VAT business to business UK, EU and Rest of World

Shopify Partner
1 0 2

I'm looking at replacing a custom ecommerce system for a UK business client with Shopify but although I've crawled through the forum and emailed Shopify support, I can't see how their tax calculation can be handled, and presumably this applies to loads of other UK and EU businesses.

The tax applied is dependant on the purchaser's BILLING address and the rules are

1.  If the billing address is in the UK the tax is 20%.

2.  If the billing address is in the UK and the client has provided a valid VAT number, there is no tax paid.

3.  If the billing address is elsewhere in the world, no tax is paid.

Has anyone managed to handle this?  And if so, how?

The idea scenario for me would just to be able to write a replacement tax calculation routine, but no idea if that is possible.

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Shopify Staff
Shopify Staff
216 0 18

Hi Iain, 

Jamie here from Shopify. Great question! Taxes are typically charged on shipping address rather than billing address. This is pretty standard. To give you a reference, Amazon behaves the same way - see link

1. This is relatively straight forward. You will want to make your tax rate for the UK %20. This will cover all orders that are shipped to the UK. This doc goes into more detail. 

2. You can use a tax exemption to remove taxes for your B2B customers that provide a VAT number. This doc goes into more detail. 

3. You can take off taxes for rest of world using the manual tax settings referenced in step 1. This doc has a neat little customization you can use to integrate VAT into your prices for your local customers and show a price without VAT for international customers. 

I hope that helps! If you have documentation showing that you need to tax based on billing address give us a shout - support@shopify.com :) 

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Shopify Partner
27 0 1

Hi Jamie,

Does the same count for the Republic of Ireland? 
Meaning that we should charge 23% Tax to all Irish customers and 0% to all International Customers?

Appreciate your help,

William
 

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Shopify Staff
Shopify Staff
216 0 18

Hi William, 

You certainly can use the same customizations to charge taxes for your domestic customers and no taxes for international customers. Whether you **should** charge your taxes this way can vary based on industry, region, customer type etc. It's typically best to speak with a tax professional in your area to confirm the rates you need to charge moving forward. 

Cheers! 

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Excursionist
20 0 9

Hi, I have been using Shopfy for some time based in the UK.  I'm afraid Shopify has never been properly adapted to 'handle EU VAT rules, and Jamie's guidance on handling thes eissues are rather less useful than he suggests. 

To recap basic EU VAT rules: if you're UK based, you charge UK VAT rates (normally 20% unless a product is VAT exempt or the rare 5.5% cases) to all consumers and non-VAT registered businesses across the EU.  The rate charged should be UK rate, no matter that you may be, for example, shipping to France where the local VAT rate is 19.5%.   (Note there are now however different provisions for sales of non-physical products - eg downloads - across EU borders )    

Where you are shipping to a VAT-registered business, you should provide teh facilityf or them to give you their VAT reg number, and then you should sell to them without charging VAT.

Where you are shipping to a customer outsiude the EU, no VAT is chargeable.  You are technically free to charge the full VAT-inclusive price and pocket the VAT not charged, but this may impact your non-EU business: non-EU customers familiar with VAT rules (for example those in Guernsey & Jersey, in Norway, and many middle-eastern customers) can get pissed off, and competitors who take off the VAT will undercut you. 

In terms of how you handle the above in Shopify:

  1. Shopify allows you to set up a tax rate to be charged by country.  So you set up 20% for every EU country (I'm afraid you have to go through every country listed and be clear which countrioes are and aren't in the EU - for example Jersey, Guernsey, Norway aren't, even though you might think they are).  You set up 20% for the rest of the world.
  2. Now comes the tricky bit.  Shopify also allows you to choose whether your product prices are inclusive or exclusiove of tax.  You might think, given that prices in the EU are generally displayed inc. VAT (unless you're a pure business-business site), you would choose the "my prices include taxes" option.  The only problem with that Shopify then interprets it as that you charge the same price everywhere, even for customers outside the EU.  So you are forced to charge inc VAT prices even for such customers: the only way to not charge VAT is to refund the VAt element manually after an order is placed.
  3. There is a way round this.  You can choose "my prices don't include taxes" in settings and Shopify will then add on VAT for customers within the EU, butnot those outside. The catch is that you then have to enter ex-VAT prices into Shopify for each product, as it will add on the VAT.  And if your site is a consumer site where product prices have by law to be displayed inc. VAT, you must get your theme adapted to add in the VAT whenever a price is displayed - eg on product & collection pages, in the basket, etc.  Also, since you are starting with ex-VAT prices in teh system which will generally be strange numbers (eg £10 inv VAT price equals £8.33333... ex-VAT, you will get funny rounding issues on prices when displayed, and in totals across multiple products at checkout. 
  4. Now for the business-to-business case.  Jamie's solution of tagging a customer as non-taxable wiorks if you have a few regular customers for which you set up records beforehand.  It DOESN'T work for the more likely case where customers are coming in on-line for the first time, and just want to enter their details and order.  Because (a) flagging a customer s non-taxable is a manual process, and (b) there is no mechanism to capture a customer's VAT number within Shopify.  And unfortunately the sections of Shopify dealing with checkout where customer details are entered, aren't tailorable in the way that most other aspects of Shopify can be tailored via a theme.   

I keep seeing exasperated posts from new UK customers who have just discovered these fundamental limitations - often after investing considerable effort ina  site - and are amazed that Shopify lacks such basic capabilities to handle European retailing.  The fact is that these issues have been known about for more than 10 years, and Shopify somehow refuses to acknowledge the issues, instead pretenting via simplistic stuff like Jamie has posted, that it isn't really a problem.

Sorry!

 

Dan

 

4 Likes
Tourist
20 0 3

Well put Dan. How Shopify can keep ignoring this issue is totally unproffesional and shows a lack of knowledge to the taxation rules of the countries that they not only supply their product to but also register local offices with. Its unfair on CS reps to have to keep telling us there is nothing they can do, its unfair that we are expected to hire developers at our own cost to get this sorted. 

Its such a basic requirement that essentially Shopify are really implying "We are fine for the Home business, but anything B2B we are not interested in", even though B2B often tends to have a higher Sales Turnover which make Shopify more profit.

I think this is also losing us sales. If someone wants to buy things for their business through us there is no exVAT price, which their accounts department would then assume we are not VAT registered which inturn would lead them to believe that they have no way of recovering the 20% when its time to submit your VAT returns,

NB. We came here from Volusion which does have this implemented and we also roadtested BigCommerce that also has this implemented. We didnt notice it was not implemented here until it was too late and the move between providers was already underway.

Im going to stop now. I feel a full blown rant and rave coming on.

 

Tin.

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Highlighted
Excursionist
10 0 8

Hi guys,

many of you experience the same problem with EU VAT handling. Since Shopify still not has a proper solution for this, I decided to set up a petiotion. Maybe we can convince Shopify together. Let's unite!

 

http://www.ipetitions.com/petition/shopify-eu-vat-exemption

 

#ShopifyVATexemption

4 Likes
Tourist
3 0 2

The petition is up to 44 signatures now. This is ridiculous. Nobody at Shopify is listening.

We contacted Shopify by phone today. They have suggested tagging customer accounts, but as Dan has said above, this doesn't help with any new customers that come to the site.

Do Shopify want UK customers?

1 Like
New Member
1 0 1

Just doing a serious evaluation of moving over to Shopify from Magento. This VAT issue and clsoely related with the delivery options not being postcode linked has all but meant we are no longer considering Shopify.

Conclusion - Shopify isn't UK friendly.

Pity so much of it looks amazing

1 Like
Shopify Partner
52 0 27

Hi guys,

We have recently created a solution to address problems with selling to VAT-registered businesses in the UK and other EU countries.

Our app allows to get and validate European VAT numbers from your customers and automatically set VAT-registered businesses as tax exempt in Shopify when applicable. This means that your business customers will not be charged VAT during the checkout.

All these features are available in our invoicing app Sufio.

 

We have also published a short guide that explains when Shopify stores should charge VAT when selling to consumers and businesses in the EU.

If you have any questions just let me know. Looking forward to your feedback!

-Katy from Sufio

1 Like