# Stripe or Paddle: who is the merchant of record, and why it decides your tax

> With Stripe you are the seller of record, so cross-border VAT and sales tax are yours. With Paddle, Paddle is the seller and files on your behalf for about two extra points. When each one is the right call.

# Stripe or Paddle: who is the merchant of record, and why it decides your tax

The short answer: with Stripe, you are the merchant of record, so you are legally the seller and you own every tax obligation in every country you sell into. With Paddle, Paddle is the merchant of record. It is the seller on the invoice, and it registers, collects and remits VAT and sales tax on your behalf.

Everything else about the comparison, including fees, checkout quality and payout timing, follows from that one distinction.

## What "merchant of record" means

The merchant of record (MoR) is the legal entity that sells to the customer. It appears on the invoice, on the customer's card statement, and on the tax filing. The MoR is responsible for:

- Charging the correct tax rate for the buyer's jurisdiction
- Registering with each tax authority once thresholds are crossed
- Filing returns and remitting collected tax
- Chargebacks and fraud liability
- Consumer-protection obligations such as refund rights

Stripe is a payment processor: it moves money. Paddle is a merchant of record: it sells the product.

## Why this decides your tax

Digital products are taxed where the buyer is, not where you are. Since the EU's 2015 VAT rules and the US *South Dakota v. Wayfair* decision in 2018, selling software across borders can create a tax obligation in the buyer's jurisdiction with no physical presence involved.

If you are the merchant of record, that obligation is yours. Concretely, selling to consumers in the EU means either registering for VAT OSS or registering in individual member states, charging each country's rate, and filing quarterly. The UK, Norway, Australia, Canada, Japan, India and a growing list of others have their own regimes and their own thresholds. US sales tax adds a per-state layer with per-state economic nexus thresholds.

Stripe Tax will calculate the right rate at checkout and, in supported jurisdictions, help with registration and filing. It does not become the seller. The liability, the registrations and the audit exposure remain with your company.

With Paddle as merchant of record, none of that reaches you. Paddle charges the correct rate, files under its own registrations, and pays you a net amount. You have one relationship, with Paddle, instead of dozens with tax authorities.

## The cost of the trade

MoR service is not free.

| | Stripe | Paddle |
| --- | --- | --- |
| Merchant of record | You | Paddle |
| Typical fee | ~2.9% + $0.30 (varies by country and method) | ~5% + $0.50 (published rate) |
| Tax registration | Yours | Paddle's |
| Tax filing and remittance | Yours | Paddle's |
| Chargeback liability | Yours | Paddle's |
| Invoice shows | Your company | Paddle, on your behalf |
| Payouts | Rolling, often ~2 days | Scheduled, typically fortnightly or monthly |

Call the difference roughly two points of revenue. Whether that is expensive depends entirely on what you are buying with it.

At $5,000/month in international revenue, the spread is about $100/month. An accountant handling multi-jurisdiction VAT registrations and quarterly filings costs considerably more than that, so the MoR is cheap.

At $200,000/month, the spread is roughly $4,000/month, and a dedicated finance function is comfortably cheaper. This is why companies commonly start on an MoR and migrate off it once revenue justifies the in-house compliance work.

## Which one to choose

Paddle, or another MoR, makes sense when:

- You sell digital products or SaaS to customers in many countries
- You are a solo founder or small team with no finance function
- The compliance burden would otherwise block you from selling internationally at all
- Predictable, delegated risk matters more to you than two points of margin

Stripe makes sense when:

- Most of your revenue is domestic, where you are already registered
- You sell B2B with reverse-charge VAT, which removes much of the collection burden
- You have or can afford tax counsel and want the lower rate
- You need Stripe's breadth: Connect, marketplaces, unusual payment methods, granular payout control

You can also use both, split by the buyer's country. This is the pattern most digital businesses converge on: your domestic market runs on Stripe at the lower fee, where you are already tax-registered; everything else runs through the MoR. You pay the premium only on the revenue where it buys you something.

CastorStack ships this routing rule as a first-class concept. The application exposes one checkout endpoint; the API resolves the provider from the buyer's country and a configurable rule (domestic, international, fallback), and signed webhooks from either provider unlock the same entitlement. The provider is a configuration detail, not a fork in your codebase.

## The mistake worth avoiding

The costly mistake is not picking the "wrong" processor. It is coupling your application to one.

If your subscription logic reads `stripe_customer_id`, your webhook handler lives in a file called `stripe.ts`, and your entitlement checks call the Stripe API directly, then switching providers means rewriting your billing layer, precisely at the moment you are busy with growth.

Model it in your own vocabulary instead: a payment provider with credentials, a checkout session you request from whichever provider applies, and a subscription that your database owns. Providers then become adapters behind that interface. Choosing Stripe or Paddle today stops being an irreversible decision, which matters because the answer will change as you grow.