Once you’ve set up taxes correctly in your Shopify store, you will need to decide whether you want to include or exclude them from your product prices.
To include/exclude taxes in prices:
- Go to Settings → Taxes in your Shopify store admin.
- Scroll down to Tax calculations,
- To include taxes check “Show all prices with tax included”.
- To exclude taxes, leave “Show all prices with tax included” unchecked.
The difference between including and excluding taxes
For example, a Shopify store based in Germany is selling a product with the price €20.
The store should charge 20% tax to customers in Germany and 0% tax to customers in the US.
The table below shows how much the customer from Germany and the customer in the US will eventually pay when the tax is either included or excluded from the price displayed on the product page.
|Price excludes tax||Price includes tax|
|Customer in Germany pays||€24 (€20 + €4 tax)||€20 (€16.67 + €3.33 tax)|
|Customer in the US pays||€20 (no tax)||€20 (no tax)|
Price excludes tax
In this case, the customer from Germany will pay €24 in total, therefore €20 for the product plus €4 tax, while the customer from the US will only pay €20 for the product without any taxes.
This is in line with accounting legislations in many countries where VAT or GST is charged.
Having taxes excluded from product prices means that your product prices will be displayed without taxes in your Shopify store.
However, in some regions (such as the EU), consumers are accustomed to seeing prices including VAT when shopping.
If you want to display prices including VAT and still keep taxes excluded from your product prices, you will need to modify your store theme to display prices including VAT on product pages.
This setup allows you to charge taxes to some customers but not to others. For example, you can charge taxes to consumers but exempt your business customers from VAT in the European Union. Also, in some countries, disabled or indigenous people should not be charged taxes on certain products.
Price includes tax
In this case, both customers will pay the same price of €20.
However, the customer from Germany pays €16.67 for the product plus €3.33 tax, whereas the customer from the US pays €20 for the product. This means that the US customer eventually pays more for the product than the German one.
The advantage of having taxes included in the price is that all customers see the final price.
This setup is not suitable for stores that need to VAT exempt some customers such as businesses.