Set up EU taxes in your Shopify store

Shopify Taxes EU Flag

In this article, you will learn how to configure taxes if your Shopify store is based in the European Union.

The most important distinction when it comes to charging VAT in your online store is whether your business is VAT-registered or not. This topic is further elaborated on in our Shopify VAT guide for selling to EU customers.

If your business is VAT-registered and you want to sell to both consumers (B2C) and business customers (B2B) in different countries of the European Union, you will need to set up your tax settings and tax rates correctly.

In this article we will discuss

Tax settings

To charge VAT to some customers and not to others, Shopify allows you to choose from two possible configurations, based on how you want to display product prices on your online store.

Display product prices including VAT

If you are selling primarily to consumers (B2C) or the legislation in your country requires you to display tax-inclusive pricing, you can choose to have product prices as including VAT.

To display your prices including VAT, but still allow your business customers to have VAT deducted at checkout:

  1. In your Shopify admin, go to the Settings → Taxes page.
  2. In the Tax calculations sectioncheck the All prices include tax and the Include or exclude tax based on your customer's country checkbox.
  3. Save your changes.

Shopify product prices tax-included

Display product prices excluding VAT

In case your customers are predominantly businesses (B2B) you can choose to have your product prices displayed as excluding VAT.

To display your prices excluding VAT:

  1. In your Shopify admin, go to the Settings → Taxes page.
  2. In the Tax calculations section, uncheck the All prices include tax and the Include or exclude tax based on your customer's country checkbox.
  3. Save your changes.

Shopify product prices tax-excluded

Tax rates in the EU

In the EU, you need to charge different tax rates when selling physical and digital goods.

Selling physical goods

When selling physical goods to customers in the European Union, you should charge your home country's VAT rate.

VAT for physical goods in the EU

German stores should charge customers in different EU countries the German VAT rate for physical goods

To set VAT rates for selling physical goods:

  1. In your Shopify admin, go to the Settings → Taxes page.
  2. In the Tax regions section for the European Union, click Set up.
  3. In the VAT Collection section, click on Collect VAT.
  4. Select the country you are registered in and enter your VAT registration number. If you have applied for a VAT registration number but don't have one yet, leave this field blank. You can update it later when you receive it.
  5. Save your changes by clicking on the Collect VAT button.

Surpassing VAT threshold in a different EU country

If your taxable turnover in the last twelve months in a different EU country surpasses its VAT threshold, you will have to register for a local VAT registration number and charge the country's VAT rate instead. To learn more about VAT thresholds, please look at our EU VAT guide for Shopify stores.

Suppose you have a business based in Germany. However, you have surpassed the VAT threshold in Spain, so you have registered for the Spanish VAT registration number. Now, the German VAT rate of 19% applies to all EU countries except for Spain. You should charge your Spanish customers with the new Spanish VAT rate of 21%.

VAT for physical goods when registered in another EU country

Tax rates for a German Shopify store that also has a local VAT number in Spain

In order to charge your Spanish customers with the correct VAT rate, you need to add a Spanish VAT registration number to your tax settings.

Shopify gives you the option to add a local VAT registration number for a different country, allowing you to charge correct VAT rates.

To add the local VAT registration number, follow the same steps as when adding your home country’s VAT registration number.

In case you cannot select the additional country you are VAT-registered in, you will need to create a shipping zone for it first. To create a shipping zone:

  1. In your Shopify admin, go to the Settings → Shipping and delivery page.
  2. In the Shipping section, click Manage rates → Create shipping zone.
  3. Type in the name of the shipping zone, add the country (or countries) you are VAT-registered in using the search bar, and when finished, click Done.
  4. To make this zone available, add the shipping rates.
  5. Save your changes.

Selling digital goods

When selling digital goods (such as e-books, downloadable music, stock photographs, or online courses) to customers in the European Union, you should charge VAT at the rate applicable in the customer's country.

This means that customers from different countries should be charged with different VAT rates (from 15% to 27%). Shopify allows you to set these tax rates for individual EU countries automatically.

VAT for digital goods in the EU

Consumers buying digital goods should always be charged their local VAT rate

To set tax rates for selling digital goods:

  1. In your Shopify admin, go to the Settings → Taxes page.
  2. In the Tax calculationssection,click Charge VAT on Digital Goods.
  3. Shopify will automatically create a new collection named Digital Goods VAT Tax.
  4. To have VAT applied at checkout for European customers, add all your digital products on your online store into this collection.
  5. Save your changes.

Note

If your Shopify store sells to both consumers and business customers, make sure your business customers are set as VAT-exempt in Shopify.

Caution

As of January 1, 2021, the UK is no longer part of the EU. Consequently, new regulations apply to direct sales between the UK and the European Union.

When selling to consumers (B2C) or businesses (B2B) from the EU directly to the UK, you must register for a UK VAT registration number, and the applicable VAT rate is based on the total value of the order. Orders worth less than £135 are subject to 20% VAT at the point of sale. Orders worth over £135 are subject to import VAT rules.

Get your free Shopify Tax Guide

Charging your customers the correct tax rates is essential for your business.
Get a free copy of our easy-to-read guide and kick off your sales!

Invoices

Once your tax rates are set up correctly in your online store, Sufio will automatically create valid invoices with a detailed breakdown of the charged VAT.

Invoices can be created in multiple languages and include all the necessary details to make them compliant with the invoicing legislation in the EU.

Issuing invoices with the correct tax breakdown is essential for your bookkeeping and tax purposes.

If you are selling to businesses (B2B), Sufio invoices display all the required information including VAT identification numbers of your store and your business customers.

Last updated on March 8, 2020.