When you sell software or digital products online, someone has to be the legal seller. With a payment processor such as Stripe or PayPal, that's you. With a merchant of record (MoR) such as Paddle or Lemon Squeezy, the MoR resells your product to the customer and pays you the proceeds.
What a merchant of record handles
- Charging the correct VAT, GST or sales tax for each customer's location.
- Registering for, filing and paying those taxes in each country or state.
- Handling tax audits and many compliance questions about the sale.
- Often, fraud screening, refunds and chargeback handling.
What it costs
MoRs charge more per sale. At published US rates, Paddle and Lemon Squeezy charge 5% + $0.50, against Stripe's 2.9% + $0.30.
Stripe rate
2.9% + 40% × 1.5% + 0.5% taxequals4%
Stripe per month
($49.00 × 4% + $0.30) × 200equals$452.00
Paddle per month
($49.00 × 5% + $0.50) × 200equals$590.00
Lowest
Stripeequals$452.00
Here the cheapest MoR costs $138 a month more than Stripe with Stripe Tax. The question is whether that is less than the cost of doing tax yourself.
Who benefits most
- Small teams selling digital products to many countries, where VAT registrations multiply quickly.
- Founders without an accountant familiar with international digital tax.
- Businesses where time spent on compliance is worth more than the fee difference.
Larger companies, or those selling mainly in one country, often prefer a processor plus a tax tool, because the lower rate adds up at volume.