Shopify VAT –  For US, EU, UK & non-EU Businesses

Key Takeaways

• VAT stands for Value Added Tax. It is a consumption tax charged in many countries, including the UK and EU member states.
• You are not automatically Shopify VAT compliant. You need to add the right tax registrations and review your Shopify tax settings.
• If you sell in the EU, you may need a local VAT registration, OSS registration, IOSS registration, or a mix depending on where you are based and where you ship.
• Shopify supports EU tax setup options such as local VAT registration, OSS registration, and micro-business VAT registration.
• For UK sales, VAT treatment can depend on order value, business location, customer location, and whether goods are imported.
• Shopify can calculate duties and import taxes at checkout for eligible stores, but you need to configure your duties, import tax, and tax registration settings properly.
• For B2B sales in the EU/UK, VAT number validation and reverse charge rules can matter.
• Shopify Tax in the EU and UK supports automated calculations, VAT invoices, and threshold tracking.
• Always test checkout for your main buyer locations before going live with VAT settings.

Selling internationally on Shopify is exciting, but VAT can quickly become confusing.

VAT rules are different depending on where your business is located, where your customers are located, whether you sell B2C or B2B, and whether the order is domestic or cross-border.

In this guide, we’ll explain what VAT means, when Shopify merchants may need to collect VAT, how VAT works for US, EU, UK, and non-EU businesses, and what settings you should review inside Shopify.

This guide is for general understanding only. VAT rules can change and may vary by country, product type, and business setup, so it is always best to confirm your tax obligations with an accountant or VAT specialist.

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What is Shopify VAT?

To start with the basics, Shopify VAT (Value-Added Tax) is a tax levied on the sale of products and services from your Shopify store, which the buyer indirectly pays. This means that Shopify sellers need to collect VAT from their customers at the time of sale (in checkout) and remit it to the respective tax authorities in their countries. 

When setting up your Shopify store, it is essential to consider whether you need to charge VAT on your products and services if your buyers are from the EU member countries or the UK.

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VAT vs Sales Tax

VAT and sales tax are both consumption taxes, but they work differently.

Point	VAT	Sales tax
Common regions	UK, EU, and many other countries	United States
Charged on	Goods and services	Usually retail sales
Applied across supply chain	Yes	Usually at final sale
Invoice requirements	Often more detailed	Varies by state
B2B treatment	Reverse charge may apply in some cases	Exemption certificates may apply
Shopify setup	VAT registrations, OSS/IOSS, regional settings	State tax registrations and nexus settings

If you sell only inside the US, your main concern may be sales tax. If you sell to the UK or EU, VAT becomes important.

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When and when not to register for VAT?

Registering for VAT and charging it on your products is not a necessary step for every Shopify seller. Before you jump into enabling tax settings in Shopify, make sure to check if you fall under the criteria of mandatory VAT registration. Some common factors that determine whether or not you need to register are:

• Type of product: Not all types of products are taxed in all countries. Some are exempt from VAT.
• Location and threshold: Each country has its own minimum sales amount, after which you need to register for VAT. For example, the UK’s threshold limit is £90,000 in a rolling 12-month period.
• Cross-border trade: If you sell products to customers in other EU countries, their respective thresholds also apply.

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VAT for US, EU, non-EU and UK-based Shopify stores

VAT is charged differently for EU-, non-EU-, and UK-based companies.

Here are some use cases that’ll give you a better idea –

1. For Shopify businesses in the US

A US-based Shopify business selling products within the US

If you’re a US-based Shopify business, and all your buyers are from the United States, then you won’t need to collect VAT.

A US-based Shopify business selling products to customers from EU member countries

In the European Union (EU), each member country has its own VAT (Value Added Tax) rates and regulations. Therefore, the VAT rate you should collect depends on the specific country to which you are selling your products.

A US-based Shopify business selling products to customers from the UK

If you’re a US-based Shopify business selling products to UK citizens, then you’ll need to charge VAT at the UK’s standard rate, currently set at 20%.

2. For Shopify businesses in the EU member countries

An EU-based business selling products within the EU member countries

If your Shopify business is based in the EU (member states), you need to charge VAT as per the standard rate of your country.

An EU-based Shopify business selling products to customers from non-EU member countries

When an EU-based Shopify business sells products to customers in non-EU member countries, the VAT doesn’t come into play for those sales. Instead, sellers must collect the tax as per the import laws and regulations of the destination country. 

An EU-based Shopify business selling products to customers from the UK

If your Shopify business is based in the EU and sells products to customers in the UK, then you’ll need to charge VAT at the UK’s standard rate.

3. For Shopify businesses in the UK

A UK-based Shopify business selling products within the UK

If you’re a business established in the UK and you’re making taxable supplies of products or services, you need to charge VAT on those sales at the standard rate.

A UK-based Shopify business selling products to customers from EU member countries

If your UK-based Shopify business sells products to customers in any EU member country, you’ll need to charge VAT at the standard rate of that particular country. For example, if you’re selling a product worth €100 to a customer in France, then you’ll also need to collect 20% VAT (€20) from them as per French tax laws.

A UK-based Shopify business selling products to customers from non-EU member countries

When a UK-based Shopify business sells products to customers from non-EU member countries, VAT does not apply to those sales. The sellers need to collect taxes as per the destination country’s import laws and regulations.

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Charging Shopify VAT for B2B vs B2C customers

The buyer-seller scenario plays a significant role in VAT on Shopify. If you’re selling to both B2B and DTC on your store, then there might be differences in the VAT that you’ll charge on your products –

I. Selling to B2B customers

If you’re selling your products to your B2B/wholesale customers, you don’t need to collect VAT from them if they provide their valid VAT number during checkout.

Just make sure that your B2B customers have a valid VAT number so that they fall under the reverse charge mechanism in B2B transactions.

Don’t worry, we will show you how to set up tax exemptions for your EU-based customers later in this article.

II. Selling to B2C customers

If you’re selling your products to B2C customers, then you will have to collect VAT from them as per the tax rates applicable in their region. Later, you can remit it to the respective tax authorities.

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How to set up VAT for your Shopify store?

By now, you should have a basic idea of how VAT works for your type of business. The next step is to set it up inside Shopify based on where you sell, where your business is registered, and how you want taxes to appear to customers.

Before changing these settings, make sure you know where you need to collect VAT. Shopify can help calculate taxes, but you still need the correct VAT registration and tax setup.

A. Check that your products are set to charge tax

Before setting up VAT regions, first make sure your products and variants are marked as taxable.

From your Shopify admin, go to Settings > Taxes and duties.

If some products or variants are not set to charge taxes, Shopify may show a warning like:

You are not charging taxes on some product variants.

Click Edit variants and check the products or variants that should charge tax.

You can also check this from the product page. Open the product in Shopify admin and make sure Charge tax on this product is selected.

This is important because Shopify will not calculate VAT correctly for products that are not marked as taxable.

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B. Add the country or region where you want to collect VAT

In the current Shopify admin, VAT and tax collection are managed from Settings > Taxes and duties.

On this page, look for the Tax regions section.

This section shows the countries or regions where your customers will pay tax and where you will collect and remit tax. In the current Shopify UI, Shopify also mentions that you may need to create a shipping zone to add a new tax region.

To check or add a VAT region:

1. Go to Settings > Taxes and duties.
2. Scroll to Tax regions.
3. Check whether the country or region where you need to collect VAT is already listed.
4. If the region is listed, open it and configure tax or VAT collection.
5. If the region is not listed, create or update a shipping zone for that country or region first.

To create or update a shipping zone:

1. Go to Settings > Shipping and delivery.
2. Open a profile or add a custom profile and then add Zones.
3. Add the country or region where you want to sell.
4. Save the shipping zone.
5. Go back to Settings > Taxes and duties.
6. Check whether the new country or region now appears under Tax regions.

The important point is this: shipping zones only help make the region available. VAT is still configured from Settings > Taxes and duties, not from the shipping settings.

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C. Add VAT registration for the European Union

If you sell to customers in the European Union, you may need to add your VAT registration in Shopify.

To do this:

1. Go to Settings > Taxes and duties.
2. Under Tax regions, open European Union if it appears.
3. Choose the VAT registration type that applies to your business.
4. Enter your VAT number.
5. Save or click Collect VAT.

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D. Include or exclude tax based on the customer’s location

If you sell internationally, you may want Shopify to include or exclude tax based on the customer’s country.

For example, UK and EU customers usually expect VAT-inclusive prices, while US customers usually expect taxes to be added at checkout.

In Shopify, this is related to dynamic tax-inclusive pricing. The exact location of this setting can vary depending on your Shopify Markets layout and store setup. Some stores may show it in Markets preferences, while newer layouts may show pricing and tax settings inside each market.

To check it:

1. Open Markets from the main Shopify admin menu.
2. Open the market you want to edit, such as United Kingdom, European Union, International, or United States.
3. Check the market’s Pricing, Taxes, Duties and import taxes, or Tax display settings.
4. Look for an option related to including or excluding tax based on the customer’s country.
5. If you cannot find it, use Shopify admin search and search for dynamic tax-inclusive pricing or include or exclude tax based on customer country.

Do not worry if your Shopify screen does not match older tutorials exactly. Shopify has changed the Markets layout, and the setting may appear in a different place depending on your store.

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E. Set up duties and import taxes

If you sell internationally, you may also want to collect duties and import taxes at checkout.

In the current Shopify UI, this is available under:

Settings > Taxes and duties > Duties and import taxes

You may see an option like:

Collect duties and import taxes at checkout

This helps reduce surprise fees for international customers at delivery.

To set it up:

1. Go to Settings > Taxes and duties.
2. Scroll to Duties and import taxes.
3. Click Set up.
4. Review the countries, shipping setup, and duty collection options.
5. Save your settings.

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F. Display or edit VAT wording at checkout

By default, Shopify shows tax information in the checkout order summary when taxes apply to the order.

If your product prices include VAT, Shopify can show that taxes are included in the total. If product prices exclude VAT, Shopify can add taxes at checkout based on your tax setup and the customer’s location.

If you want to edit the wording shown in checkout, you can update your theme language:

1. Go to Online Store > Themes.
2. Click the three dots next to your active theme.
3. Select Edit default theme content.
4. Search for tax-related words like tax, VAT, or including.
5. Update the text carefully.
6. Click Save.

A commonly used label is:

Including {{amount}} in taxes

This only changes the wording shown to customers. It does not change how VAT is calculated. Actual VAT calculation depends on your tax registrations, tax regions, product tax settings, tax-inclusive pricing, market settings, duties setup, and customer location.

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Adding VAT option in checkout using Wholesale Pricing Discount app 

The Wholesale Pricing Discount app is a B2B app that seamlessly integrates with Shopify Markets. It allows you to show tax exemption for VAT and tax IDs (for B2B customers – based on customer tags, logged-in customers, and non-logged-in customers) during checkout.

• You can charge taxes from non-exempted customers who do not have a valid VAT number.
• Automatically collect VAT from non-exempted B2C customers without any interruption.

Note: You need the Wholesale Pricing Discount app installed in your Shopify store for this setup.

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Conclusion

As we conclude our discussion on setting up Shopify VAT, it’s important to recognize its significance. For business owners aiming to expand their reach and serve customers from EU countries, implementing Shopify VAT is crucial. It demonstrates commitment to compliance, transparency, and fosters trust with customers.

By understanding VAT complexities, you can accurately collect and remit taxes while avoiding legal consequences. With the outlined steps in this blog post, setting up Shopify VAT can be a seamless process. So, take action now and confidently sell to EU countries! Remember, staying informed and up-to-date on tax laws is an ongoing responsibility. Stay updated with any future changes that may impact your business.

Thanks for reading 🙂

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Frequently Asked Questions