Guide to payment processing subsidiaries
The rise of services like Stripe and Shopify Payments have empowered online businesses of all sizes by allowing them to accept credit card payments at a reasonable cost and without the need for a complex technical installation. Sounds great? Well only if your business is registered in a supported country. If it is registered elsewhere, you will face significantly more friction accepting payments from clients. Or will you? In this post, I share a strategy that enables companies registered anywhere to signup for Stripe, Shopify Payments etc using payment processing subsidiaries.
Simon @ FS / Phuket, Thailand
The problem
Accepting payments can be a major headache for those who own businesses registered in developing countries, and that is especially true when it comes to credit card payments. The popular services, such as Stripe and Shopify Payments, are not usually an option and even when they are, the fees are often higher, not all payment methods are supported and the settlement currency is often limited to the local currency. There are, of course, local alternatives but they are often difficult to use and are rarely compatible with the popular platforms, shopping carts and WordPress plugins.
Things get even worse when it comes to the high-risk countries and the island tax havens. For example, a Samoa company will really struggle to get any payment processing account, let alone a decent one. It is also likely to pay a significantly higher processing rate.
Another problem is that payments processed in those high risk countries or tax havens tend to be declined more often due to fraud management systems in place at most banks. For example, a bank in the US is more likely to decline a transaction in Malaysia than one in the US or a low risk country like Canada, the UK etc. Not to mention the fact that many potential customers will be turned off at the idea of doing business with a company registered somewhere they do not know or trust.
All this results in a competitive disadvantage, especially for businesses selling in markets such as the US, EU etc.
The solution
In short, you register and use a payment processing subsidiary in the US, CA, the UK or Estonia to process all payments instead of having your main company do it.
In practice, it works like this:
Customer -> payment processing subsidiary -> Main company
This allows you to use Stripe (and get the best rates, avoid currency conversion fees etc), Shopify Payments and any other services available in those four countries. This also ensures that your decline rate stays low and that your customers have no trust issues (as far as they can tell, you are a US, CA, UK or Estonian company).
From a tax perspective, using this strategy will not usually result in an additional tax liability (with the exception of Estonia, where a minor liability will be created).
For more details regarding the entities compatible with this strategy: US LLC, BC LLP, ON LP, UK LLP, Estonian OU.
