Skip to main content

International Payments

TL;DR
  • Selling internationally often requires local entities for tax, regulatory, and payment acceptance reasons
  • Currency conversion costs 1-3% and someone always pays (you, your customer, or your processor)
  • Regulations vary dramatically: PSD2/SCA in Europe, auto-renewal laws, data localization requirements
  • Repatriating funds (getting money back to your home country) has costs and sometimes restrictions
  • Local payment methods aren't optional in many markets - they're required for meaningful conversion

The Hidden Complexity of "Going Global"​

Accepting international payments isn't just "turn on more currencies." It involves:

  1. Legal/entity structure - Where are you incorporated? Where do you need subsidiaries?
  2. Payment acceptance - What local methods do you need? What processors work in each market?
  3. Currency and FX - Who bears FX risk? When do you convert?
  4. Regulatory compliance - What local laws apply?
  5. Fund repatriation - How do you get money back home?
  6. Tax implications - VAT, GST, withholding taxes, permanent establishment risk

Local Entities: When and Why​

Why You Might Need a Local Entity​

Payment acceptance

  • Some bank transfer schemes are domestic-only
  • Some processors won't onboard foreign entities
  • Local acquiring often gives better pricing and approval rates

Tax obligations

  • VAT/GST registration and collection (EU, UK, AU, etc.)
  • Corporate tax if you have "permanent establishment"
  • Digital services taxes in some markets

Regulatory compliance

  • Data localization (e.g., Russia, China, some others)
  • Financial services licensing in some jurisdictions
  • Consumer protection differences

Customer trust

  • Local support, local returns, local legal venue

Common Structures​

Single entity, sell globally: Simplest. One company, accepts payments everywhere possible. Works for small-scale international sales.

Local subsidiaries in key markets: Entity in US, entity in EU (often Ireland or Netherlands), entity in UK, etc. More complex but unlocks local payment methods, better rates, proper tax treatment.

Merchant of Record (MoR) / Reseller model: Third party (Paddle, FastSpring, Gumroad, etc.) becomes the seller. They handle local tax, compliance, and payment acceptance. You receive net revenue. Simplest operationally but you give up margin and control.

Currency and FX​

Who Pays for FX?​

Somewhere in the flow, 1-3% gets taken in FX spread. Options:

Option 1: Customer pays in your currency (e.g., USD)

  • Customer's card issuer converts at their rate (often 2-3% markup + foreign transaction fee)
  • You receive USD, no FX risk
  • Customer sees unfamiliar amount, potential for disputes
  • Conversion: Customer-side

Option 2: Customer pays in local currency, you hold FX risk

  • You price in EUR, GBP, etc.
  • Customer sees familiar price
  • You receive foreign currency, must convert to USD
  • Conversion: Your-side (at your bank/processor rate, typically 1-2%)
  • You bear FX risk between sale and conversion

Option 3: Customer pays in local currency, processor converts instantly

  • You price in local currency
  • Processor converts to USD at time of transaction
  • You receive USD (or your home currency)
  • Conversion: Processor-side (built into their rate, often 1-2.5%)
  • No FX risk but you pay the spread

Option 4: Multi-currency accounts

  • You maintain accounts in multiple currencies (USD, EUR, GBP, etc.)
  • Receive funds in local currency, convert strategically
  • Most complex but most control over FX timing and rates

FX Cost Reality​

Assume 1-3% total FX cost somewhere in the chain. If you're pricing at thin margins, this matters. A US business selling to EU:

  • Customer pays €100
  • FX rate is 1.10 USD/EUR = $110 equivalent
  • Processor charges 1.5% FX fee = $1.65
  • You receive $108.35

That 1.5% comes off your margin, not your fees.

Dynamic Currency Conversion (DCC)​

DCC lets customers pay in their home currency even when transacting with a foreign merchant. Example: US tourist in France can pay in USD at a EUR-priced store.

Reality: DCC rates are typically terrible (3-8% markup). Customers who know this decline DCC. Customers who don't know get surprised on their statement.

Regulatory Patchwork​

Strong Customer Authentication (SCA) - Europe​

PSD2 (Payment Services Directive 2) requires Strong Customer Authentication for most European e-commerce:

  • Two of: something you know (password), something you have (phone), something you are (biometric)
  • Implemented via 3D Secure 2.0 for cards
  • Exemptions exist (low value, trusted beneficiary, low risk)

Impact: 10-30% of transactions may require step-up authentication. This adds friction and can reduce conversion. But it's legally required.

If you sell to EU without SCA: Your transactions may be declined by issuers, or you may face liability shift for fraud.

Auto-Renewal and Subscription Laws​

Different jurisdictions have different rules on subscription billing:

  • California (US): Must clearly disclose auto-renewal terms, provide easy cancellation
  • EU: Similar disclosure requirements under consumer protection directives
  • UK: CMA actively enforcing subscription fairness
  • Germany: Recent laws require cancellation to be as easy as signup ("Kündigungsbutton")

Impact: You may need different checkout flows, cancellation processes, and disclosure language by market.

Data Localization​

Some countries require personal data stored locally:

  • Russia: Personal data of Russian citizens must be stored in Russia
  • China: Various data localization requirements under PIPL and Cybersecurity Law
  • India: Evolving rules on payment data localization

Impact: May require local infrastructure, local cloud providers, or simply not serving certain markets.

Consumer Protection Variations​

  • EU: 14-day cooling-off period for online purchases (right to return for any reason)
  • UK: Similar Consumer Contracts Regulations
  • Australia: Strong consumer guarantees under ACL
  • Brazil: 7-day return right for online purchases

Impact: Your refund policy may be legally overridden by local law. "All sales final" may not be enforceable.

Fund Repatriation​

Getting money out of a country and back to your home country.

Why It's Not Always Simple​

  • Capital controls: Some countries restrict how much money can leave (Argentina, various emerging markets)
  • Tax withholding: Some countries withhold tax on outbound payments to foreign companies
  • Documentation requirements: May need to prove the transaction was legitimate business activity
  • Banking relationships: Your local bank needs correspondent banking relationships to move money cross-border

Common Issues​

Trapped cash: You collect payments in Brazil (BRL), but getting BRL out of Brazil and converted to USD has friction, cost, and delays. You may end up with cash sitting in a Brazilian account.

Withholding taxes: India withholds tax on certain payments to foreign companies. You may need to claim treaty benefits, file for refunds, or accept the cost.

Timing: Cross-border fund movement can take days to weeks, especially for large amounts or unusual corridors.

Solutions​

Local reinvestment: If you have ongoing local costs (marketing, operations, team), spend local currency locally rather than repatriating.

Processor aggregation: Some processors (Stripe, Adyen) aggregate your global funds and pay out in your home currency, handling cross-border movement for you. You pay for this convenience in their rates.

Treasury management: Large companies have treasury teams that optimize currency holdings, FX timing, and cross-border movements.

Practical Recommendations​

Crawl, Walk, Run​

Crawl (starting out)

  • Accept cards globally through your existing processor
  • Price in USD, let customers deal with conversion
  • Use your processor's built-in FX conversion
  • Focus on markets with easy card penetration (US, Canada, UK, Western EU)

Walk (growing international)

  • Add local payment methods for top 2-3 international markets
  • Consider local currency pricing in major markets
  • Work with processor that handles multi-currency well
  • Understand your VAT/GST obligations

Run (significant global presence)

  • Local entities in major markets
  • Local acquiring for better rates
  • Multi-currency treasury management
  • Local payment methods across all significant markets
  • Local compliance and legal support

Market-Specific Quick Hits​

MarketKey Considerations
EUSCA required, SEPA available, VAT registration likely, 14-day returns
UKPost-Brexit separate from EU, Open Banking strong, GBP pricing expected
CanadaSimilar to US but CAD pricing expected, French language requirements in Quebec
AustraliaAUD pricing, BECS for direct debit, consumer guarantees strong
JapanKonbini important, JCB acceptance expected, Japanese language strongly preferred
BrazilPIX essential, BRL pricing, complex tax system, capital controls
IndiaUPI dominant, INR pricing, RBI regulations on payment data
ChinaAlipay/WeChat required for Chinese customers, many restrictions for foreign businesses

When to Get Help​

Cross-border payments get complex fast. Consider expert help when:

  • Revenue from a single foreign market exceeds $100K+
  • You're triggering VAT/GST registration thresholds
  • You need local entities for strategic reasons
  • You're dealing with restricted markets (China, Russia, etc.)
  • Fund repatriation is becoming a real operational issue

Merchant of Record services (Paddle, FastSpring) exist specifically to absorb this complexity. You trade margin for simplicity. For many businesses, that's the right trade.

See Also​