COREDO – EU Legal & Compliance Services Expert legal consulting, financial licensing (EMI, PSP, CASP under MiCA), and AML/CFT compliance across the European Union. Headquartered in Prague, we provide seamless regulatory solutions in Germany, Poland, Lithuania, and all 27 EU member states.
Pavel Kos
14.03.2026 | 6 min read
Updated: 14.03.2026
Since 2016 I have been heading COREDO and, together with the team, helping entrepreneurs from Europe, Asia and the CIS build sustainable international structures. During this time we have carried out hundreds of company registrations in the EU, the United Kingdom, the Czech Republic, Slovakia, Estonia, Cyprus, Singapore and Dubai, obtained dozens of financial licenses and built comprehensive AML frameworks for different markets. The most frequent strategic question today is how to choose between Merchant of Record (MoR) and the agency model. The issue affects taxes, Licensing, access to payments, compliance burden and the overall economics of the product.
Below I have systematized COREDO’s practice: where MoR wins, where the agency model is advantageous, what risks to consider, how to prepare for tax and AML audits and how to structure agreements to control liability and costs. The article has become a practical guide: no fluff, with examples and actionable checklists.
Merchant of Record or agency model
The choice of architecture affects three layers: legal liability, the tax base and operational processes. In the MoR you effectively become the seller to the customer: you issue the invoice, act as the merchant with the acquirer, and take on VAT and chargeback liability. In the agency model you act on behalf of the principal, receive a commission, while the legal and tax role of the seller remains with the principal.
Our experience at COREDO shows that companies that model MoR vs agent in advance, taking into account permanent establishment (PE), VAT, AML, PSD2 and operational KPIs, enter new markets faster and spend less on rework. Those who start “however it turns out” pay with time and money for redoing contracts, recalculating taxes and resigning contracts with PSPs.
Merchant of Record / agent / commissionaire / payment facilitator
MoR accepts payments as the seller: the Merchant of Record appears on bank statements and receipts. This gives control over refunds, interchange rates and consolidated PSPs, but transfers responsibility for KYC/KYB/KYT, AML monitoring and PCI DSS in full.
Agency scheme: it is a contract where the principal sells a good or service, and the agent finds customers and accepts payment on behalf of the principal. A commissionaire is similar in substance but acts in its own name. The difference is critical for VAT and PE risk. A separate variant: payment facilitator: it connects sub-merchants to an acquirer and distributes payouts. Essentially this is not a MoR, but an infrastructure intermediary with its own compliance framework.
Legal liability and risks
With MoR all consumer and payment communication is concentrated with you. The legal mechanism for transferring responsibility for customers is simple: you are the seller under the contract with the buyer, and the supplier is your principal or counterparty under the principal-seller model. Such a structure gives control over the refund policy, dispute management and the storage of data under PCI DSS.
In the agency scheme legal liability to the buyer lies with the principal. The agent is liable to the principal for proper performance of the mandate, the quality of KYC/KYB, the correctness of invoices and the distribution of funds. COREDO’s practice confirms: a clear delineation of responsibility in the contract reduces the risk of consumer disputes and tax claims.
Merchant of Record: liability
MoR is responsible for refunds and chargeback liability. The COREDO team establishes a dispute management procedure for clients: response deadlines, document templates for Visa/Mastercard, evidentiary basis for delivery/provision of services and rules for partial refunds. Such a procedure reduces the share of chargebacks and keeps payment scheme metrics in the «green zone».
Risks of the commissionaire arrangement
The main risk is the transformation of the agent into a dependent agent permanent establishment. Under OECD BEPS Action 7 a dependent agent creates a PE if they actually conclude contracts or play a key role in concluding them. The solution developed at COREDO is to limit the agent’s powers in the contract, to record the absence of the right to final approval of price and terms, and to implement operational barriers: separate domains, contracts signed by the head company, CRM audit logs.
MoR and agent taxes: VAT and withholding
The structure affects VAT, corporate tax, DST and withholding at source. It is important to look at the economic nexus, marketplace facilitator laws, sales tax nexus and local rules for registering a tax agent.
VAT for the Merchant of Record: who pays
Who pays VAT when using a Merchant of Record? The answer is simple: the MoR, if it sells to the end consumer. For B2B within the EU the reverse charge mechanism applies when the buyer has a valid VAT number. For distance sales across the EU VAT OSS applies, and for imported goods below the threshold: IOSS. The COREDO team configures IOSS and OSS so invoices are generated automatically and reconciliation is done by country and rates. Economic nexus in certain countries determines the obligation to register even without physical presence, so we run PE risk assessment and VAT screening simultaneously.
Taxation of e-commerce: MoR and DST
The digital services tax (DST) operates in a number of jurisdictions and is levied on revenue from digital services. E-commerce taxation with MoR depends on the nature of the services: SaaS, licenses, media content. We analyze critical DST thresholds, determine whether OSS or local VAT registration applies, and model fee rates through CRM analytics.
Withholding tax on commissions and royalties
In an agency scheme the principal’s country may withhold withholding tax on commissions. Plus: royalties for IP, if the agent uses a brand or software. We apply provisions of tax treaties (tax treaty dependent agent provisions), verify beneficial ownership and prepare residence certificates. This approach optimizes withholdings and removes the risk of gross-up.
Transfer pricing and agency commissions, APA
Transfer pricing and agency commissions are an area of increased attention. The COREDO team documents allocation of profits, comparability of commissions with market levels, prepares transfer pricing documentation and, if necessary, initiates an advance pricing agreement (APA). Such a package reduces the risk of adjustments and fines following cross-border VAT audits and corporate inspections.
MoR creates PE under the agency model
MoR creates a tax presence (PE) in another jurisdiction if economic substance is formed: an office, staff with authority, a warehouse, a permanent place of management of sales. We fix the boundaries of activity, build substance in friendly jurisdictions (for example, Cyprus, Estonia, Singapore, Dubai) and document the absence of PE in complex countries through a PE risk assessment package and operational policies. For the agency model we apply a commissionaire arrangement and stipulate in the contract a prohibition on final approval of contracts, confirming this with workflow logs.
Compliance matrix for two models
In AML the winner is always whoever builds a risk-based approach (RBA) and automates controls. For the MoR the burden is higher because the merchant is the first recipient of funds. For the agent, the focus is on the principal’s KYC/KYB and transaction monitoring.
AML requirements for Merchant of Record
AML requirements for the Merchant of Record include customer identification (KYC/KYB), transaction monitoring (KYT), sanctions screening and the obligation to file a suspicious activity report (SAR/STR). Best AML practices for a merchant intermediary (MoR) that we implement: client risk profiling at onboarding, biometric KYC, payloads via API to screening providers, automated sanctions screening with false positive management, EDD for PEPs and high-risk countries. The Compliance Officer for the MoR monitors suspicious pattern scenarios: spikes in chargebacks, layered transactions and unusual refunds.
KYC/KYB responsibilities in the agency model
In the agency model KYC duties are often split. The agent verifies the principal and monitors transactions in its part of the chain, while the principal is responsible for the end customer. How to organize data exchange for AML between the agent and the seller? We stipulate in the contract the API format, the data set (ID profiles, risk scores, results of sanctions checks), SLAs for responses and audit rights. Such an exchange removes regulatory questions and speeds up investigations.
EDD, sanctions screening and SAR/STR
Increased attention to PEPs and complex beneficial ownership structures is the industry standard. In COREDO projects I insist on e-KYC with biometric checks, beneficial ownership registers, continuous sanctions monitoring and a clear STR/SAR procedure. We create a playbook with escalation triggers, a roles matrix and a decision log so that any AMLD5/AMLD6 and FATF review goes smoothly.
Impact of PSD2, EMI, PCI DSS on payments
PSD2 and payments regulations shape requirements for access to acquiring, SCA and APIs. In the MoR the area of responsibility includes PCI DSS, storage and protection of card data, as well as agreements with acquirer/issuer via a PSP. In the agency scheme some requirements fall on the principal or the payment facilitator. COREDO’s solution is to assess whether electronic money institution (EMI) status or a payment institution license is needed, and to select a PSP taking into account the geography of risks and the MCC portfolio.
Payments and Registries Architecture
Business resilience is built on operational discipline. Refunds, reconciliation, invoicing and record keeping directly affect taxes and compliance.
Refunds, chargebacks and dispute management
Responsibility for refunds and chargebacks in MoR is covered by regulation: pre-sale notification, digital signing of terms, proof of delivery, a final cut-off for returns and a discount system as an alternative to a full refund. The COREDO team implements a dispute playbook and integrations with acquirer platforms so that response SLAs are predictable.
Reconciliation, invoicing and VAT recovery
We build a three-tier reconciliation: payment gateway, PSP/acquirer, bank. We synchronize invoicing with VAT OSS/IOSS, country-by-country reporting and VAT recovery. We meet record keeping requirements with a centralized archive with an immutable audit trail. In the agency model we separate registers for commissions and withholdings so that withholding tax and taxes on commissions are reflected in reporting without gaps.
Data protection (GDPR) and audit rights
GDPR is critical for both models. I insist on data minimization, privacy by design and clear DPAs with PSPs and AML tech providers. Contracts include control and audit rights so the finance department can audit providers, and compliance can verify the accuracy of sanctions screening.
Market entry into the EU, the UK, Singapore and Dubai
Each market dictates its own set of registrations, substance and licenses. COREDO conducts a pre-mortem: we model PE, VAT, payment regulations and sanctions risks before launch.
Economic substance and registration
Economic substance is not about a “PO box”. An office, a local director with authority, payroll and real operations establish tax residency and reduce BEPS-related claims. The COREDO team registers companies, establishes substance and cross-border corporate tax registrations, including UBO registers and corporate policies.
VAT/OSS/IOSS registration
For e-commerce in the EU we set up OSS/IOSS; in the UK: local VAT registration and import VAT rules. Marketplace facilitator laws in some countries remove the obligation to collect tax from the seller and shift it to the platform. In such scenarios we check who acts as the MoR: you or the marketplace.
DST, sales tax nexus and reverse charge for B2B
We assess DST together with the sales tax nexus in countries where a retail sales tax applies. For B2B we apply the reverse charge to reduce excessive cash-out. All parameters feed into the product tax matrix and are updated with releases.
COREDO cases: what worked
COREDO materials collect real cases that show what worked in practice when promoting digital products. Below: concrete examples: subscription SaaS and a MoR + LSI strategy for the EU and United Kingdom markets.
Subscription SaaS MoR LSI EU/United Kingdom
Client – a SaaS provider with subscriptions in euros and pounds. We proposed a hybrid: Merchant of Record in the EU via a local company with OSS and LSI billing infrastructure to invoice according to local rules, and in the United Kingdom: a separate VAT registration and a local merchant account. AML setup: e-KYC, sanctions screening and EDD for enterprise clients. Result: reduced CAC thanks to local payment methods, increased LTV through transparent refunds and fewer declines due to SCA.
Agent model for a fintech platform without PE
The client needed to keep development and sales in one country, while collecting payments in the EU through an agent. We built a commissionaire arrangement, limited the agent’s authority, moved contract signing to the parent company and documented this in the CRM and templates. Transfer pricing documentation and an APA fixed the commission level. The tax authority recognized the absence of a dependent agent PE, and the business scaled without additional tax assessments.
Cross-border: licenses and PSP access
A company from Asia entered the EU with a payment facilitator model. The COREDO team prepared an EMI license package in a friendly EU jurisdiction, set up PSD2 compliance, PCI DSS and KYC/KYB/KYT with automated sanctions screening. A consolidated PSP portfolio reduces operational risks, and the responsibility matrix between MoR clients and the payfac is transparent to the regulator.
Agency agreement and MoR contract
In contractual structures concerning the agency agreement and the MoR contract, a clear allocation of risks and responsibilities between the parties is especially important. Let’s look at how to properly draft allocation of liability, indemnities, warranties and limitation of liability to reduce the likelihood of disputes and limit the financial consequences.
Liability, indemnities and warranties
The MoR contract should include a clear allocation of responsibility for KYC/KYB, chargebacks, information obligations, PCI DSS and data breach. Protection tools – indemnities for AML breaches/sanctions, warranties on data quality and a limitation of liability agreed in line with the chargeback risk. In the agency agreement we establish that there is no authority to sign on behalf of the principal and describe the limits of marketing representations.
Control, audit and data exchange in AML/GDPR
We always build in audit rights, control KPIs, a technical scheme for data exchange and an incident procedure: payment blocking, regulator notification, recovery plan. Such a ‘skeleton’ contract speeds up KYC with banks and simplifies the evidential base during inspections.
Pricing: commissions, transfer pricing
We align the agent’s commissions and MoR markups with market comparables. The documentation records the comparability methodology, allocation of costs for AML tech, PSP fees and expense calculations. This satisfies auditors and reduces the risk of adjustments.
How to respond to tax audits
Tax audits and incidents require a company’s fast, calibrated and documented response to reduce financial and reputational risks. Below is a step-by-step guide on how we respond to an MoR tax audit, indicating priority actions, required documents and allocation of responsibilities.
Responding to an MoR tax audit
COREDO practice: 1) rapid collection of registers for OSS/IOSS and VAT, 2) export of invoices and evidence of rate allocation, 3) demonstration of the economic nexus logic, 4) transfer pricing pack and residency confirmations, 5) negotiation stance and written clarifications. This sequence reduces the intensity of the dispute and moves the audit into a technical, process-oriented realm.
Incident response: payment blocking
In the event of sanctions alerts or payment blocks we act in three steps: routing freeze, enhanced sanctions screening with manual validation, notification of the regulator if the threshold is reached. Internal controls: segregation of duties, decision log and independent second-line review. This approach maintains banks’ trust and ensures continuity of service.
ROI, CAC/LTV and cost of compliance
A proper assessment of a solution’s economics includes key indicators — ROI, the CAC/LTV ratio, and consideration of the cost of compliance — which together determine the real benefit of implementation. In the following subsections we will examine ROI metrics in detail when switching to MoR compared to operating through an agent, to compare the financial and risk effects of such a solution.
ROI metrics: MoR vs agent
We calculate ROI by modeling: payment conversion, interchange, PSP fees, VAT leakage, chargeback rate, and cost of compliance as a % of revenue. ROI metrics when moving to a Merchant of Record model include the impact on CAC (due to local payment methods and trust) and growth in LTV thanks to managed refunds and service quality.
Cost of the compliance structure and its scalability
The cost assessment of a compliance structure for MoR is higher due to KYC/KYB/KYT, PCI DSS and reporting for SAR/STR. In the agent model expenses are lower, but the risk of PE and withholding tax increases. The COREDO team builds scalability scenarios: how compliance grows together with GMV, what the benchmark for cost of compliance is for your niche, and where it is more advantageous to outsource compliance without losing control.
Impact on processes and resources
We design operational workflows in advance: reconciliation, refunds, invoicing, VAT reporting, management of local registrations, monitoring of marketplace facilitator laws, cross-border refunds and VAT treatment. Such a plan reduces the burden on finance and IT, and also speeds up new releases.
COREDO roadmap from diagnosis to launch
Our step-by-step roadmap from COREDO will guide you through the key stages: from a thorough diagnosis to the final project launch. In the first block we will focus on PE risk assessment, as well as on licensing and registration, to neutralize legal and operational risks before the start.
PE risk assessment, licensing
We start with PE risk assessment and tax mapping: VAT/OSS/IOSS, DST, sales tax nexus, withholding on commissions, corporate registration. If a license is required (EMI, payment institution, VASP), we build the roadmap and design substance. Registration of a tax agent and related obligations are included where this speeds up time-to-market.
Creating AML frameworks and selecting providers
We select screening providers, implement e-KYC/biometric solutions, build KYT rules, set up sanctions screening automation and false-positive management. We train the Compliance Officer, define EDD criteria, establish SAR/STR procedures and test stress scenarios with chargeback spikes and layered transactions.
How to prepare for go-live and audits
Before launch we check PSD2 compliance, PCI DSS obligations, DPA and GDPR, update UBO registers and audit rights. After go-live we enable KPI monitoring: CAC, LTV, GMV, share of successful payments, chargeback ratio, cost of compliance. For taxes we conduct quarterly mini-audits and prepare a package for possible cross-border VAT audits and tax audits: invoices, VAT recovery, transfer pricing and explanations on allocation of profits.
Legal limitation of tax liability MoR
In MoR I recommend three layers of protection: 1) a clear principal-seller contract allocating the tax role and supplier warranties, 2) economic substance in a friendly jurisdiction with transparent governance, 3) transfer pricing documentation and, if necessary, an APA. Additionally, professional liability insurance and a detailed internal controls regime with an audit trail help.
Taxes and AML for SaaS via MoR and LSI
B2C subscriptions require VAT OSS/IOSS, SCA, and robust dispute management. In B2B, reverse charge and customer status verification are important. For LSI (local seller infrastructure) we set up a local invoicing scheme, connect local payment methods, and configure KYC/KYB/EDD according to the requirements of each country. This approach provides an economic balance: low CAC and high LTV with controlled compliance costs.
Risks of sanctions and PSP blocks
We allocate the risk of sanctions in cross-border sales between automated screening and manual high-risk checks. We reflect the tax consequences of consolidated PSPs and MoR in the accounting of fees and VAT: a single provider simplifies reconciliation but requires a clear contractual delineation of roles and licenses. The COREDO team designs the payments architecture so that the PSP portfolio enhances resilience, and the MoR/agency model remains manageable.
Key takeaways
The choice between Merchant of Record and the agency model is not about ‘more convenient’ or ‘simpler’. It’s about the strategy for managing taxes, compliance, and product economics. MoR gives control over the client, payments and refunds, but requires mature AML, PCI DSS and a well‑thought‑out VAT architecture. The agency model reduces operational burden but increases the importance of the correct contract, transfer pricing and managing PE risk.
COREDO’s practice confirms: a systematic approach wins. I recommend starting with a risk map for PE and VAT, modeling ROI over a 12–24 month horizon, assigning responsibility in contracts and building AML on automation with a strong Compliance Officer. In this format company registration in the EU, the UK, Singapore and Dubai, obtaining financial licenses, and setting up PSD2 and AML turn into a clear project with timelines, metrics and a predictable outcome.
If you are preparing to enter a new market, want to reassess the MoR/agency architecture or are looking for partnership on licensing and AML, the COREDO team has already built solutions that work in Europe, Asia and the CIS. I always support open dialogue, clear plans and accountability for results: this is how long‑term partnerships and scalable business models are born.
Checklist for entrepreneurs and executives
Below is a short action plan that we use in real projects. It helps quickly assess risks, choose a Merchant of Record (MoR) or an agency model, and implement basic controls for VAT, AML and contracts without losing launch momentum.
- Model and risk diagnostics. Describe current and target flows of money and data: who invoices, who actually accepts payment, where VAT/OSS/IOSS applies and who holds chargeback liability. Document signs of PE, economic nexus for digital services, and outline who pays VAT when using a Merchant of Record, and where reverse charge applies.
- Architecture selection: MoR vs agent/commissionaire. Match control over payments, currency flows, sales geography and licensing (PSD2, EMI) with the compliance budget and legal readiness. Check whether a hybrid is preferable: MoR in “complex” B2C countries and agent/commissionaire in B2B and markets with high PE risk.
- Tax contours: VAT/OSS/IOSS, DST and withholding. Prepare a registry of jurisdictions, rates and economic nexus triggers, as well as potential withholding at source on the agent’s commission. Determine where local VAT registration is required and how you will document VAT recovery and allocation of profits.
- AML architecture and RBA. Define who performs KYC/KYB and KYT in the chain, how sanctions screening is split and who files SAR/STR. Implement risk segmentation, EDD for PEP/high-risk cases, and specify SLAs for data exchange between the principal and the agent.
- Contracts and evidence base. Recheck clauses: indemnities for AML/sanctions, warranties on data, limitation of liability, allocation of responsibility for chargebacks, GDPR/DPA and control and audit rights. To reduce dependent agent PE, limit the agent’s powers, separate domains and the final signing of contracts.
Recommendations for choosing partners and providers:
- PSP/acquirer. Look for a balance of geography, MCC tolerance and cost, as well as support for SCA and local payment methods. Ensure the PSP understands your MoR/agency setup and grants audit rights and a correct split-fee structure.
- KYC/KYB/KYT and sanctions screening providers. Choose solutions with an API, false-positive management and coverage of major sanctions lists and PEPs. Check data storage, GDPR DPIA and availability of evidentiary logs for regulators.
- Local tax and legal advisors. They are needed to confirm positions on VAT/DST/withholding and local marketplace facilitator laws. Synchronize their conclusions with your transfer pricing policy and TP documentation.
30/60/90-day template: launch of controls and registrations:
| Timeframe | Key actions | Responsible parties | Artifacts/Outcome |
|---|---|---|---|
| 30 days | PE/VAT/DST screening, model selection (MoR/agent), draft contracts and DPA | CFO, Head of Legal, Tax Lead | PE risk memo, VAT matrix, MoR/agency templates |
| 60 days | VAT/OSS/IOSS registration, integration of KYC/KYB/KYT, setup of sanctions screening | Tax Lead, Compliance Officer, CTO | VAT numbers, e-KYC flow, AML policies and logs |
| 90 days | Go-live with PSP, PCI DSS scope reduction, launch of dispute playbook and quarterly mini-audit | COO, Compliance Officer, Payments Lead | SLA with PSP, PCI attestation, KPI reports and SAR/STR procedures |
KPI and control metrics:
- Tax and compliance: cost of compliance as % of revenue, time to close VAT reporting, number of jurisdictional filings, share of successful VAT reclaims. For AML: share of completed KYC without escalation, average EDD time, ratio of SAR/STR to transaction volume.
- Payments and customers: authorization rate, chargeback ratio and net fraud rate, share of returns and time to process refunds. For marketing: impact of local payments on CAC and change in LTV after MoR implementation.
- Governance: frequency of internal audits, SLAs for sanctions alerts and incidents, execution of the 30/60/90 roadmap. Reporting by the Compliance Officer to the board and the presence of corrective actions.
Tables and visualizations: where to use
Visual artifacts accelerate alignment within the company and help with external audits. Use them as “living” documents: update when adding markets, PSPs and new tax rules.
Comparison of MoR vs agency model by key parameters:
| Parameter | MoR | Agent |
|---|---|---|
| Legal role | Seller in relation to the buyer (contractual seller) | Representative of the principal (principal-agent/commissionaire) |
| Tax liability holder | VAT/OSS/IOSS on the MoR side; DST possible | VAT with the principal; WHT withholdings on commissions |
| AML obligations | Full KYC/KYB/KYT, SAR/STR, sanctions screening | KYC/KYB of the principal and monitoring of its share of transactions |
| Customer interface | Receipts and invoices from the MoR; returns at the MoR | Invoices from the principal; agent supports sales |
| Returns/chargebacks | Liability and dispute management with the MoR | Liability with the principal; agent assists with evidence |
Risk allocation matrix (PE, VAT, AML, chargeback):
| Risk | Probability | Impact | Owner | Mitigations |
|---|---|---|---|---|
| Dependent agent PE | Medium | High | Head of Legal | Limitation of authorities, segregation of signatories, operational evidence |
| VAT shortfall/OSS error | Medium | High | Tax Lead | Automation of rates, country-by-country reconciliation, mini-audits |
| AML/Sanctions incident | Low/Medium | High | Compliance Officer | RBA, EDD, sanctions screening automation, SAR/STR playbook |
| Increase in chargebacks | Medium | Medium/High | Payments Lead | Pre-sale information, evidence, dispute playbook and root-cause analytics |
Example ROI calculation for model selection:
| Metric | Value/Scenario | Comment |
|---|---|---|
| GMV/month | 2 million | Baseline scale scenario |
| Authorization rate | 88% (MoR) vs 83% (agent) | Local payment methods and SCA optimization in MoR |
| Cost of compliance | 2.2% (MoR) vs 1.2% (agent) | Accounting for AML tech, personnel, PCI DSS and SAR/STR reporting |
| VAT leakage | 0.2% (MoR) vs 0.6% (agent) | OSS/IOSS optimization and rate automation |
| Net margin delta | +0.6 p.p. in MoR | After accounting for PSP fees, chargebacks and compliance |
Frequently Asked Questions
Question 1: Who pays VAT when using a Merchant of Record?
In the classic scheme VAT is paid and reported by the Merchant of Record, since it is the seller in relation to the buyer. In B2B within the EU, with a valid VAT number of the buyer the reverse charge applies, and for cross-border B2C distance sales – OSS/IOSS.
Question 2: When does the MoR create a tax presence (PE) in another jurisdiction?
The PE risk increases when there is personnel with authority, an office/warehouse, regular management of sales, or significant economic substance. An additional trigger is an economic nexus when providing digital services, even without physical presence.
Question 3: How to allocate responsibility for KYC/KYB between the agent and the principal?
In practice the principal is responsible for the end customer, and the agent: for verifying the principal, monitoring its share of transactions and sanctions screening at its level. In the contract, stipulate data exchange (API, fields, SLA), audit rights and the procedure for filing SAR/STR.
Question 4: What is more important for a small SaaS business – MoR or the agent model?
If payment conversion, local payment methods and control over refunds are critical, MoR often delivers better results for LTV and CAC. If the compliance budget is limited and sales are predominantly B2B, an agent/commissionaire can reduce costs and PE risks.
Question 5: What documents should be prepared for a tax audit regarding MoR?
Keep invoices and OSS/IOSS registers at hand, VAT rate logs, evidence of economic nexus and VAT recovery, as well as agreements with PSPs and customers. Supplement the package with TP documentation, residency certificates and reconciliation procedures.
Conclusion and call to action
The right choice between Merchant of Record and the agency model is a balance of control, tax efficiency and the manageability of compliance. MoR strengthens the product through a customer-facing interface, local payments and transparent VAT, but requires mature AML, PCI DSS and reporting discipline. The agency model reduces the burden and capital expenditures on compliance; on the other hand, it increases the importance of contractual architecture, transfer pricing and management of PE risks.
If you want an initial assessment of the model (PE/VAT/AML), to set up OSS/IOSS, prepare MoR/agency agreement templates or calculate the ROI of a transition, we are ready to engage and provide a concrete 30/60/90-day plan. Contact COREDO to run a quick scan using the checklist from this article and turn your payments and tax architecture into your competitive asset.