Shopify VAT: How To Do It Right [Guide + Useful Links]
May 16, 2021

Shopify VAT: How To Do It Right [Guide + Useful Links]

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Estimated reading time: 6 minutes.

Shopify seller in Europe

Just about everything is taxed.

And as you’ll no doubt be aware, it’s not all the same kind of tax.

Tax has become a strange, disconnected sort of extended family tree. Your income tax branch includes members like capital gains, estate, payroll, and inheritance tax. Then there’s the awkward, money-hungry branch of property, real estate, and gift taxes. And these barely scrape the surface. 

Here, we’ll be talking about the exotic foreign cousin of the goods and services tax family. Not sales tax or GST, but VAT - specifically, VAT for Shopify sellers. 

This Shopify VAT guide is part of the wider A2X ecommerce accounting hub.

In this blog on Shopify VAT:

Even if you live in the US, you may need to pay VAT if you sell overseas, so grab a pen and let’s begin. 

Disclaimer: Before we get started, it’s important to note that this guide is merely that: A guide. Getting taxes wrong can be detrimental for any business, so it is always best to seek professional advice and get tailored support for your unique circumstances. Check out our trusted accountant directory for help here.

What is VAT?

VAT stands for value-added tax.

VAT is applied at each stage of the manufacturing journey as an item gains value. 

Similar to sales tax, VAT is added to the cost of an item and is a pass-through tax, meaning that whoever collects it (you, in the case of your ecommerce business), must remit it to the relevant tax authority. 

In Europe, the rates of VAT vary from 17-27% by country. Certain consumables which we need to live and survive are subject to reductions, again based on country. These include select foods, means of transport, fuel, medicines, and other necessities. 

For the sake of this guide, we’ll be focusing on VAT in Europe and the UK. 

Does Shopify Charge VAT?

Shopify doesn’t charge and collect VAT for you. You’ll need to set this up and manage it in the locations you meet the thresholds to do so. 

With the UK no longer an EU member state, if you sell both in the UK and other European countries, the rules may differ. The EU states have simplified procedures to make things easier, but these procedures are no longer applicable to the UK.

Who Pays Shopify VAT?

Sellers only need to charge and collect VAT on Shopify (and anywhere else for that matter) when their sales meet a location-based threshold.

This threshold depends on the country/countries their buyers come from. 

For example, the UK threshold is £85,000 in one year, so if a seller does business with UK buyers and its revenue from the UK exceeds this amount, they need to register with HMRC and begin collecting VAT. There are a few new rules and changes since Brexit which you can find here.

VAT works similarly to sales tax in the US. Your buyer pays it; you collect and hold it, then remit it to each tax authority with which you have economic nexus (i.e. you’ve met their threshold). 

So it’s key to stay on top of what you have collected to avoid having to pay anything out of your own pocket!

Which Countries Charge and Collect VAT?

As you can see in this map by pwc, most of the world charges some form of VAT (if you include sales tax, GST, and similar):

VAT map of the world

You can see the rates in the color code along the bottom. The grey areas are countries with precisely that: a grey area around what exactly the rates are. See the full list of them here.

As mentioned above, we’ll be focusing on Europe here.

How Much is VAT?

The rate of VAT depends upon the country you’re doing business with and what you’re selling. And remember, if you have stock stored in a country, you more than likely qualify for nexus, even if you don’t have buyers there.

The EU has a set of core rules that every member state must adhere to when it comes to VAT collection. 

Rates must be higher than 15%, with up to 2 reduced rates applicable on specific goods and services. You might find some exceptions, which are usually due to existing measures in place before the member state joined the EU. Aside from that, countries can take their own measures within these parameters.

Below is an overview of the VAT rates across Europe, correct at the time of publishing. You’ll see the standard VAT rate, relevant threshold both as a resident and distance seller (which we’ll cover next). 

Click on the countries to go to their official sites for the latest information and registration pages.

Country VAT Rate* Resident VAT threshold Distance-selling VAT threshold
Austria 20% €35,000 €35,000
Belgium 21% €25,000 €35,000
Bulgaria 20% Nil BGN 70,000
Croatia 25% HRK 300,000 HRK 270,000
Cyprus 19% €15,600 €35,000
Czech Republic 21% CZK 1 million CZK 1.14 million
Denmark 25% DKK 50,000 DKK 280,000
Estonia 20% €40,000 €35,000
Finland 24% €10,000 €35,000
France 20% €82,800 (goods) €33,200 (services) €35,000
Germany 19% €22,000 €100,000
Greece 24% €10,000 €35,000
Hungary 27% HUF 8 million €35,000
Ireland 23% €75,000 (goods) €37,500 (services) €35,000
Italy 22% €65,000 €35,000
Latvia 21% €40,000 €35,000
Lithuania 21% €45,000 €35,000
Luxembourg 17% €30,000 €100,000
Malta 18% €35,000 / €24,000 / €14,000 €35,000
Netherlands 21% Nil €100,000
Norway (non-EU) 25% NOK 50,000 N/A
Poland 23% PLN 200,000 PLN 160,000
Portugal 23% €12,500 €35,000
Romania 19% ROL 220,000 RON 118,000
Slovakia 20% €49,790 €35,000
Slovenia 22% €50,000 €35,000
Spain 21% Nil €35,000
Sweden 25% SEK 30,000 SEK 320,000
Switzerland (non-EU) 7.7% CHF 100,000 N/A
United Kingdom (non-EU) 20% £85,000 £70,000

*The “standard rate” without any exemptions or reductions applied.

Sources: Avalara (1), Avalara (2), Europe Taxation Resource, National Customs Websites.

Resident vs. distance-selling

There are different rates to pay depending on whether you live in the country to which you’re remitting tax or you sell remotely to buyers in that country. The latter is called distance-selling.

With a lot of distance selling going on nowadays, countries needed a plan to get a piece of the pie to charge sellers a sort of commission, but fairly: Enter distance-selling thresholds.

Distance-selling threshold: A revenue sum (in one calendar year) that you must exceed to be liable for tax. 

So, if you live in Europe as well as sell there, pay attention to the difference between your resident and distance-selling thresholds. If you just do business in Europe, the latter is all you need. 

How to Register for a Shopify VAT Number

How you register will depend on the country (or countries) with which you need to register. 

Each threshold you meet will require registration, so use our table above to figure out your nexus countries and click on each to go to their official pages to register.

Most of these sites are in English or have English translations. If not, you might need help from Google Translate. 

We always recommend getting help from experienced ecommerce accountants when getting set up (or ideally for the long-term). You can find specialists across the world via our directory here.

How to Collect Shopify VAT

Got your nexus countries? You’ll need to know those and register with them before this step. 

So if you haven’t yet, do that first, and we’ll wait here for you.

Set up Shopify VAT collection

  • From your Shopify admin, head to Settings > Taxes.
  • Under Tax Regions, besides EU, select Set up
  • Under VAT Collection, select Collect VAT
  • Select your registered country/countries.
  • Enter your VAT number. If you haven’t got it yet, you can update this later.
  • Select Collect VAT.
  • To add more regions or account numbers, select Start Collecting VAT.

NB: You can override tax rates for specific products if need be. See Shopify’s guide on that here.

Once you’ve completed this process, you’re done - it only needs to be set up once. 

For additional information on managing taxes and making changes, check out Shopify’s guide here.

A2X for Shopify Taxes

Staying on top of your Shopify VAT is just one small aspect of managing your ecommerce bookkeeping properly, but it’s easier said than done. 

A2X automatically calculates every line item that went into a bank deposit from the platform so that in your accounting software, you have journal summaries for each settlement. Rather than sending individual orders across, A2X organizes your books for you into these summaries, giving you every detail you need without clogging up your system.

A2X organizes your accounts via the accrual method, giving you a better handle on your business performance, peaks, and troughs throughout the year. It also splits statements by month so that you can track and plan on solid, reliable numbers. 

Save time, headaches, and money by integrating A2X for Shopify with your accounting software, and start your free trial today!

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