Upcoming changes to Issue Funding

[birkjernstrom]

We need to make some changes to issue funding on Polar.

Upcoming changes

1. We’re removing disputes for “Pay upfront”, and renaming it to “Fund”. No more 7-day review cycles for backers upon issue completion with potential disputes for refunds. Just direct funding behind an issue regardless of outcome, i.e a donation - not subject to VAT.

2. We’re adding VAT to “Pay on completion”. For backers seeking a guaranteed outcome in exchange for funding, we need to charge VAT (if applicable).

Example

Jane Doe wants to fund feature X with $50.

• Fund. Jane pays $50 directly without any VAT. Maintainers are guaranteed the amount minus fees and receive it upon marking the issue as completed or after 6 months have passed.
• Pay on completion. Jane lives in Sweden (25% VAT). She makes a pledge to pay $50 and will see that the invoice due on completion will be $62.5 ($12.5 in VAT). Businesses can deduct this, individuals cannot.

In both cases, Polar revenue share (5%) and Stripe fees are deducted from the net amount paid.

Why?

1. To ensure compliance we need to charge VAT in cases where funding is made for a guaranteed outcome. Crowdfunding without required outcomes, however, is not subject to VAT.
2. Reduce unnecessary complexity & payout delays caused by our current Pay upfront review cycle. Not once has it been used; no disputes, refunds or chargebacks in ~9 months. We believe people see it more as a donation vs. Pay on completion for guaranteed outcomes. Our changes are intended to clarify intent and offer options for both use cases.

When?

Our intent is to make these changes in stages:

• Change Pay upfront to Fund and remove dispute capabilities (ASAP)
• Introduce VAT on Pay on completion invoices (~May)

We wanted to share this with our community prior to build; capturing any questions and feedback in advance.

Q&A

What are the benefits?

• Faster payouts
• Reduced manual overhead & delays
• Introduces community donations directed towards issues (backlog support) vs. payment for service only
• More appealing to businesses with invoicing & VAT (deductible)
• (Future opportunity) Ability to offer additional benefits to supporting businesses at certain volumes, e.g README ads, Discord invites for support etc. Since they require VAT too.

What are the downsides?

For individual backers seeking a guaranteed outcome since:

1. They can only make a pledge (“Pay on completion”) vs. upfront payment.
2. They have to pay VAT, if applicable in their region.

Resulting in either:

1. Higher risk for maintainers. Only ~1% of funding has historically gone unpaid, but all of them from individuals, and never from businesses.
2. Lower conversion of such individuals. Not comfortable with a donation, but reluctant to pay VAT.

What happens to outstanding funding made before these changes once they're introduced?

Of course, we'll honor those.

• Pay upfront: We will refund any potential dispute made to you or us via email.
• Pay on completion: No VAT on invoices for those pledges.

Why can't I receive the money from the “Fund” option directly upon payment?

In order to support contributor rewards without requiring additional transactions on your part. Say you set 70% upfront to be rewarded to contributors or want to reward ad-hoc once the issue is closed. Payouts beforehand would require additional transactions to satisfy rewards. A more complex & costly (payment fees) option.

However, for issues without public rewards, we are likely to introduce the ability to withdraw early. Combined with doing so for donations after 6 months without the issue being closed/completed.

Why hasn't VAT been added before?

We've worked with international tax accountants, experts and lawyers from day 1. Open source issue funding is a unique case. Normally, services like custom software development are absolutely subject to VAT. However, since multiple parties can contribute funding behind issues and none gets individual ownership of the deliverable (open source code), it's been debatable – as all unique matters before the law.

Polar as the merchant of record is in charge of VAT. Meaning, we take the risk of being wrong. After all these discussions with experts, we've reached the conclusion that we need to distinguish intent. In cases where funding is clearly in exchange for a satisfactory outcome, i.e more like payment for service vs. donation, we should charge VAT.

[pawamoy]

This is super interesting, thanks for sharing. In my current situation I have to attend mandatory counseling from someone working in a agency in relation with my government and employment systems. And let me tell you, they are not accustomed to the sponsorware strategy I'm following 😅 Barely catching up on Youtubers and streamers more generally. I think I'll send this to them 😄

The changes to issue funding sound good! Thank you for doing the hard work 🙂