How using Stripe led to a $10000 tax fine

For many solopreneurs starting international digital businesses, Stripe payment can lead to expensive tax events. We recommend another solution instead.

Author

Jacky Wong
February 14, 2024

You just launched your latest product masterpiece. It kills it. You get 5000 users signing up. Couple people start paying you. You can feel the money rolling in. 1, 2, 3, 4 stripe notifications later, you’re laughing. Thinking about that high-rise apartment. Maybe you’ll get an ocean view. No - a city view.

But then Stripe Tax hits you. Tells you to fill out a VAT form.

Alright - just some simple tax form, right?

At the end of it, you get hit with a $10,000 penalty for not registering it.

All of a sudden- your dreams are shattered. You wish you could just give them a damn refund (like seriously) but then realize it’s not going to void the penalty.

Sounds like a nightmare right? This was the case for one unlucky indiehacker who made sales on his Chrome Extension.

Moral of the story?

If you are using Stripe for your payment processing, you’re probably unaware (or choosing to ignore) that you have quite a number of international tax forms you have to fill in.

The solution? Use Paddle/Maxio/CleverBridge where possible.

Alright - so here is a high-level breakdown of what is happening and what you need to pay attention to:

VAT is the value-added tax imposed by a country. The VAT formula is:

VAT = Price of the product or service × VAT rate

Every country calculates their VAT differently and Stripe doesn’t automatically take care of it for you because it’s not a Merchant of Record.

Enter Paddle/CleverBridge/Maxio - a Merchant of Record that handles all of the payouts automatically for you and abstracts away the sales tax.

So you can just focus on your business. It’s a no-brainer to use Paddle if you are allowed to (certain businesses won’t be able to such as consultancies/digital agencies due to Paddle not supporting different business types).

Personally? I’ve decided to ditch my stripes and start paddling.

Puns fully intended.

P.S. There’s another tax people should be care of called GDPR compliance tax. I will update with more details on avoiding GDPR compliance tax in future editions.

You can give this an in detail comparison here - https://www.paddle.com/compare/stripe

An interesting Twitter thread talking about this here -https://twitter.com/bytebln/status/1757284510171840810