How EU App Devs are managing VAT/GST taxes on app sales?

[nikolays]

I've been told that Shopify performs as a merchant of record so they take care of remitting VAT on app subscription sales on my behalf. But they are not able to provide with any proof.

My tax advisor says in this case that if we declare income as vat exempt - it might happen that during audit we would need to proof that it has been remitted by Shopify.

Curious how is this working for you?

[TeemuEAS]

Hi Nikolays, 

None of the e-commerce platforms take any official role in tax compliance like those deemed marketplaces have to at least in Europe. Especially not that of the MoR. You will need an app + a party to handle the registrations, filings etc. At EAS we serve hundreds of sellers of digital goods: https://apps.shopify.com/eas-eu-compliance

The EU and UK regulators have introduced laws requiring PISPs to report sales to officials (CESOP). Whereas physical goods pass through customs, digital has not had such a gatekeeper until now. Do not get caught selling without compliance, we are working hard to clear backtracked tax issues for a number of companies and it is infuriatingly long process. Get it right from the start, get in touch with us. 

[nikolays]

This is not related to my question

[TeemuEAS]

Hi Nikolays,

Please elaborate further. 

1. Shopify does NOT take the role of Merchant of Record

2. Shopify does NOT remit the VAT on subscriptions or anything else to tax authorities

Above is the reason they are not able to provide any proof. 

Cross-border sales are accounted for as tax exempt as your tax advisor said. Except that you are are NOT paying any taxes on those sales anywhere so you would NOT have any proof of such payments having been made. 

We are here to assist. 

[nikolays]

Hi,

https://help.shopify.com/en/partners/getting-started/sales-taxes#taxes-on-app-and-theme-sales

>> If you're a Shopify Partner who sells apps or themes on the Shopify platform, then the jurisdiction of the merchant purchasing the app or theme might require that you remit taxes for these sales. Shopify calculates and remits these taxes to the local tax body..

Also this was confirmed by Shopify Billing support.

[TeemuEAS]

Nikolays, thanks for your patience: I missed the key word here, App. This is where Shopify does participate in the process to much larger degree than with regular sales on the platform. Apologies. 

[Kretivo]

This is a very important question for all app developers who have their apps on the Shopify App Store. The payout slip that Shopify generates does not include detailed information on every subscriber and their country. While it is true that from the Payout section in your Shopify Partner Dashboard (under Payouts) you can click on each payout link and see where each user is from—some are from the US, others from the EU, some from the UK, and so on—the issue remains unresolved for Shopify App Developers, particularly in cases like ours, where we are based in Germany.

The payout slip does not indicate which customers have actually paid VAT and which have not, based on their location. According to the following link from Shopify’s documentation:

Taxes on Partner Sales - Shopify Help Center

Shopify calculates and remits these taxes to the local tax body if the following conditions are met:

- Shopify has a business presence in the jurisdiction where the merchant is located.

- The local tax body requires Shopify to charge taxes on apps and themes.

The first question is: Does Shopify have a “business presence in the jurisdiction where the merchant is located”?

Additionally, the payout slip indicates that this payout is initiated from Canada, which makes it a B2B cross-border transaction and adds another layer of complexity. As a result, it is unclear how EU-based app developers should handle remitting 19% VAT for all users. We are left to assume that all users are EU-based, even though many may be from the US (for whom 19% VAT should not be remitted). This adds another layer to the problem.

Given these issues, I believe Shopify needs to clarify this situation once and for all, perhaps by providing a detailed payout report and a clear strategy for handling VAT reporting.

If Shopify states that it does not remit taxes for such payouts, especially since the payout slip sender is listed as Shopify Inc., Canada, then as a German-based app developer, we are unfortunately left with no choice but to indicate that 19% VAT is remitted, regardless of whether some users are from the US or the EU. This, I assume, is the current situation.

Suggestions for Shopify’s Finance Team:

1.Shopify Collects VAT: Automatically collect 19% VAT for sales to German merchants/customers and other applicable EU rates.

2.Automated Reporting: Provide detailed VAT breakdowns via the Partner Dashboard for easy reporting.

3.Reverse Charge Handling: Flag all reverse charge transactions and provide templates for Finanzamt reporting.

4.Integration: Allow partners to export VAT data into German accounting software seamlessly.

I hope this feedback is helpful.