How a merchant of record works
When you sell through a merchant of record, the MoR is the seller on paper. Your customer's card statement shows the MoR's name, the MoR issues the invoice, works out and collects the right sales tax or VAT for the customer's location, files and pays that tax, and handles refunds and chargebacks. You receive a payout of your sales minus the MoR's fee.
The alternative is to be the merchant yourself: you sell under your own name through your own payment gateway account, and a billing system runs the subscriptions and invoices. You keep the customer relationship and the payment account, and tax registration and filing where you owe it are yours, usually with a tax tool or an accountant.
The choice is a trade. A merchant of record takes on tax compliance for a percentage of revenue; your own account usually costs less per sale and keeps you in control, but the compliance is your job.
Worked example
You sell a $100 plan to a consumer in Germany, where the standard VAT rate is 19%.
- Customer pays: $100 + 19% VAT
- $119
- Through an MoR: the MoR files and pays the VAT
- $19
- Through an MoR: you receive $100 minus the MoR's fee
- $100 less fee
- Your own account: you file and pay the VAT
- $19
- Your own account: you receive $100 minus the gateway's fee
- $100 less fee
The tax is the same either way. What changes is who is legally responsible for it, whose name the customer sees, and what the service costs.
Why it matters who the merchant is
Being the merchant decides who owns the customer relationship: the name on the receipt, the payment account, and the saved payment details you would need to move to another provider later.
It also decides what you pay. A merchant of record charges a percentage of each sale for taking on tax and liability; a billing engine on your own payment account usually charges a flat or lower fee and leaves tax to you. As revenue grows, the difference grows with it.
Common mistakes
- Assuming a merchant of record is simpler in every way It is simpler for tax. Leaving later means moving your customers' payment details, which depends on what the merchant of record allows.
- Assuming your own account means no tax work Selling under your own name means registering and filing where you owe tax. Plan for it before you sell across borders.
- Comparing fees without comparing scope A merchant of record's fee usually includes tax handling and payment processing; a billing platform's fee does not include your gateway's processing. Compare the full cost.