on the price of the product and range between 10 and 6%.
Bamazoo: One of the few English platforms I know that deals with the automatic payment of VAT. In terms of functions its exactly like digistore, but their comissions are almost twice as much. They retain 15% per transaction.
Clickbank: Probably the best English alternative when automatically collecting and processing VAT. It offers an excellent affiliate service and many other possibilities. The price is similar to that of the German providers: $50 one-time payment + $2.5 for each withdrawal made and 7.5% + $1 per transaction.
Of course, there are many other platforms where you can sell digital products. But despite having the tools to register, calculate and correctly process VAT, they dont actually deal with processing the payment to the authorities themselves.
This may be of relevance in the sale of non-automated digital products in which you might not have to charge VAT, such as with consulting and coaching, for example. You have a non-exhaustive list of some of these providers and their rates here.
As we´ve mentioned before, we use SendOwl in Tax Free Today. This is a simple payment service provider that you can currently link directly to your Paypal, Stripe or BitPay account. The monthly price including all the upsell features and affiliate system costs around €29 per month. Undoubtedly, it facilitates the sale of VAT-free services such as consultancy and coaching.
Solutions to charging the client when your company is located in the “wrong country”
Apart from having the options of sales platforms or intermediaries as we previously discussed, you can also use payment gateways such as Paypal, Stripe, Skrill, Google Wallet and Amazon Payments among others (payment gateways are a topic that would certainly allow for a future comparative article in Tax Free Today …).
The biggest problem with these payment gateways is that they work differently around the world. In this way, Paypal and Stripe have major limitations in certain countries, especially in offshore jurisdictions.
Stripe only offers its services in 25 countries. You have much more variety with Paypal, but with certain limitations in its functionality, high rates and limited options to withdraw funds.
How to withdraw money from your Paypal account or avoid Paypal altogether
Paypal doesnt allow you to withdraw funds as you wish, it only gives you the option of transferring your money to bank accounts within the country where your company’s headquarters is located or where you yourself reside.
You can also usually transfer funds to a US account. Although sometimes you cant even do this and you have to transfer the money to a VISA card of the country for which you have opened the Paypal account.
Many readers have written to us from countries such as Panama, Paraguay and Nicaragua, describing the problems they´ve had trying to withdraw money from their Paypal account.
In these countries (and many more, because the list is long) you cannot transfer funds from Paypal to a bank account in the same jurisdiction. In these cases, you need a bank account in the USA.
I.e in these cases you have to go to the United States in person and open a private account (we know you cant open a bank account in the USA online, but if you have found a way tell us about it in the comments or write to us). They convert it into dollars there (with the consequent loss of value to the change) and you can then withdraw it or transfer it from that account.
In principle you could also open several accounts with Paypal and move the money from your offshore company to a private account (or as a company but in another country), but the commissions would be very high in this case.
Another option to avoid Paypal is to look for a provider that offers virtual point of sale terminals (POS). According to your turnover, business model and the country in which your company and bank account is located, this will be more or less difficult and will more or less make sense.
There are some high-risk suppliers that also offer their virtual POS services to offshore companies and businesses in the adult sector, gambling and dietary supplements.
The rates in these cases can be very high, even higher than with intermediaries or sales platforms, which will surely lead offshore companies to select one of the sales platforms mentioned above, even though they automatically charge VAT.
Another alternative to Paypal is Stripe. This service can be used in some jurisdictions with tax-free non-national income, such as the USA, Canada, Hong Kong, the United Kingdom and Ireland.
Therefore, setting up an Ltd, LP or LLC in Hong Kong or in one of the other countries could be the perfect solution, depending on your turnover and country of residence.
And last but not least, you can also choose to solve the problem with a business structure for the payment collection that allows you to transfer the tax-free money to the parent company, developing a business in a country that allows you to use all the advantages of your favourite gateway payment, i.e, you can use an affiliate to process your payments in the European Union or any other part of the world.
An affiliate or subsidiary for the payment process
As we previously mentioned, creating a business structure in order to facilitate the payment process can be worthwhile. Well, there is a trick that any offshore company can easily and cheaply apply in order to use Stripe, Paypal and many other payment gateways (use them and not have any problems withdrawing money, of course).
This trick is not only for the sale of digital products, but can also be used if you sell services or physical products. It especially might be worth it if you have a dropshipping business.
As we explained before, there are certain tax-free business structures that allow you to use Stripe at acceptable commission rates. Specifically, you could set up a company in England, which is one of the fastest and easiest places to set up a business.
An LP costs around 100 pounds, and doesnt pay taxes as long as it has no income in the United Kingdom (the same as with the Canadian LP, but establishing a company in Canada is much more expensive).
The English LP acts as the intermediary organisation for the partner, that at best is a tax-free company. The Limited Partnership may be held by one or several partners. To ensure that this model works smoothly, its essential that the LP and the offshore company have exactly the same name.
So, we could have a Limited Partnership in the United Kingdom that is 100% owned by a company in Cyprus for example (you can’t use Stripe from Cyprus). The LP is registered with a payment gateway like Stripe and receives the payments.
The payments however are not transferred to the LP account, in fact, you may not even have an account. The payments go directly to the company account of the Cypriot business.
I.e. the LP simply acts as a subsidiary for the payment process, on behalf of the offshore company. To ascertain that you could sign an agreement for the transfer of profits between the parties. If the LP doesnt have a bank account, it could be recognised as “dormant” by the United Kingdom authorities.
In this case, the LP wouldnt be able to issue invoices, something that could otherwise come in handy if you have an offshore company.
With your English subsidiary you could issue invoices that your European customers would easily deduct tax from, without you having to retain anything (remember that if you make a B2B invoice from Panama to Spain for example, the Spanish company will ask you to withhold 24%).
If you also want to use the LP for this, the company will have to have its own bank account and transfer a large part of the tax-free profit. For its part it should receive a small commission of 5 to 10%.
If the invoices are issued by the parent company, the English company can also be left in a “dormant” state, which will save you administrative work and having to maintain accounts.
Of course, you can also choose to set up your company in other jurisdictions. So, you could set up a Delaware Corporation for example, a company that doesn’t pay taxes as long as you don’t live in the US and don’t have any employees or real office there.
So, what is the best solution for charging your customers?
As we have seen, the issue of charging our customers can cause us many problems, but there are also many solutions. Its important that you remember that you´re requiered to charge VAT if you sell virtual or physical products in the European Union.
Ultimately, it’s a question of numbers. If you have few sales, the best thing to do is to take advantage of the services of a sales platform.
If you have more sales and you can get good prices, you might be interested in a sales platform that doesnt deal with processing VAT or a virtual POS, however, in both cases you will have to deal with charging the VAT according to the country of residence and transfer it to the appropriate country if you are selling automated virtual products.
Another relatively inexpensive option is to use a payment gateway such as Paypal, Skrill or Stripe.
And when you have enough sales, especially if you dont have good conditions with the provider of the payment gateway or the virtual POS in the country where your company is located, your best option is usually to create a subsidiary in another country to process payments from there.
Now, if you want to talk to us about your specific situation or you want us to help you, you can leave a comment, write to us or arrange a consultation.
Because your life is yours!