What the EU Data Act means for annual SaaS contracts and refunds
The EU Data Act is here, and it's set to reshape SaaS business models in ways many founders haven't fully grasped yet. As the founder of GrowPanel and an angel investor in SaaS companies, I see this legislation as a major shift requiring fresh thinking about pricing, contracts, and upfront payments.
Starting from September 2025, customers of data processing services in the EU gain stronger rights to switch providers, even when bound by annual contracts. By 2027, fees for leaving providers will be banned altogether, and providers must make data export and switching easy, fast, and reasonably priced-ultimately free.
While this means fewer dark patterns and happier customers, it also raises a big question for SaaS companies who rely on annual upfront payments and discounts: what happens when a customer wants to leave early?
The Data Act's key requirements for SaaS providers
The Data Act requires providers to allow customers to initiate switching with a maximum of two months' notice, regardless of what contracts say. This is spelled out under Article 25(2)(d) and Article 23(a) of the regulation.
By 12 January 2027, charging switching or data-egress fees will be prohibited (Article 29(1) and (2)), and providers must support seamless data portability with no hidden lock-in costs (Article 26). These rules came into effect on 11 January 2024, with the key switching obligations applying from September 2025.
The upshot is this: even if you have a 12-month contract paid upfront, your customer can switch providers after giving two months' notice - and you have to make it easy and cost-free to do so.
Why annual payments and discounts become complicated
Most SaaS businesses offer a monthly plan at a certain price, say $100, and an annual plan at a discounted rate, for example, $1,000 upfront for the year (equivalent to roughly two months free). This model rewards loyalty, improves cash flow, and reduces churn.
With the Data Act, however, customers can now end their contract early. Imagine a customer who pays $1,000 upfront for a year but decides to cancel after four months, giving two months' notice and effectively using six months in total.
This raises a tough question: should the provider refund the unused portion of the prepaid amount? And if yes, how much?
The law itself does not explicitly address refund rights for unused prepaid amounts. Legal analyses, like those from Bird & Bird, suggest the Data Act requires switching rights but does not mandate refunds. Instead, refunds may be governed by national contract law and interpretations.
Possible ways to handle refunds
Given this ambiguity, SaaS providers will likely consider one of three approaches.
The first is to offer no refund. The customer pays upfront and commits to the full year. Even if they leave early, they forfeit the remaining months. This approach may feel unfair and could face legal or reputational risks, especially as the Data Act emphasizes fair treatment and easy switching.
A second, more customer-friendly approach is a pro-rata refund based on the monthly rate. Using the example, the $1,000 annual payment would be divided by 12 months to calculate a monthly rate (~$83.33). The customer uses six months, so they get refunded roughly $500 for the unused six months.
The third, more nuanced approach factors in the discount. Here, you calculate what the customer would have paid monthly for the months used and subtract that from the upfront payment. In our example, six months at $100/month equals $600; so the refund would be $1,000 minus $600, which is $400. This balances honoring the loyalty discount with fair compensation for early contract termination.
From a business perspective, the third option feels like the most commercially and ethically balanced approach, aligning well with the spirit of the Data Act while respecting your revenue model.
What SaaS founders should consider today
With this new reality, it's crucial to review your current contracts and policies. Make sure your cancellation and refund terms explicitly address the customer's right to switch providers under the Data Act and clarify what happens with prepaid fees.
Discount strategies might also need revision. If long-term contracts are less binding, consider moving to monthly billing with loyalty pricing or shorter commitment periods. This change will also impact how you forecast ARR and model churn-annual contracts will no longer guarantee predictable retention over the full 12 months.
Transparency is key. Clearly communicate with your customers about switching rights, refunds, and data portability. Meeting your legal obligations is vital, but building trust through openness will be your strongest competitive advantage.
Finally, ensure your systems support easy and fast data export and switching to avoid falling foul of the portability and lock-in rules.
Closing thoughts
The EU Data Act isn't the end of annual SaaS contracts, but it definitely changes the landscape. The era of binding customers through contracts alone is over. Instead, delivering clear value, flexibility, and excellent customer experience is the way forward.
As someone deeply invested in SaaS success, I'll be watching closely how providers adapt their refund practices and pricing strategies. For those who embrace these changes early, it's an opportunity to build stronger, trust-based relationships with customers-and maybe even gain an edge in a more transparent market.
If you want to dig into the legal text, here's the official EU Data Act document.
Feel free to reach out if you want to discuss how to adjust your contracts or pricing to navigate these new rules.
Lasse Schou
Lasse is the founder of GrowPanel and an entrepreneur with 25 years of experience building SaaS businesses. After a successful exit from his previous SaaS company, he now invests as an angel in promising SaaS startups.
