New Tax Configuration for EU - What you need to know

[Donohue]

Hi everyone! Thanks for being such an awesome community. 

We recently shipped an update to Shopify for merchants selling within the EU. You may have seen it - if not, you can check it out under Settings > Taxes in your admin, and look for "European Union" on the list of regions for taxes. From here, you can add your VAT registrations and Shopify will handle calculating taxes for you within the EU. 

We've had a good amount of support interactions that are asking "Why is tax being charged everywhere within the EU when before I had it configured to charge taxes in only my home country?

I figured this would be a good place to address the change.

The European Union is made up of 27 different countries. Each of these countries charges VAT (Value Added Tax) on sales made within the EU. That means all regular sales must have VAT applied.

Knowing which VAT to charge

If you’re a merchant selling within the EU, it’s likely you’ll need to make sure to include VAT in your sales prices. This rate of VAT changes depending on the type of goods you’re selling, and where you are selling them within the EU.

Selling to customers within your home country

Selling to customers in your home country is pretty straight forward. You apply your local VAT rate on all sales in your home country.

Selling to customers in other countries within the EU

If you are selling to customers within other EU countries, the VAT rate you apply will depend on how much you’ve sold in that country.

For example, if you’re located in Austria and you’re selling to customers in Germany and haven’t reached the ‘Distance selling threshold’ for Germany, you need to apply the Austrian VAT rate.

Once you have reached the distance selling threshold for Germany, you need to start applying the German VAT rate to all your sales within Germany. You will also need to report these sales to Germany.

In short, we're doing this automatically for you as long as you let us know where you're registered. You may not have been doing this before, so this change may seem a little bit foreign to you. Previously in Shopify, we provided a settings page that would let you individually configure the rates you had to charge. This fell apart when rates changed, or your liability changes. Now it's simple for you to update your registrations and we automatically apply the correct tax. 

Resource - European Union Tax

For B2B merchants - this might be a little bit different. You may not need to apply VAT to sales to other VAT-registered businesses. You can accomplish this by using our customer exemptions feature.