Are you confused by the EU VAT MOSS requirements?
In this article, I will summarize all the research I did, as well as my recommendations if you are planning to create an online course in 2020 (and beyond).
I am also making the following assumptions:
- you already have a day job which isn’t selling online courses
- you are mainly interested in course sales as a side income
- you prefer to be compliant with tax policies 🙂
Why? Because if it is your full time business, or you have enough time to do VAT taxes by yourself, you can spend a lot of time and become compliant. Obviously there are some online course creators who do just that. But if you don’t have the luxury of spending all that time, then you should read this article.
You are probably thinking: “So why exactly should I listen to you?”
Here is why: I am a software consultant specializing in a AI powered chatbot framework called Dialogflow, and I am already selling online courses in this very technical niche for the last 3 years.
But that’s not the main reason. The main reason is that I am not trying to make money by teaching people how to make money. However, I do promote my favorite services in this article, but I also mention the pros and cons of all the products/services I am referring to. This way, you can do your own research and make your own choices.
Also, I have spent nearly 2 years researching this topic right now, and I think there are some companies who are at best paying lip service to the needs of their customers.
Finally, I am also technical enough to observe and understand what’s going on under the hood of software integrations. This can help you make more informed choices.
How come I have never heard of EU VAT MOSS requirements till now?
Don’t worry. It isn’t just you. It is nearly everyone on the planet.
I am also was a customer of Thrive themes. At the end of 2018, they were planning to launch their tool for selling online courses (Thrive Apprentice), and as part of the promotions, they made a big warning video.
If not for this apocalyptic warning, I am sure I wouldn’t have heard of these requirements either.
The gist of the video:
If you don’t know about the EU VAT MOSS requirements, you are probably already not in tax compliance. 🙂
Why PayPal and Stripe are bad choices for course creators
If you create an online course, you would obviously like to get paid. The two easiest ways right now are PayPal and Stripe. And you will see that nearly all online course platforms allow you to get paid via these two payment providers.
After all, they are both ubiquitous. So why not?
The issue is this: when you are selling online courses, it is quite likely you want to sell to people from all over the world.
Unfortunately, neither PayPal nor Stripe handle the taxes for you. You need to sign up for a third party such as Quaderno for this.
But even if you combine Stripe and Quaderno, you are still left with one more task.
You need to sign up for something called the VAT MOSS (Mini One Stop Shop).
And then take all the information from say Quaderno, and use it for filing your tax report.
Who is exempt?
If you offer live services (e.g. coaching), you are exempt from this. The EU VAT requirements adds a term called “minimal human intervention“.
Just as you might expect, it is very hard to fully figure out what constitutes minimal human intervention (versus proper human intervention – such as live coaching).
Most companies are just paying lip service
Online course companies like Thinkific suggest adding live interaction such as group or one-on-one coaching:
Here is someone from Stripe writing about this in ~March 2020 as if they just woke up from a deep slumber and suddenly realized that Stripe’s offerings are not helpful enough for customers.
The entire Stripe partner ecosystem is behaving like an ostrich
Yes, I know it is just urban myth and ostriches don’t bury their heads in the sand when they see predators. But I don’t know of a better analogy. So I will just use the old one unless someone comes up with something better. 🙂
That’s a lot of companies, over 500 at last count. By the way, good for them! I think Stripe has a great API and deserve this kind of partner ecosystem.
Now, let us only look at a small list of online course platforms which integrate with only Stripe or PayPal, and don’t actually help with EU VAT. Instead, they simply pass the burden on to their end user.
Thinkific, Podia, Kajabi, Ruzuku, AccessAlly
The actual list is much longer, this is just off the top of my head.
This is the downside of the “network effect”, because every partner in Stripe’s network is now probably non-compliant, and so are their customers. 🙂
So what should we do? Should we all just block Europe and disconnect it from the internet? 🙂
Thankfully, there is an actual “small-business friendly” solution to the onerous EU VAT requirement: the “Merchant of Record”.
Why all online course creators should understand “Merchant of Record”
But what if a company could take care of not only doing the right tax calculation, but also takes responsibility for filing your taxes with the appropriate tax entity?
That’s exactly what a Merchant of Record does.
In my view,
- not enough people know what a Merchant of Record (MOR) is
- the companies which are not MORs are doing their best to pretend that they have everything covered for you
Now, if you are just thrilled about figuring out what tax rates you should use for customers from different countries, and then making sure you sign up online for reporting this information, and you are glad to keep invoices around for 10+ years (one of the requirements of doing EU VAT) – then sure, you don’t have to use a Merchant of Record.
Then just learn about these MoR companies and see if you can use one of them.
So what happened to Thrive Apprentice from the beginning of the story?
As it turns out, Thrive Themes asked everyone to use the “only game in town” – which was apparently SendOwl. I think they successfully managed to convert a lot of people…
… to Teachable! 🙂 (see below)
The sensible options
So, with that said, here are 5 sensible options if you want to create your own online course and also be tax compliant.
Udemy is the company every course creator loves to hate. 🙂
But whether you like them or not, they are the main course marketplace in town. So you don’t have to worry about how you will let people know you have a course on topic X. The people who are searching for topic X often head to Udemy and find out for themselves.
Besides, since they are a marketplace, they completely handle all the tax reporting for VAT and are the Merchant of Record. But make sure you actually understand the downsides of using Udemy (and there are many).
If you are on Vimeo’s business plan ($240/year before tax), you can actually sell your courses on Vimeo.
Some people might be wondering if this is a good option, but I have been noticing quite a few folks selling online courses on Vimeo using the Video on Demand feature (VoD). It is very well suited for recordings of conference talks, but if your course is just videos, and not so long that the sequence is hard to follow inside Vimeo, this could be an option.
Again, Vimeo acts as a marketplace, so they handle all the tax filing and reporting on your behalf.
Gumroad is easily the best option for selling eBooks. They have an amazing checkout experience, act as the Merchant of Record, and the student experience with Gumroad is also excellent. I have purchased eBooks and courses on Gumroad, and sold eBooks and small courses on Gumroad, and I can confidently say that if your course or eBook is a good fit for it, you should go with them.
Also, Gumroad has this cool feature where you can “pre-sell” your product to first see if it has marked demand. Your customer’s credit card will not be charged until you actually release the product (they just place a hold on the card).
In addition, Gumroad also has a free plan where they take a larger cut as the sales commission. I say this is completely worth it, especially for those who are just starting out. After all, at this stage, it is quite likely you aren’t completely sure if your course or eBook will actually make any money.
The big downside of Gumroad is that it doesn’t really have a fully featured interface for selling proper online courses. And this becomes even more apparent when you compare it with the remaining options.
I used to be on Thinkific initially, and then moved to Teachable because they are a Merchant of Record.
Amazingly, Teachable was on to this very early:
Notice that they mention that you need to use their “gateway”.
Here is how it works: you need to use Teachable’s monthly payment gateway (MPG) if you want them to be the MoR. If you use the MPG, if a student buys your course on October 1st, you will receive the payment only on the week of Dec 1st.
At first, you might think that it seems a really long time to wait. However, it is only a big concern for your very first payment. After that, you will be getting payments at the start of each month and it will not seem like such a big deal.
On the other hand, using Teachable’s MPG is actually a great thing!
Here is why: there are always some people who will buy your course without reading the course description because they are in a big hurry.
And if you use the monthly payment gateway, you can issue a full refund with the click of a button as long as you do it before 30 days from date of purchase.
At some point, you will be very glad that you have this feature!
Teachable is a fully featured course platform which has a lot of bells and whistles, but they also cost quite a lot. So you should first test the waters using Gumroad (maybe sell an eBook or a smaller course) before going to Teachable.
In addition, you are almost certainly going to be slightly “locked in” with any course platform. In the case of online course platforms, lock in doesn’t mean you cannot migrate to other course platforms. It usually does mean that there is no option to “export all course materials” from one platform and “import course materials” into another. Obviously, they have no incentive to make this easy for you. 🙂 It took me a lot of effort to migrate my courses from Thinkific to Teachable. I don’t expect that it will be easy to move out of Teachable either, if I ever need to.
August 2021 Update
While I still think LearnDash in isolation is an excellent LMS plugin, the payments (which is really what this article is about) is another story altogether. I have tried different plugins for this and they are all either too expensive or don’t do the job well. So I have removed the LearnDash courses from my website and moved them to my Teachable site which lets me just put all the courses in one place.
This is probably the best option for those who are already on WordPress (almost everyone) and who are willing to do the initial groundwork.
LearnDash is an LMS plugin which doesn’t have a free version.
This is very unusual within WordPress plugins, but the quality of the plugin will be immediately apparent once you install it on your WordPress website. Here are some courses that I created using LearnDash. (note: I have removed them)
The benefits of LearnDash are literally too many to list. But I will try to list the top few.
There is no better text editor than the one provided by WordPress, even after the Gutenberg fiasco.
Note: the tweet is now quite old and things have improved a LOT.
Using the WordPress text editor allows you to write literally whatever you want into your lesson. You will eventually find that there isn’t any online course platform with an editor which can match the versatility of the WordPress editor. And this is even more true if you are teaching technical topics with lots of images, inline videos and code samples.
Open course format
LearnDash allows you to create what are called open courses. These are a series of lessons which don’t require the user to register. For example, my Step by Step guide to Dialogflow is an open course.
Assuming you are creating lessons and articles that people already want to read, this allows you to break down long tutorials into a series of lessons and can help you a) get more traffic which b) stays longer on your site and c) returns more often just because of the format.
Integrates with MoR payments
LearnDash has some plugins which integrate with Paddle, which can be your Merchant of Record. More coming on this topic soon…
More control over the user interface
For example, I prefer hierarchical comments, and use Thrive Comments for this purpose on my site.
But what if I change my mind in the future? I will just install a different plugin. 🙂
It goes without saying, but this plugin ecosystem allows for tremendous flexibility.
In summary, if you are creating an online course in 2020 and beyond, learn about the Merchant of Record options.
Who knows, maybe in 2021, Stripe and PayPal might finally be the MoR
But until then, my recommendation: don’t take any chances just go with a MoR platform.
I want to add a clarification: once your MoR platform does the tax calculations and takes responsibility for filing your taxes etc, they might still send the money to your PayPal or Stripe account. That’s fine because you are receiving money only after EU VAT etc. has been handled. You still need to pay taxes on your income in your own country, but there isn’t any additional work for you or your accountant in terms of VAT filing.
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"The magic key I needed as a non-programmer" The custom payload generator was the magic key I needed (as a non-programmer) to build a good demo with rich responses in DialogFlow Messenger. I've only used it for 30 minutes and am thrilled. I've spent hours trying to figure out some of the intricacies of DialogFlow on my own. Over and over, I kept coming back to Aravind's tutorials available on-line. I trust the other functionalities I learn to use in the app will save me additional time and heartburn. - Kathleen R Cofounder, gathrHealth