Choosing the right structure (digital products with mainly EU customers)

[Offct]

I'm currently developing a digital platform and trying to determine the best way to sell access to the product, especially given that most customers will be in the EU, which means I need to account for VAT in each country.

Initially, I considered setting up a Delaware LLC because I’m familiar with it. It’s easy to manage, has reliable banking options, and several payment service providers (PSPs) support it. However, the high fees associated with Stripe have made me reconsider. Stripe charges 2.9% for regular processing, 1.5% for international cards, 1% for currency conversion, plus a $0.30 fixed fee per transaction. Resulting in 5.4% plus $0.30 per transaction, which is quite high. In contrast, an EU-based Stripe account would bring these fees down to plain 1.5% plus €0.25.

Another important factor is VAT handling. Having a European company would also make accounting for VAT simpler/cheaper.

I’ve looked into whether any payment service providers offer EU credit card processing fees to US-based companies, but I haven’t found a suitable solution. One option could be using a MoR to manage VAT, but I’m not a big fan of MoR solutions.

Given these aspects, I’m seriously thinking about setting up an EU company (maybe an Estonian OÜ). This would allow me to take advantage of lower Stripe fees in the EU and work with accountants who are familiar with VAT compliance (OSS). On the other hand, I would have higher taxes/expenses on the entity level (I am living a multi-base lifestyle, without triggering tax residence anywhere).

Any thoughts or recommendations on this?

 

[daniels27]

Initially, I considered setting up a Delaware LLC because I’m familiar with it. It’s easy to manage, has reliable banking options, and several payment service providers (PSPs) support it.

Correct. That's why the big ones use AC Irish company only for payment processing of EU orders.

Another important factor is VAT handling. Having a European company would also make accounting for VAT simpler/cheaper.

Not necessarily. You can register for the non-Union scheme
https://vat-one-stop-shop.ec.europa.eu/one-stop-shop/register-oss_enIt is pretty straight forward and easy. You only register once for all EU.

I’ve looked into whether any payment service providers offer EU credit card processing fees to US-based companies, but I haven’t found a suitable solution.

It is not allowed by Visa and Master. They only allow payment services in the country of incorporation. The only exception being Canadian companies allowed to process payments in the US.

Given these aspects, I’m seriously thinking about setting up an EU company (maybe an Estonian OÜ). This would allow me to take advantage of lower Stripe fees in the EU and work with accountants who are familiar with VAT compliance (OSS). On the other hand, I would have higher taxes/expenses on the entity level (I am living a multi-base lifestyle, without triggering tax residence anywhere).

You keep the US LLC and setup a company in any EU country that does not require audits and is easy to manage, like mentioned Estonia. This company only acts as payment processor at a 1% fee. You can probably manage it yourself, you just need an address for about 100 EUR per year.

 

[Offct]

@daniels27 Thank you for the feedback, definitely helpful!

You keep the US LLC and setup a company in any EU country that does not require audits and is easy to manage, like mentioned Estonia. This company only acts as payment processor at a 1% fee. You can probably manage it yourself, you just need an address for about 100 EUR per year.

What would this structure look like? I have several ideas, but since I never set up something like this, I am wondering what's the best solution.

Option 1: The US LLC is the sole shareholder of the EU entity. The EU entity work as the payment processor, or even better as MoR (using a fair market rate of around 5%)?
--> I am not sure how this will be seen by banks and PSPs? And of course the local legislation?
--> I think the companies have to be directly related, otherwise, the PSP would require licenses to act as PSP for a non-related company?

Option 2: The US LLC and the EU entity are not directly related (indirectly through the UBO). The money transfers will be done through a license agreement?
--> The margin of the EU entity would probably have to be higher (e.g. 20%)?

 

[cyprusbanker]

There are many thread already on OCT if you search the forum with Google it may spit out lot's of results.
enter in google

site:offshorecorptalk.com UK company as payment processor

 

[daniels27]

Maybe this one

S

Thread 'UK LLP as a payment processor (UAE) ?'

Jul 15, 2023

Hello,
I have a UAE company in free-zone. Stripe UAE works fine but.. fees are too high.

My idea is to form a UK LLP (or LTD) and receives Stripe EU (or Square) payments on Wise.

Then, I send directly the funds to my UAE company.

So the UK LLP/LTD makes no profit, as the funds go directly to the UAE company.

Is is something possible? If so, what should I do exactly? I guess it's not this easy to just send the funds from UK LLP to UAE company

• SasuT
• Replies: 6
• Forum: Offshore Company

I think it should be a subsidiary. You just keep about 1 to 2% in this company (on top of the payment gateway fees of 1 to 3%). Make sure to set up a proper agreement as @Sols recommends.

The alternative would be to have the subsidiary as merchant of record and also handle VAT but then at about 3+% margin.

 

[Offct]

Thanks for the link. Is there a particular reason, why almost all threads talk about UK LTD/LLP?
Would be curious if somebody is doing the same with an Estonian company. Since the UK is not part of the EU anymore, the Stripe payment processing fees for EU customers are quite high (2.5% + 2% currency exchange).

 

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• Replies: 4
• Forum: Marketplace

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[daniels27]

Thanks for the link. Is there a particular reason, why almost all threads talk about UK LTD/LLP?
Would be curious if somebody is doing the same with an Estonian company. Since the UK is not part of the EU anymore, the Stripe payment processing fees for EU customers are quite high (2.5% + 2% currency exchange).

The reason was that it used to be part of the EU and easy, cheap and anonymous to incorporate. However, none of the big ones ever used UK, they all chose Ireland for tax reasons.

All rules with UK have all changed. Visa and Master increased their fees a lot, they are no longer in the EU, they no longer are that anonymous. I think your choice of Estonia makes a lot of sense. From that perspective. Maybe Bulgaria, Cyprus, Malta is also worth looing into. Bulgaria is used frequently due to their cheap taxes and relatively cheap way.

I personally would recommend abstaining from both Cyrpus and Malta as those jurisdictions require audits, which will cost you way more than you would pay in taxes.

 

[MarkusCostigan]

The reason was that it used to be part of the EU and easy, cheap and anonymous to incorporate. However, none of the big ones ever used UK, they all chose Ireland for tax reasons.

All rules with UK have all changed. Visa and Master increased their fees a lot, they are no longer in the EU, they no longer are that anonymous. I think your choice of Estonia makes a lot of sense. From that perspective. Maybe Bulgaria, Cyprus, Malta is also worth looing into. Bulgaria is used frequently due to their cheap taxes and relatively cheap way.

I personally would recommend abstaining from both Cyrpus and Malta as those jurisdictions require audits, which will cost you way more than you would pay in taxes.

I confirm what Mr. Daniel said, abstain completely from Malta and Cyprus unless you have no other choice (Cyprus if you are/were Russian, Malta if you operate in Gaming (called Gaming by those wretches)).

These are really two places to forget for doing business IMHO.

 

[Dandyline]

@daniels27 Thank you for the feedback, definitely helpful!


What would this structure look like? I have several ideas, but since I never set up something like this, I am wondering what's the best solution.

Option 1: The US LLC is the sole shareholder of the EU entity. The EU entity work as the payment processor, or even better as MoR (using a fair market rate of around 5%)?
--> I am not sure how this will be seen by banks and PSPs? And of course the local legislation?
--> I think the companies have to be directly related, otherwise, the PSP would require licenses to act as PSP for a non-related company?

Option 2: The US LLC and the EU entity are not directly related (indirectly through the UBO). The money transfers will be done through a license agreement?
--> The margin of the EU entity would probably have to be higher (e.g. 20%)?

This has been discussed on the forum over and over again, but no one has ever come up with a concrete example of a setup that works. It would be helpful if someone with experience could provide an example of:

- In which countries does it not require a license?
- How are the transactions from the EU PSP company to the external company accounted for?
- How is VAT handled?

And so on.

Probably easiest to have a separate EU company with a non related UBO, which you then invoice for Marketing or License fees.

 

[daniels27]

This has been discussed on the forum over and over again, but no one has ever come up with a concrete example of a setup that works. It would be helpful if someone with experience could provide an example of:

Afaik, it is being done all the time. If you need to process larger amounts (10M+), many processors will even setup such processing companies for you. Hence, I would guess that the proper way to do it that you open a company as subsidiary for payment processing only.

- In which countries does it not require a license?

If it is a subsidiary, most likely there is no requirement. But I am not sure.

- How are the transactions from the EU PSP company to the external company accounted for?

For a $100 transaction with a client, you have

Cash in $98
Expenses $2 (what you pay to your procesor)

Cash out $97
Income $1 (what you charge your parent)

Turnover is only $1 (not more).

- How is VAT handled?

If your parent is outside the VAT regime, there is no VAT charged on the turnover of $1. Same if they are part of a VAT group, same if they are both in EU but different country, same if they are in the US (no sales tax is charged to sales tax payers with en emeption certificate).

Probably easiest to have a separate EU company with a non related UBO, which you then invoice for Marketing or License fees.

I think the subsidiary is easier in terms of regulation and licensing.

Let me check if I can find some ready to use guide.

 

[Clank]

I think the subsidiary is easier in terms of regulation and licensing.

You are right, if you don’t use a subsidiary you will need a license.

 

[Dandyline]

Afaik, it is being done all the time. If you need to process larger amounts (10M+), many processors will even setup such processing companies for you. Hence, I would guess that the proper way to do it that you open a company as subsidiary for payment processing only.


If it is a subsidiary, most likely there is no requirement. But I am not sure.


For a $100 transaction with a client, you have

Cash in $98
Expenses $2 (what you pay to your procesor)

Cash out $97
Income $1 (what you charge your parent)

Turnover is only $1 (not more).


If your parent is outside the VAT regime, there is no VAT charged on the turnover of $1. Same if they are part of a VAT group, same if they are both in EU but different country, same if they are in the US (no sales tax is charged to sales tax payers with en emeption certificate).


I think the subsidiary is easier in terms of regulation and licensing.

Let me check if I can find some ready to use guide.

Yes, if it's a subsidiary, it's easier. However, if the parent company is located in a low-reputation jurisdiction like the UAE, it defeats the purpose of having an EU company, as the EU banks and PSPs will also scrutinize the parent company, especially if the owner of the parent company (Ultimate UBO) is also a UAE resident, no?

Regarding VAT i mean OSS VAT for EU sales of digital products/services.

 

[Clank]

Yes, if it's a subsidiary, it's easier. However, if the parent company is located in a low-reputation jurisdiction like the UAE, it defeats the purpose of having an EU company, as the EU banks and PSPs will also scrutinize the parent company, no?

Didn’t have this issue with a US parent company. Not sure about UAE.

 

[Offct]

Didn’t have this issue with a US parent company. Not sure about UAE.

Since I might end up with a similar structure, may I ask, which EU country did you use for the payment processing? Did you use the EU entity solely as a PSP or also as MoR?

 

[Houdini]

I think it should be a subsidiary. You just keep about 1 to 2% in this company (on top of the payment gateway fees of 1 to 3%). Make sure to set up a proper agreement as @Sols recommends.

The alternative would be to have the subsidiary as merchant of record and also handle VAT but then at about 3+% margin.

Yup that is how it works.

 

[daniels27]

Regarding VAT i mean OSS VAT for EU sales of digital products/services.

Yes, your customers need to pay VAT. Regardless of how you set it up. If you have a payment subsidiary, you handle it with the parent company (which I would recommend).

 

[kilor]

Since I might end up with a similar structure, may I ask, which EU country did you use for the payment processing? Did you use the EU entity solely as a PSP or also as MoR?

most use a UK LTD because it's easy to work with.

 

[Dandyline]

Yes, your customers need to pay VAT. Regardless of how you set it up. If you have a payment subsidiary, you handle it with the parent company (which I would recommend).

How important is the country of the parent? For example EU subsidiary with parent in BVI.

 

[daniels27]

How important is the country of the parent? For example EU subsidiary with parent in BVI.

It does not make much difference. You just need to be able to get some banking if you need that.