Shopify VAT: Everything Sellers Need to Know

In short: Shopify sellers must register for VAT when their sales pass the local VAT threshold, or when EU cross-border sales exceed €10,000. You then collect VAT at checkout and file VAT returns. You set up VAT in Shopify under Settings > Taxes and duties, and the One Stop Shop (OSS) lets you report EU sales in one return.

If you run a Shopify store, you need to understand VAT (value-added tax) to stay compliant and avoid costly penalties. You may be new to e-commerce or an established seller. Either way, this guide explains everything you need to know about Shopify and VAT.

What is VAT?

VAT is a consumption tax on goods and services, charged at each stage of production and distribution. For e-commerce businesses, this means you must collect VAT from customers and pay it to the right tax authorities. Where and when you do this depends on factors such as location and sales volume.

When do Shopify sellers need to register for VAT?

Shopify sellers need to register for VAT based on where the business is located and where and how much it sells:

• EU-based businesses:
  
  • Domestic sales: If your Shopify store is based in an EU country, you must register for VAT at home once your sales exceed the local VAT threshold.
  • Cross-border sales: You may sell to customers in other EU countries. If your total cross-border sales exceed the EU-wide threshold of €10,000, you must charge VAT based on the customer's location. You can manage this through the One Stop Shop (OSS) scheme, which lets you report and pay VAT for many EU countries in a single return.
• Non-EU businesses:
  
  • Non-EU businesses selling goods to EU customers on Shopify usually have to register for VAT. If they supply services (B2C) to customers in the EU, they can register for the non-union OSS scheme. If they sell physical products worth under €150, they can use the Import One Stop Shop (IOSS) scheme.

How do you set up VAT in your Shopify store?

You set up VAT in your Shopify store under Settings > Taxes and duties in your Shopify admin. Follow these steps to configure your VAT settings and stay compliant:

1. Access tax settings:
   
   • Log in to your Shopify admin panel.
   • Go to Settings > Taxes and duties.
2. Set up tax regions:
   
   • In the Tax regions section, click Set up next to the region where you want to collect VAT.
   • For the European Union, select Collect VAT.
3. Enter VAT details:
   
   • Choose the countries where you are registered for VAT.
   • Enter your VAT number for each country. If you don't have your VAT number yet, you can leave this field blank and add it later.
4. Configure tax rates:
   
   • Shopify automatically applies the standard VAT rates for the countries you selected.
   • If your products have reduced or zero-rated VAT, you can create tax overrides in the Product overrides section.
5. Display prices with VAT:
   
   • Decide whether to show product prices with or without VAT. You can change this setting in the Tax calculations section.

When you set up VAT correctly in your Shopify store, the right tax is collected at checkout. This keeps you in line with the law and makes pricing clear for your customers.

How does VAT apply to Shopify fees?

For most VAT-registered businesses in the UK and EU, Shopify fees fall under the reverse charge, so Shopify does not add VAT to them. As a Shopify merchant, you need to understand how VAT applies to the fees Shopify charges:

• Subscription and transaction fees:
  
  • For VAT-registered businesses in the UK and EU (except Ireland), Shopify does not charge VAT on subscription and transaction fees. Instead, these fees fall under the reverse charge mechanism.
  • Under the reverse charge, the duty to report VAT moves from the service provider (Shopify) to the buyer (the Shopify merchant). This means you must account for both the input and output VAT on these fees in your VAT return.
• Accounting for reverse charge VAT:
  
  • When you record Shopify fees in your accounting software, apply the reverse charge VAT rate. This records both the VAT you owe (output) and the VAT you can reclaim (input). The overall effect on your VAT bill is usually neutral.

Accounting for VAT on Shopify fees correctly is key to compliance and accurate financial reporting.

How do you file VAT returns and pay VAT as a Shopify seller?

As a VAT-registered Shopify seller, you must keep accurate records, file VAT returns on your tax authority's schedule and pay the VAT you owe on time. Once registered for VAT, you must:

• Keep accurate records:
  
  • Keep detailed records of all sales, expenses and VAT collected. This includes invoices, receipts and digital records, as required by tax authorities.
• Submit regular VAT returns:
  
  • File VAT returns on the schedule set by your local tax authority, typically quarterly or annually.
  • Include all the required details, such as total sales, VAT collected and VAT paid on business expenses.
• Pay VAT:
  
  • Pay the VAT you owe to the tax authorities by the set deadlines to avoid penalties.

VAT compliance software that works with Shopify, such as the software offered by Taxually, can simplify this process. It helps you manage VAT accurately and efficiently.

How does the One Stop Shop (OSS) scheme help Shopify sellers?

The One Stop Shop (OSS) scheme lets Shopify sellers report and pay VAT on EU cross-border sales through one registration and one quarterly return. For businesses selling across the EU, the OSS scheme simplifies VAT compliance:

• Single VAT registration:
  
  • Register for VAT in one EU member state. Then use this registration to report and pay VAT on sales to customers in other EU countries.
• Consolidated reporting:
  
  • Submit a single quarterly OSS VAT return that covers all your eligible cross-border sales within the EU.
• Eligibility:
  
  • Both EU and non-EU businesses can use the OSS scheme (the union and non-union schemes) for sales within the EU.

Using the OSS scheme cuts your admin work and makes it simpler to expand your Shopify store into many EU markets.

How can you automate VAT compliance with the Taxually Shopify App?

The Taxually Shopify app automates VAT calculations, registrations and returns for Shopify sellers. Managing VAT by hand can be complex and slow, especially for cross-border sales. The Taxually Shopify app makes VAT easier for Shopify sellers by:

• Automating VAT calculations so the right tax is collected at checkout.
• Handling VAT registration in multiple countries, including EU and UK compliance.
• Preparing VAT returns and filing them directly with tax authorities.
• Providing real-time tax reports to help you stay on top of your VAT obligations.

When you connect Taxually’s app to your Shopify store, you cut admin work. You can then focus on growing your business while staying VAT-compliant.

How can Shopify sellers stay VAT-compliant?

VAT as a Shopify seller doesn’t have to be overwhelming. When you understand VAT thresholds, registration and collection, you can keep your Shopify store compliant and build customer trust.

Use Shopify’s built-in tax tools and the Taxually Shopify app to simplify VAT management and stay fully compliant. 

Do you need help with your VAT compliance? Book a free call with one of our VAT experts to find bespoke solutions for your business, optimize your VAT costs, and reach millions of new potential customers. 

How Taxually handles this

Taxually’s CrossTax handles VAT registration, VAT, OSS and IOSS returns and fiscal representation in the countries you sell into, and checks your sales data against 250+ validation rules before each filing. OneTax then pays every tax authority with one bulk payment in your chosen currency.

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