App Store and Google Play: Subscription and payment

In order to sell your app on the App Store or Google Play, it must follow a couple of relatively strict rules. Rules concerning both how the app works on a technical level as well as how informed the end user is about what the app offers and what they’ll be charged for. Both platforms are also quite the sticklers for rules, meaning that if you don’t play it by the book, you might find your app being rejected or taken off the store.

Seeing as we would like for your app to get through the approval process the first time around, and for you to not have to worry about any skeletons in the closet, we’ve written down the aforementioned rules and our hands-on experience with conforming to them. For instance, you’ll find out:

• what to look out for when your app offers premium features (in-app purchases),
• how to inform your customers about subscription and its deactivation,
• If and when you can use your own payment gateway,
• and which information must be included in the app’s terms of service.

Subscription, renewal, and cancellation

Let’s start with one of the most frequent app monetization options: paid subscription. On the legal side of things, you need to clearly communicate the price and payment terms to the user. Not just on the product page in the store—also the terms of service should include a description of how the subscription works, which of the features are available without it, if there’s auto-renewal and when you get charged for it, and so on.

Apple allows you to implement an auto-renewing subscription only if your app has ongoing value to the customer, if the subscription period lasts at least seven days, and if upon purchase the app is available across all of the user’s devices (as duplicate charges for one subscription are prohibited). Apple lists several examples of this kind of auto-renewal, including:

• new game levels and episodic content,
• multiplayer support,
• consistent and substantive updates,
• access to libraries or collections of content,
• and software as a service (SAAS) or cloud support.

It is essential to specify how the subscription can be managed or cancelled. Google Play terms state clearly that apps must allow users to cancel their subscription online. You can achieve this by including the following in the account settings (or a similar page):

• a link to the Google Play subscription center (for apps that use the Google Play billing system)
• and/or direct access to the cancellation form.

If a user cancels a subscription purchased through Google Play's billing system, their policy states that the user will not be refunded for the current billing period but will continue to have access to premium content for the remainder of this period, regardless of the date of cancellation. The subscription will then be cancelled after the billing period ends.

Trial period and introductory pricing

Special rules also apply to free trials and introductory pricing. Prior to signing up for a subscription, a user must be informed of the terms of such pricing, including its duration. Do not forget to communicate to the user how and when the free trial switches to a paid subscription, how much it costs, and how they can cancel the subscription if they don't wish to be signed up for it. It is equally important to explicitly point out what content or services will no longer be accessible once the trial is up.

Google specifically prohibits pricing offers that aren’t fully localized or do not unambiguously explain:

• how long the free trial period or the introductory price will last,
• that at the end of the offer, the user will be automatically signed up for a paid subscription,
• or that the user can access the content without the trial version (if that option is available).

Be mindful of situations when you’re converting an existing app to a subscription-based business model. In that case, you shouldn’t remove any of the primary features the existing users have already paid for. To give an example, make sure the customers who have already unlocked the full version of a game still have access to it even after you’ve implemented a subscription model for new customers.

Virtual items, cryptocurrencies, and gambling

If you sell any form of your own currency (e.g. credits), you have probably also given some thought to how long the currency lasts for the customer or whether it expires after a certain period of time. Before you make a decision on that front, take some time to read through the terms of a given platform.

Case in point, Apple mandates that credits and in-game currency gained through in-app purchases must not expire. Moreover, you need to make sure you have a refund system for in-app purchases. Conversely, Google states that if you sell virtual currency, it must be redeemable only in the app or game in which it was purchased. In general, however, it is good to provide the users with a way to restore purchases (in case a user switches to another device, for example).

On a similar note, loot boxes are allowed only if you inform the users in a clear and timely manner (that is, prior to purchase) about the probability of obtaining the items included therein. Nevertheless, legal regulations regarding the purchase of virtual items (and loot boxes in particular) may differ from region to region. So before you set about selling them, do check what local regulations are in effect.

Both Google and Apple prohibit the sale of apps that allow on-device cryptocurrency mining. Mining can therefore only be done off-device (e.g. mining in the cloud).

While the exchange and sale of cryptocurrencies is allowed, it is also subject to specific rules. For example, in the case of the App Store, only those apps that facilitate transactions and transmissions on an approved exchange are allowed, and only if they’re offered by the exchange itself. Initial Coin Offerings and other cryptocurrency trading can be made available via the app only when it is conducted by an established bank, futures commission merchants (FCMs), or other approved financial institutions.

As for gambling apps, you are required to complete a special application process and be registered as a licensed operator with the relevant governmental gambling authority. Google may request from you a valid operating license for the type of online gambling you enable before the app is published.

However, certain types of apps and practices are deemed so ill-suited that the platforms have banned them altogether. The list is unfortunately so long that before you’d manage to peruse it all, Apple would probably update it again. Nevertheless, you would do well not to forget about it, and before you even embark on implementing some odd shenanigans in your app, we recommend you first read carefully through the terms of service for both platforms. Or you can sit down with us, and we’ll do it together. 😊

App terms of service

Once all the technical matters are out of the way, it's time to give your app some bulletproof business terms. In addition to all the above information, these should also include other mandatory arrangements that Apple and Google insist on.

For instance, did you know that Exhibit B to Schedule 1 of the Apple Developer Program License Agreement (refer to page 81 of 88 of your Apple contract) contains enforceable EULA stipulations? These must be part of your end user license agreement; if they are not, your app may not be approved.

Take note of this before you bundle your app with some sample terms of service found on the first page of Google. And in general, consult an expert first.

Can you make use of different payment systems?

You may be wondering if you can set up a gateway of your choice to process payments. Well, no need to wonder anymore. For most transactions, you are required to use the platform’s billing system. This is mandatory for all types of payments and access to in-app digital content features (in-app purchases), such as:

• virtual currency, extra lives or game time, add-ons, characters, and avatars,
• subscription services (e.g. fitness, gaming, dating, education, music, or video),
• app features or content (e.g. an ad-free version of the app or premium features),
• cloud software and services (e.g. data storage, business productivity software, or financial management software).

There are only a few exceptions to this requirement of using the platform's billing system. The exceptions primarily include purchases of physical goods (food, clothing, electronics) and physical services (transportation, food delivery, tickets to events), or paying bills (e.g. for cable and telecommunications services). In these cases, making use of another payment system is actually a must.

Other exceptions include, to name a few, paying for items purchased through online auctions, tax-exempt donations, and content or services that facilitate online gambling. The App Store, on the other hand, allows you to use other payment methods for:

• “reader” apps that allow users to access previously purchased content or content subscriptions (namely magazines, newspapers, books, audio, music, and video),
• or physical gift cards sold in the app and then sent to customers.

Aside from the reader apps mentioned above, your app must not direct users to other payment methods. This includes any redirection of users, regardless of whether it is displayed through a button, link, message, advertisement, or other call-to-action. However, other methods of payment can be suggested outside of the app (e.g. through email).

In connection with third-party payment systems, there is one special rule that applies to multiplatform services—apps that operate across several platforms and allow access to subscriptions, content, and features thereon. These apps may allow users to access items acquired on other platforms or a website under the condition that those items are also made available through in-app purchases. So, if you for example have a multiplatform game and sell consumable items on your website, and you want to enable your users to access them through the iOS app, you also have to sell the same consumables via in-app purchases. 

Fees and taxes

While it is you who determines the price of the app, you don't get to decide the share you receive after the tax and service fee deduction.

In most cases, both platforms charge a base service fee of 15% of your earnings. This discounted rate applies to the first $1 million in revenue each year, provided you declare all of your affiliate accounts (as this one-million limit applies to all affiliate accounts combined). Once you cross this limit, the service fee increases to 30%.

Should Apple or Google conclude that you ought to pay the product sales tax, they may include it in the price charged to users. That is why both platforms maintain lists of countries in which they collect and pay taxes for you. The platforms may also deduct a withholding tax from your earnings, the payment of which is required in accordance with local laws or as required by the state tax authority. In other cases, however, it is you who is responsible for the collection and payment of taxes.

Nevertheless, you can exert control over how much you pay in taxes by where you set up your headquarters. Open an offshore company in Ireland to sell the app, for example, and you can then tax the income from the App Store and Google Play at a lower rate. But before you decide to take such a step, we advise you to research your customer base through and through. Where your head office is located matters just as much as where your customers—and hence your distributor—are based.

While it may not be obvious at first glance, entering into a distribution agreement with Apple means you are actually agreeing to have your app put up by six different companies. For instance, let’s say your customer is located in the US: you sell the app to them through Apple Inc., who act as your representative. But if the customer is based in Europe, they are buying the app through Apple Distribution International (with headquarters in Ireland), who are your commission agent in this case. Apple also has separate branches for Canada, Australia and New Zealand, South and Central America, and Japan.

All these details then affect the final taxation rate. Not just because different taxes apply in different countries, but also because these countries may have mutual international agreements on the avoidance of double taxation. So if you're planning to rock the world with your app, do not forget to consider what kind of structure would best suit your company.

And if you feel like you could use some help, simply get in touch. We'll be happy to assist you not just with monetising the app, but also with validating its product-market fit—or its development.