How a Merchant of Record Model Accelerates Ecommerce Expansion into Europe Without Local Entities

One of the best ways for online retailers to expand in Europe is through the creation of new markets.

With a population of over 440 million and with large purchasing power, as well as a relatively high level of digitalization, it is no wonder that expanding into Europe is viewed by many online retail brands as an exciting and potentially profitable way to grow their business. However, while there are clearly many opportunities available in the European marketplace, there are also significant challenges that can hinder or delay entry into this market by non-European retailers. These include differences in regulatory frameworks, tax regimes, logistics requirements and consumer protection regulations in comparison to those found in North America or Asia. As such, while many online retailers may recognize the potential benefits available in Europe, they are often unsure about how to effectively enter the market without having to establish a complete and functioning legal and operational infrastructure. This is where the Merchant of Record (MoR) model comes in, and has become an increasingly popular option among online retailers wishing to sell in Europe.

Why Europe Is Attractive but Operationally Complex

There are some major challenges in terms of getting started. For example, the current VAT (value-added tax) regime in the EU is based on the principle of “destination-based” VAT. What this means is that you need to charge and collect VAT at the same level as your customer (i.e., the customer’s home country). However, since the EU VAT reform was implemented in 2021, if you exceed certain thresholds, you will have to either use the One Stop Shop (OSS) to report all your sales, or obtain VAT registrations in each of the countries you sell in. If you incorrectly handle VAT, you could face audits, fines, or have your marketplace account blocked. In addition to the above, brands must also comply with GDPR (General Data Protection Regulation), consumer withdrawal rights, warranty regulations and product safety standards (such as CE marking, if applicable).

All of this creates friction for doing business in Europe. Creating a European subsidiary, employing a tax advisor, managing cross-border returns and dealing with various local payment options can take a large amount of investment before generating any revenue.

What exactly does a Merchant of Record (MOR) do?

A Merchant of Record, or MOR, is responsible for acting as the seller of record for a brand’s products within a given region. The MOR is then responsible for all the necessary taxes collected and paid, and is responsible for ensuring that the brand complies with all of the local ecommerce laws and regulations.

Therefore, instead of creating a new subsidiary in Europe, a brand can choose to partner with a provider who has already created the necessary infrastructure to provide services to brands. This partnership would allow the brand to contractually appear as the seller to the customer, manage VAT collections and remittances, and ensure that all of the other ecommerce regulations are complied with locally.

More information about how the model operates can be found on the Merchant of Record Service Page, which provides a clear overview of the services provided to brands, including payment processing, tax processing, returns management, and logistics coordination across Europe.

The primary advantage of this model is the simplicity of the operation. The brand can focus on developing its product and marketing strategy, while the MOR handles the compliance and administration of the ecommerce operations in Europe.

Advantages in Compliance & Taxes

One of the biggest advantages of using the Merchant of Record model is in the area of VAT management. The EU VAT system requires that all ecommerce sellers accurately report and file their VAT collections and remittances, and that they apply the correct VAT rates to their transactions. Any errors in classification or reporting can result in the seller being required to make retroactive payments.

Using a Merchant of Record, the seller is relieved of this burden, as the MOR is responsible for calculating the VAT amounts due, preparing the invoices according to local standards, communicating with tax authorities, and making the actual VAT payments. Therefore, the seller is not exposed to the administrative risks associated with VAT compliance.

In addition to VAT compliance, the Merchant of Record model also relieves sellers of compliance risk related to consumer protection laws. These laws require that sellers permit customers to withdraw from purchases made in a distance sale, and to properly process and coordinate the returns of those products. Sellers are also subject to specific laws and regulations regarding warranty obligations and product safety, such as CE marking.

By partnering with a Merchant of Record, sellers are able to outsource the responsibility for coordinating the returns process and complying with these regulations to the MOR, thereby reducing their exposure to regulatory risk.

Finally, the Merchant of Record model also helps sellers meet their obligations under payment security regulations such as PSD2 and Strong Customer Authentication. As part of its standard infrastructure, a reputable Merchant of Record typically includes compliant payment gateways that meet these regulatory requirements, thereby eliminating the technical burdens placed upon sellers to implement them.

Operational Efficiency = Competitive Advantage

Market entry into Europe is certainly possible without establishing a local presence, however, it is not simply a matter of meeting the regulatory requirements. The quality of the operational execution also plays a key role in determining the customer experience. Customers expect fast delivery, efficient returns, and responsive customer support.

A Merchant of Record provider that has established local warehouses and logistics capabilities can significantly reduce the time-to-deliver products to customers across Europe, which in turn results in lower return rates and improved customer satisfaction.

Brands such as IDEAL GROUP position themselves as comprehensive infrastructure providers. They offer payment processing, warehouse management, returns coordination, and distribution to marketplaces. By providing their services as the contractual seller to the end customer, brands are able to operate in Europe without establishing a local subsidiary.

This model is especially beneficial for brands that want to test the demand for their products in Europe before establishing a local entity.

Marketplace Access = Reduced Administrative Burdens

E-commerce growth in Europe is increasingly driven by marketplaces. Amazon Europe, Zalando, Otto, CDiscount, Bol and Allegro, among others, are all operating in the European e-commerce space, and each has their own compliance standards and invoicing requirements for local customers.

A Merchant of Record with marketplace expertise can list products on multiple European marketplaces in a compliant manner. The centralized VAT collection and reporting functions of the MOR simplify the complexity of listing and selling on multiple marketplaces in multiple countries.

Additionally, a Merchant of Record can help brands localize their products, adapt language to meet regional requirements and prepare regulatory labels, so brands can quickly expand across multiple countries simultaneously.

Financial Clarity & Reduced Risk Exposure

Another less-recognized benefit of the Merchant of Record model is that it provides financial clarity and reduced risk exposure for brands. When a brand uses a Merchant of Record, the MOR is responsible for collecting and paying taxes on behalf of the brand, as well as managing regulatory compliance issues.

This makes it easier for brands to predict revenue flow, as they receive settlement statements that include local VAT handling and marketplace fees.

The Merchant of Record model also reduces the risk exposure of brands by assuming the responsibility of resolving regulatory investigations, VAT disputes, and consumer protection claims.

Therefore, the ability to allocate resources towards marketing performance, customer acquisition and product innovation, rather than towards administrative overheads, is greatly enhanced. International capital market research also addresses the structural shifts shaping global trade and cross-border expansion. For example, the MSCI report on market integration, regulatory developments, and international capital flows provides a detailed analysis of how global frameworks influence corporate growth strategies and investment decisions.

When Is the Merchant of Record Model Most Effective?

The Merchant of Record model is not suitable for all brands. Companies that have already established a European subsidiary, and have an internal team of compliance experts may wish to maintain direct control over their operations.

However, the model is especially useful for:

* Non-European brands expanding into Europe for the first time.
* Digital brands looking to expand into multiple EU countries simultaneously.
* Companies seeking to rapidly penetrate the marketplace.
* Businesses that do not wish to register for VAT in multiple EU countries.
* Firms testing demand before deciding to incorporate locally in Europe.

The European e-commerce environment is attractive, yet also highly regulated. The Merchant of Record model combines legal compliance, logistics capability and marketplace know-how to greatly reduce the barriers to entry.

As cross-border trade becomes increasingly digitalized, operational efficiency will become a competitive factor. The Merchant of Record model converts the regulatory complexities of e-commerce in Europe into a manageable process, enabling brands to grow sustainably in Europe with greater speed and with fewer structural risks.

For companies considering their e-commerce expansion strategies, understanding the Merchant of Record model is no longer optional – it is a strategic tool for achieving sustainable European growth.

Frequently Asked Questions

What exactly is a Merchant of Record and why should my business care?

A Merchant of Record (MoR) is a legal entity that sells goods or services to an end customer on behalf of a brand. This model is vital because it handles the complex web of tax collection and local regulations so you can focus on product growth. By using an MoR, you can start selling in new regions without the massive cost of building a local office.

Do I still need to register for VAT in every European country if I use an MoR?

No, you generally do not need your own local VAT registrations because the Merchant of Record acts as the seller. The MoR uses its existing tax infrastructure to collect and pay the correct taxes to the right authorities in each country. This shortcut saves you from the long delays and high costs of applying for tax IDs in multiple foreign languages.

Is a Merchant of Record different from a standard payment processor like Stripe?

Yes, while a payment processor only moves money from the buyer to the seller, a Merchant of Record takes on the full legal liability for the sale. An MoR calculates taxes, manages compliance with local consumer laws, and handles financial audits. Using only a payment processor leaves your business responsible for all the complex tax filings and legal risks.

How does the MoR model help with European returns and consumer rights?

European laws give customers strong withdrawal rights, meaning they can return products easily within specific timeframes. A Merchant of Record manages these return workflows and ensures your business stays compliant with all local consumer protection standards. This partnership reduces your risk of facing fines or being banned from popular European marketplaces.

Will using an MoR make me lose control over my brand and customer experience?

Many sellers fear losing their brand identity, but you actually keep control over your marketing, product design, and pricing. The MoR works behind the scenes as a “contractual seller” to handle the boring administrative and tax tasks. You continue to manage the customer relationship and the creative side of your business while they handle the red tape.

Can an Moer help me sell on marketplaces like Amazon Europe and Zalando?

An experienced Merchant of Record can list your products across various European marketplaces using their established tax and logistics networks. They understand the specific invoicing and data requirements for each site, which vary significantly between platforms like Allegro or Bol. This expertise allows you to launch on many different websites at the same time with very little effort.

Is the MoR model more expensive than setting up my own European subsidiary?

While an MoR charges a fee for their service, it is often much cheaper than the “hidden” costs of incorporating a local company. Setting up a subsidiary requires hiring tax advisors, legal teams, and physical office space before you even make your first sale. An MoR allows you to trade immediately with a predictable fee structure, making it a lower-risk option for testing new markets.

What happens if there is a tax audit or a dispute with a local government?

One of the biggest benefits of this model is that the Merchant of Record assumes the risk of tax audits and regulatory investigations. Since they are the official seller of record, they are responsible for defending the tax filings and resolving any local disputes. This protection provides your brand with financial peace of mind and keeps your internal team away from legal headaches.

What is the first step I should take to transition to an MoR model?

The most actionable step is to audit your current sales data to see where European demand is highest and identify your biggest compliance gaps. Once you know your target countries, you should look for a provider like Ideal Group that offers a “full-stack” service including logistics and marketplace management. This allows you to hand over the entire administrative burden in one go rather than piecing together different tools.

What usually happens to a brand if they grow too large for the MoR model?

If your sales volume in Europe becomes massive, you might eventually decide to incorporate a local entity to gain even more control over your margins. However, many global brands continue using an MoR indefinitely because it allows them to remain “asset-light” and agile in a changing regulatory world. You can easily switch models later, but starting with an MoR is almost always the fastest way to get your foot in the door.