I am running my shopify store from the UK, however we ship to the UK, US, Canada and Australia.
I'm currently including VAT in the price of my product as I don't want the customer to be put off by extra fees in checkout.
By doing this, where and how do I need to pay sales taxes? Would it just be in the UK, and how do I calculate that.
Hi @plumel ,
I guess you're selling physical products. In that case, you only need to charge UK VAT in your sales in the EU if you've registered for VAT in your country. Only when you surpass a distance-selling threshold in any EU country, you'll have to collect local taxes. You have more information about distance selling in the EU in this article.
So far you don't have to collect any sales tax in US, Canada or Australia if you don't have a permanent establishment (or warehouse) in those countries.
Nick here from Shopify.
Really great question, taxes are often difficult to figure out even on the best of days. The first thing I will always recommend with questions like this is to visit your local tax office or a professional accountant. Someone in your local area would know the tax laws best for you. The main reason I am recommending this is that you need to decide whether you are obligated to charge sales taxes to your customers, to figure out whether your product is taxable, and whether you need to charge sales tax based on an origin basis or destination basis. These tax laws differ for every country and even regions within countries.
Once you have visited a tax expert/ accountant you can look to apply your tax rates within Shopify. You can do this by going to Store Admin > Settings > Taxes > Tax Rates > Base Taxes. Here you will enter the rates that apply in the country and any regions you want to sell to. Shopify has a helpful guide going through all the steps you need to take for setting up sales taxes for countries based outside of the USA and Canada which you can see here.
Something else I thought worth mentioning was tax overrides and exemptions. This enables you to override tax rates and control how much tax you would charge for a particular, product or collection. An example would be a VAT exemption in the UK. You can see more about tax overrides and exemptions from the Shopify help guide about it here.
Hope this helps!
All the best, Nick
Hi. The first reply was essentially right. You charge standard 20% UK VAT for any shipments going to the UK or any other EU country. The only exception is if your sales to a particular EU country exceed a given threshold (€35,000 for some countries, €100,000 for most), at which point you have to register for VAT in that country and start charging that country’s VAT rate for shipments destined there. In Shopify you just set tax as 20% for all EU countries.
For non-EU countries no VAT is chargeable, so you set tax as zero for rest of the world. The only wrinkle is that if you have set your prices to include taxes, then non-EU customers will be charged the same VAT-inclusive price as UK/EU customers, even though VAT isn’t chargeable. That means you get a higher margin for these sales, but customers in locations that have VAT-type taxes (eg Australia, Canada, Channel Islands) or foreign-based expats expect to have VAT taken off and resent effectively having to pay it as well as the local customs & tax charges on importing the shipment. We - and many Shopify retailers - get around this by offering heavily subsidised shipping rates to compensate (we charge the same rate for overseas shipments as we do for EU). It’s not very satisfactory though: we originally were on Magento which handles EU VAT rules properly, and we noticed a big drop-off in non-EU sales when we moved to Shopify.
Shopify themselves make a big play about a workaround that allows you to charge ex-VAT prices to non-taxable customers. It involves unsetting “my prices include taxes” so that prices are entered ex-VAT and then modifying your theme so that those prices are displayed on the site with VAT included (which, incidentally, is a legal requirement for any consumer-targetted retailing, not just desirable). We have tried that but the problem they don’t mention is you get rounding errors: so, for example, two items at £5 and £11 inc VAT translate to £4.17 and £9.17 respectively ex- VAT, and the checkout then calculates the total inc VAT as £16.01 rather than the £16 the customer expects. I have raised this with Shopify support, but they just keep pushing their solution.
Hope this helps
I am too experiencing this wrinkle with regard to VAT outside of the UK and EU. Our competitors charge 20% less to rest of world countries (which will soon expand to include EU when the UK leaves), after initially setting up the store with prices to include taxes I soon realised that I needed to uncheck this option and work from a net price as we have B2B customers in the EU which are tax exempt. I used a developer to tweak the code so as products display a Vat inclusive price (legal requirement as rightly said) and an International price, this workaround does work but at a cost... www.britemax-direct.co.uk
As Dan previously said there is a rounding issue.
Also, I could only enter net prices to two decimal places, despite being told I could override this with a CSV import it never worked, as a result, some selling prices such as £22.95 don't work, it either has to be 22.94 or 22.96, bit annoying...
Having got over these wrinkles, I soon realised that working from a net price negates all the cool sales orientated features and feeds for marketing purposes. Such as social media feeds and Google Shopping feeds, these I have had to do manually as the feed can only pull in the price associated with the product record which is net? Also comes into play with structured data apps, same problem and structured data will be a major player for SEO in 2020.
Having previously built a few Shopify sites for startups (so no vat issue) I sang Shopify's praises to my current client and convinced them to migrate from their current platform only then to discover all these issues around VAT and international selling. It has honestly kept me awake at night, I know I should get a life yeh! but for me is a bit of a deal-breaker.
I am also going to write to Shopify support and ask how this can be improved and how do I achieve the results required with the platform. I was hoping to build my business around the Shopify platform but have been put off by this issue. I was hoping to attend a Shopify meetup - https://meetups.shopify.com/ but the London link just returns an error and has no venue yet. :-(
I will post back if I get any more info, would be interested to hear how other people are dealing with this issue?
Heres the website address if anyone wants to take a look www.britemax-direct.co.uk
I had a look at your store and I like the way you deal with the issue by subsidising the shipping. Its also explained well in the delivery page text. I am in the process of separating our B2B and B2C business across 2 Shopify stores, I am then planning to revert back to tax inclusive pricing for the B2C store. I will either do the same as you, subsidise the shipping or I tested tagging customers with certain country codes, those tagged can then use a discount code at checkout to reduce the total. The code for ROW customers would be displayed on an announcement banner. Does mean that ROW customers wouldn't be able to benefit from promotions though. I guess there is no perfect solution at present...