As we are using Stripe as our payment service provider we have summed up how subscription changes and VAT are handled at LingoHub.

1. AND VAT HANDLING
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STRIPE SUBSCRIPTION

2. STRIPE IN A NUTSHELL
− REST API that is well documented and easy to use
− Create a customer and assign a subscription plan which has to be defined up front
− Main properties of a subscription plan on Stripe:
− Subscription plan name
− Amount to charge
− Payment interval (e.g. monthly vs. annually)
− Currency
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⟶ Currency is a customer property. Once a customer has been created and a currency has been set, it can’t be
changed anymore and only plans of which currency matches the customer account can be assigned.

3. STRIPE IN A NUTSHELL
− When creatinga subscription for a customer an accordingplan and additional
subscription propertieslike the followingcan be defined:
− Optional trial period which determines when the first payment will be made
− Optional tax rate which is applied to all invoices created for that subscription
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4. WITH STRIPE
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HANDLING SUBSCRIPTION CHANGES

5. HANDLING SUBSCRIPTION CHANGES WITH STRIPE
− Once a subscription is created a customer will be automaticallybilled by Stripe
− Once a payment is done Stripe delivers a web hook notification which we use to
generate invoices
− What happens if the subscription changes?
1. The subscription may be terminated at any time
2. The customer may want to upgrade to a new plan
3. The customer may want to downgrade to a cheaper plan
4. The customer may want to switch to a different payment interval (e.g. monthly to annually)
5. The VAT rate for the customer may change for various reasons
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6. HOW STRIPE HANDLES SUBSCRIPTION PER DEFAULT
− Per default customers are invoiced only at the beginning of each predefined billingcycle
− All relevant changes in between are collected and will be considered at the beginning of
the next billingcycle
− This has some considerable implications:
− Payments are not attempted until the billing cycle ends. If a customer (annual billing) upgrades to a bigger
plan at the beginning of a cycle, you’ll have to wait for the payment being made for a long time.
− You can only define a single tax rate which is applied to all items on an invoice. If you sell goods requiring
different tax rates it’s not possible to summarize them in a single invoice.
− In case the billing frequency changes an invoice is created because a new billing cycle starts.
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7. HOW WE HANDLE SUBSCRIPTION CHANGES
1. Subscription cancellation
As stated in our terms of use we don’t grant refunds in case a customer cancelshis
subscription with LingoHub.
As payments are usually made up front we simply cancel the subscription immediately.
In this case it can be necessary to create a final invoice for all pending charges.
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8. HOW WE HANDLE SUBSCRIPTION CHANGES
2. Upgrading to a bigger plan
When a customer upgrades we manuallytrigger an invoice creation for his
subscription because
− we don’t want to wait for the payment to be made at the end of the current cycle.
− we only want to include charges related to the subscription change. (Other items require a different tax
rate.)
− if the customer cancels the subscription before the billing cycle ends we’d have to create a final invoice
which could delay the cancellation process as we’d have to wait for the payment before deleting the
account.
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⟶ You have to make sure that the subscription ID is provided when creating the invoice, otherwise all pending
items are added to the invoice and the tax rate defined on the subscription wouldn’t be considered.

9. HOW WE HANDLE SUBSCRIPTION CHANGES
3. Downgrading to a smaller plan
This change is generallyhandled as upgrading to a bigger plan.
In this case a customer may receive a credit as he alreadypaid for a bigger plan up
front and there may be time remainingon that bigger plan. An accordingbalance is
added to the customer’s account on Stripe and automaticallyconsidered when
generating future invoices.
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10. HOW WE HANDLE SUBSCRIPTION CHANGES
4. Changing the payment period
The plan change involves switching to a different billingcycle. Stripe creates an invoice
immediatelyas a new cycle is started. In this case we also enable proration to ensure
that remainingtime from the old billing cycle is considered.
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11. HOW WE HANDLE SUBSCRIPTION CHANGES
5. Changing the tax rate for a subscription
The VAT rate needs to apply to subscriptionsand depends on the country where the
customer comes from or his business is registered. The tax rate might have to be
updated if the country(billing info) changes or a valid VAT registration number is
added/removed. The tax rate on the existing subscription has to be updated and the
new rate will be applied to future invoices.
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12. BROUGHT TO YOU BY LINGOHUB
ANJA OBERMÜLLER
BUSINESS DEVELOPMENT& MARKETING AT
LINGOHUB
anja.obermueller@lingohub.com
@LingoHub
@anjaobermueller
Read the whole article.
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