How to handle VAT on gift cards under new EU regulations?

[Teoalessi]

HI all,

We want to add gift cards to our EU based e-commerce website.

According to the new EU VAT regulation our gift cards would fall in the Single Purpose Voucher (because at the moment of the sale we know it will be used only on our website and only for products that are subject to 22% VAT) and would therefore need to be taxed for VAT at the moment in which the card is sold.

In order to avoid paying taxes twice, when the card is sold and then again when the product is sold, we would have to find a way to deduct the value of the card from the taxable amount of the product purchase (as if it was a voucher) rather than consider it a method of payment.

Has anybody else had the same issue? How did you deal with it? Ideas/Suggestions?

[Victor]

Hi @Teoalessi,

Thank you for reaching out today, and this is a great question!

If I am understanding correctly, this EU legislation means a customer cannot be required to pay VAT when purchasing a gift card (or "Single Purchase Voucher"), and then charged VAT again when purchasing goods and services with that gift card?

Also, are the gift cards you are selling digital or physical gift cards? I ask as I believe in the European Union, electronically-supplied gift cards are not defined as a digital good:

This screenshot is taken from our Help Centre article on this topic.

If my understanding is correct, this means that electronically-supplied gift cards would not be classed as a digital good and as a result, no VAT would be applied. If this is the case, then the directive you have mentioned would not apply as no VAT was charged during the initial purchase of the gift card.

If you are selling physical gift cards, or if you believe my understanding here to be incorrect, please let me know and I can look into this further. If you are unsure, I would suggest consulting a tax professional to learn more about what your obligations are in this scenario.

Kind regards,

Victor | Shopify Social Care

[Teoalessi]

Dear Victor,

Thanks for your reply.

What I meant, though, is that based on the new legislation we must pay VAT on the sale of a giftcard.

If, for example, we sell a giftcard with a face value of 100€ the end consumer will pay 100€ and we will have to pay about 18€ vat tax (22% on 100€/1,22).

When the customer comes back to the website and uses the giftcard we run the risk of paying VAT again on the same 100€ (thus ending up paying it twice) because at the moment a Gift Card is treated by Shopify as a payment method.

If there a solution to used the gift card as if it was a voucher, and therefore reduce the taxable amount in the cart, and not as a payment method?

The consumer experience is not what worries me because by selling products with a VAT included price list they wouldn't notice anything, it's us, the venor, that would end up paying VAT twice on those, for example, 100€...

I guess the solution is either find a way to treat a gift card like a voucher when they are used on find a solution to sell vouchers as if they where products.

Any suggestion?

[Victor]

Hi @Teoalessi,

That makes some more sense so I appreciate you explaining that. Customers will be charged VAT when redeeming a gift card to pay for products, as they're paying the VAT on the products and the gift card is just a method of payment. However, no sales tax is charged when a gift card is purchased.

Can you just confirm the outcome you're looking for here? Would it be for the customer to pay VAT on both the gift card and then the goods they are redeeming with the gift card, as it seems you will now be required to pay sales tax on both? Or would it be for gift cards to still no longer include VAT charges on the customers end, and for the amount they pay when redeeming the card to increase so you're covered for the dual VAT charges you'll be required to pay?

It's a complex issue to get my head around, so I appreciate you detailing the situation.

Kind regards,

Victor | Shopify Social Care

[Teoalessi]

Hi Victor

---

. However, no sales tax is charged when a gift card is purchased.

This is the exact issue, at the moment, based on the new EU regulation, we were told by the accountant of the company that a sales tax will indeed be charged when the card is purchased.

And since this seems unavoidable, based on what we've been told and what I read regarding the regulation, I need to find a way to avoid paying it also when the card is used, otherwise I'd be paying it twice.

Let me try to clarify with an example here below:

A consumer buys a gift card for 100€

I, the seller, have to pay the VAT on that sale (based on the new regulation and the fact we fall in the "single purpose voucher" definition)

The consumer uses the card on the website as a method of payment to buy a product for 100€ (VAT included)

I, the seller, have to pay VAT again on the same 100€

I end up paying VAT twice (all fine for the consumer)

What I am trying to achieve, given the fact it seems I can't avoid paying VAT the for the sale of the gift card, is finding a way to avoid paying VAT when the card is used.

If I understand correctly Vouchers work in a different way, the value of a voucher is used to reduce the taxable amount of the products sold (as if it was a discount) so I thought this could be a potential solution... Is it?

So, just to summarise again:

1) The seller has to pay sales tax on a single use gift card 

2) The seller wants to avoid paying it again when the card is used

3) what can the seller do to achieve this?

I hope it is clearer now

Thanks

Matteo

[Victor]

Hi @Teoalessi,

Yes, that does clarify things. Thank you for detailing the situation for me.

The difficulty I'm facing here is that part of this equation is you paying VAT to the relevant tax authorities, which is something outside of our support scope. Excuse me if I being ignorant here, but please let me know if this scenario works or not:

• The customer purchases a $100 gift card. They pay no sales tax on the order, but you are required to pay VAT to the relevant tax authorities irrespective of this.
• The customer returns to the store and places an order worth over $100 and uses the the gift card as the method of payment. They pay VAT on this order.
• As you, the merchant, have already paid VAT for the sale of the gift card, you do not pay any VAT for this order.

This scenario would balance things out - the merchant pays the VAT when the gift card is sold, the customer pays the VAT when the gift card is redeemed. This should not leave you out of pocket.

I'm no expert on the merchant-facing side of paying VAT, or EU legislation, but it seems unusual that a law would be brought in that requires the merchant to pay VAT both when the gift card is purchased and when the gift card is redeemed. This leaves you in a position of either having to absorb the cost of the VAT due when the gift card is sold, or somehow adding VAT to gift card purchases for the customer - which also seems strange. I can't see anyone spending more on a gift card than what the gift card can actually be redeemed for.

In short, I would hope you could pay the VAT when the gift card is sold, if that's what this new EU law requires, and not pay it when the customer redeems the gift card and they pay sales tax on the order.

If I'm missing something here, let me know.

Kind regards,

Victor | Shopify Social Care

[Teoalessi]

Hi Victor,

Thanks for the effort.

Let me try a different approach

Is there a way I could use the value of a giftcard to reduce the taxable amount (as if it were a discount) instead of a method of payment?

Or, since vouchers already do exactly that, is there a way I can sell vouchers?

Thanks

Matteo

[Victor]

Hi @Teoalessi,

The main issue here is that discounts and gift cards are treated differently within Shopify, with discounts reducing the amount due in the cart and gift cards just acting as a payment method.

If, for example, a customer bought a $50 gift card, you could provide them with a $50 discount instead. The problem is though is the discount would be a one-time use only discount, whereas with a gift card the customer could use it multiple times to pay for cheaper orders. There's no fully effective way you could offer a discount in lieu of a gift card due to the differences in how they work in the Shopify system.

Are you sure that you are required to pay sales tax on both the sale of the gift and the order where the gift card is redeemed, even though the customer is paying only once? Has your accountant confirmed this? Apologies for repeating this question but on the face of it, it seems very illogical and harsh on merchants if this is the case.

In terms of selling vouchers, the answer is maybe - I'll need to look into this some more, but my initial thought is that it would prove difficult and would not be a like-for-like replacement for gift cards.

Kind regards,

Victor | Shopify Social Care

[Teoalessi]

Hi Victor

Thanks again for your answer.

I understand the difference between the two instruments, I was just hoping there was a solution.

I checked with the accountant and what he said it's not that we have to pay it twice, we could avoid paying it the second time if we were able to treat the giftcard not as a payment method.

So, basically, what he says is that we have to collect tax form consumer and pay it to the State when we sell the giftcard, we are not requested to do it when the card is used but I would need to find a workaround in the system to avoid doing it automatically. That's why I was thinking about using vouchers.

No problems, I'll think of something else and check with the accountant

Matteo

---

[Victor]

Hi @Teoalessi,

Thanks again for your clarification. I can see your logic here, but unfortunately the aforementioned differences between gift cards and discounts would make it difficult to find a suitable workaround.

Please feel free to come back to me here if you have any further questions down the line.

Kind regards,

Victor | Shopify Social Care

[Giacomo143]

Hi there,

thanks @Teoalessi for sharing this issue with the community.

We do confirm this is a mandatory request for all the EU based marchant: gift card must be vat included when sold.

Please check below the actual Shopify behaviour:

Unfortunately this actual Shopify limit turns the gift card "illegal" in EU because all merchants selling gift card without VAT could be accused of tax evasion.

IMHO having the "charge taxes" option available on gift card product as well will solve all. At the moment, trying to do this, the Shopify feedback (after flagging charge taxes and save) is the following error...

This issue is even more relevant in cases in which the merchant is selling phisical goods (I think 90% of the EU Shopify stores), because at the moment of the sale of the gift card the merchant know it will be used only on our store and only for products that are subject to 22% VAT.

@VictorCould you please let us know how to proceed in order to have this feature request added in the Shopify tech roadmap asap? Otherwise potentially all the EU Shopify store selling phisical goods will be forced to stop selling gift card (loosing money expecially during the Christmas period).

Looking forward to hearing you soon

Thanks

Giacomo

[Victor]

Hi @Giacomo143,

Thank you for providing more context on this issue. I have flagged this with our technical team here and they have asked me to submit this to them for a full review. I will be doing that and they'll take a look at this in more detail.

Kind regards,

Victor | Shopify Social Care

[theprince]

I have just setup gift cards and have the exact problem described above. Until resolved I would have to do a manual VAT report on gift cards and counter it against the VAT calculated at the actual sale  😞

[Giacomo143]

Hi there,

yes, @theprince you are right. I've been in touch with a Shopify Guru asking me all the info about this new regulation.

After sharing all the info (providing detailed informations from several trusted source - uk governement for ex), unfortunately the Shopify feedback received by mail was this:

Ella Bamba (Shopify)

Oct 25, 17:01 EDT

Hello Victor,

This is Ella, one of the Gurus here in Shopify. I am helping Gavin with some emails today! 🙂

Thank you so much for reaching us out regarding the gift card tax. I know how important it is for you. Since you have me, let's work through it together! 🙂

I can definitely understand where you're coming from, I would absolutely feel the same if I'll experience this. We definitely have no intention of making anyone(that includes you!) feel that we're leaving you guys alone in the dark. We always want to make sure that everyone using our platform and/or services feel safe, comfortable, at ease, and happy! Rest assured that we are, and will always be, continuously improving and developing our platform.

|Shopify Help Center :: Frequently asked questions about gift cards|

Since this is something that isn't available with our platform yet, as promised by my other co-guru, he raised this concern up already with our developer. Although there's no guarantee of an approval and when will it be rolled out in the future updates, but I have high hopes for this! 🙂

Alternatively, you may refer to this helpful document to know more on how gift card works in Shopify.

Since this is something that isn't available with our platform yet, as promised by my other co-guru, he raised this concern up already with our developer. Although there's no guarantee of an approval and when will it be rolled out in the future updates, but I have high hopes for this! 🙂

You can keep an eye on our Shopify News page to keep updated for the latest news about our platform.
That's about it from me for now! Furthermore, please know that my help doesn't end here so let me know if you have additional concerns or need further assistance and I'd be glad to lend a helping hand. 🙂

If you have further questions or clarifications, please do not hesitate to let me know in this email. However, I want to inform you that I'll be gone for my day-off, so you may not get a reply from me immediately. I will be back on Monday. If you would like to speak to us more, you may contact us on our live channels via Chat or Phone.

Regards,

Ella
Guru | Shopify

So, basicallty this is another example on how Shopify does not take care of European Merchants...As all of you can see this is a very standard feedback (including copy and paste error - same quote 2 times).

That said, at the moment we have to manage VAT report manually and outside Shopify. Moreover whan we sell a gift card, for Shopify this doesn't generate sales, so the reporting is affected as well of thi general "gift issue".

As Shopify partner, this issue is generating a lot of issue to all my clients. IMHO it's absurd that Shopify offers QR code, Apple wallet integration and so on for gift card, but they do not take care of the most important point: to be compliant with the legislation of the country in witch they sell the Shopify platform.

I think all the EU merchants are able to list all the missing features we are still waiting for, this forum is full of requests that are still pending , some of them since 2 years 🙂

Naming a few of them: codice fiscale request at checkout (mandatory in Italy), invoice request fields (available only for Plus merchant forced to customize by themself the checkout and working around using metafiled, order notes, etc), recovery cart mail that does not check the stock availability before send the mail (very very disappointing), etc.

I think Shopify should fix at least all the mandatory features before spending a lot of time and effort promoting their product in the EU area, simply because the product is still not 100% compliant to the legislation.

I'm still believing Shopify is one of the best product in the market today, but honestly I'm loosing hope of having some of this features. We do need to help each other sharing workaround waiting for them to help us in order to have what we are paying for.

Please keep sharing the knowloedge waiting for Shopify.

GA

[HMUK]

Just bumping this, as I have just added gift cards as an option on my store in the UK.

Has anyone made any headway on this or had any advce on how to deal with the double VAT issue in the EU?

Thanks

[Stefan_VR]

Hi Victor,

What is the update on this please, at some point this is going to be a rod for your own backs, does it really need to come to that before we see a change here?

[Victor]

Hi @Stefan_VR,

Thank you for getting in touch. This is something our internal team have been made aware of and have investigated as a number of merchants based in the EU have contacted us in recent months with concerns about this issue. However, having reviewed this new legislation, we believe gift cards sold and redeemed via Shopify are deemed multi-purpose vouchers and as such VAT does not need to be charged at the point of purchase.

Gift cards sold by merchants on Shopify can be used for any item on a merchant's store, as they are simply a payment method, and can therefore be deemed multi-purpose vouchers. A single-purpose voucher would be a gift card/ voucher where the place of supply of the goods or services to which the voucher relates, and the VAT due on those goods or services, are known at the time of the issue of the voucher.

Any merchant that is selling gift cards online will not be able to determine the tax rate that should be charged at the time the gift card is purchased because:

• it can be used to purchase any product/service
• the final shipping address could be different than the original billing address
  

Gift cards sold via the Shopify platform are not designed to be redeemed for a single product/service, so even if the merchant is retail only, there wouldn't be a way to identify that particular gift card is for that particular product/service.

Kind regards,

Victor | Shopify Social Care

[Stefan_VR]

Hi Victor,

I'm afraid you are mistaken.

I'll simplify this, if your store sells the voucher, and the voucher can only be used at your store (The store that sold the voucher) and your rate of tax is known on the products you sell as is the case for 99% of merchants (In the UK it's 20%), then you are selling a single use voucher.

There should be no confusion with the fact that it is called single use, this refers more to the single location / single tax rate than buying multiple products with one voucher. Confusing AF I know. Regardless, HMRC here in the UK has made it quite clear that we now need to pay the VAT on vouchers sold, please see below.

"From 2019, a voucher will be regarded as a Single Purpose voucher where the place of supply of the ultimate goods or services is known (That's your store) at the time the voucher is issued and where the voucher can only be used for goods/services (More than one type of goods can be purchased and still be single use) at a single rate of VAT (All our products are VAT rated at 20%)."

[Giacomo143]

Hi @Victor,

yes, you are wrong.

It seems your are interpreting the regulation in "your way", but it's not the real one.

If all the EU merchants start selling gift cards (because your feedback confirms the Shopify gift card are OK for the EU law), will Shopify take care of any kind of fine we are potentially going to receive? I honestly don't think so...

So, please fix this gift card issue or ask a good lawyer to double-check the law, your feedback is totally wrong.

[Victor]

Hi @Giacomo143 & @Stefan_VR,

Thank you to both of you for providing your feedback on this issue and for the detail you've given. I have gone ahead and communicated your comments onto the relevant internal teams for their consideration. I will be sure to update this thread in future once I hear more.

Kind regards,

Victor | Shopify Social Care

[PetraS]

@Victor Is there an update on this matter?

[Jochem73]

@Victor Same question here. I got offered the Gift Card possibility today (because Shopify wants to help their shop owners, considering COVID-19..) 
But tell me.. How can there still be no solution for this?! This problem has been there for all EU shop owners for more than a year now..

[PetraS]

Same here @Jochem73.

A lot of my customers are asking to buy gift cards right now, so they can help my company out with the coronavirus and its impact on smaller businesses.

Currently I'm missing out on a lot of sales because Shopify is too lazy to actually put in the effort to be compliant with EU laws...

Honestly it's getting to the point where I'm seriously considering changing ecommerce platforms. But as a Dutch company with a mainly US client base, it's a pain in the ass.

[Stefan_VR]

I agree this should be included but I've been using Rise: gift card & loyalty app and it ticks all the Tax boxes and is just a nicer delivery system overall, give it a go.

[Victor]

Hi @PetraS & @Jochem73,

I passed on the feedback given here by different merchants to our internal team reviewing this measure, as per my last post, but do not have an update to provide at this time. It would seem that @Stefan_VR has found some luck with the Rise: Gift Cards & Loyalty app so I would recommend giving that a try if you're wanting to change the way taxes are charged for gift cards,

Kind regards,

Victor | Shopify Social Care

[Jochem73]

Dear Victor,

thank you for passing on the feedback.. But since this problem has never been adressed up until now, I don't expect it to be adressed in the near future.
And the app you're referring to is a minimal monthly charge of $19.99.. So thank you Shopify for helping me out with your temporarily free use of the gift card option. Don't take this personal, but I'll forget about it all together.

Kind regards, Jochem

[PetraS]

@Victor as @Jochem73 states, that app has a cost of almost $20,- for a feature shopify is pretending to be offering to all merchants for free during the Coronavirus outbreak. Not exactly a fair thing to make all EU sellers use an expensive app for 1 simple feature that is actually mandatory by law for sellers in an area that big. It's just sad that the only repsonse we're getting as vendors is basically 'meh, we don't care about the European market enough to cater to them properly, but we'll happily charge you for everything'.

Sadly, this is yet another thing in which Shopify is utterly failing their client base who isn't in the US or Canada. 

Cheers for 'helping' us EU vendors through a crisis. Not.

[PetraS]

@Victor I've also checked the Rise app, it does allow for VAT (tax) to be charged but it WILL also charge tax when the client redeems the gift card. Which means taxes are charged twice over the same sum. 

In other words: Rise does nothing to solve the issue.

[Stefan_VR]

This is true but your VAT is not paid out twice and the voucher value remains unchanged.
You are liable to pay the VAT portion on the card sold but retain the VAT on the product when paid for with the voucher so this simply shifts the VAT liability point. In this way you simply deduct all VAT from sales paid for by gift cards from your total VAT liability. Again, I agree with all the comments that Shopify should include this functionality.

[Verdant-Spark]

I'll chuck in my tuppenceworth here - I wholeheartedly agree with all the comments by my fellow EU partners. Having lost the best part of a morning down a VAT rabbithole, I can confirm that they are correct, and that VAT must be charged on the voucher when sold. If a client has a company accountant then it's theoretically possible to throw this over the fence at them and let them sort out who paid for what and with what, and they can sort out the VAT liability, but this is not currently shining Shopify in a kindly light: by not being (i) flexible and (ii) expedient in these matter, it appears that you are a platform willing to take a merchant's money but not provide the service one would expect of a market leader.

An urgent update on this and some action by Shopify would appear to be overdue and, yes, I know it's only been days since the last comment but given that many stores wish, and are relying, on selling gift cards to remain afloat this is a serious issue.

[NKM]

Hi @Victor,

is there now already an update on this topic? 

Best, 

Anna

[PetraS]

Like @NKM I'd like to know if there is an update on this yet @Victor

Why is this basic feature that taking so long to implement. It's literally a case of coding in the option to toggle on or off tax collection on a sale and making sure it doesn't double charge.

[Victor]

Hey guys,

I do not have an update to provide on this issue at this time, but I will be sure to touch base with the relevant team on this matter again. I can appreciate the frustration in this option not being available for you, and I have ensured that the feedback and suggestions made in this thread have all been passed onto our team looking into this feature so they can better understand how it is affecting merchants in the EU.

As before, I will be sure to post an update here if and when I have one to provide.

Kind regards,

Victor | Shopify Social Care

[navarra-lab]

Hey @Victor 

we're building a webstore for our client and we also need that feature.
It is legal requirement and its really not good enough that you do not provide a solution for this.

Looking forward to the resolution for this issue.

Regards

Michal

[KoppanyKoltai]

Dear @Victor!

Just red all the comments about this issue with gift card taxes. It's a pity that a company that is living from the merchants' whats are generated on it's platform doesn't take care of the merchants who generate business. 
BTW what about an offer? We, who live on the old continent and living under the trade regulation of the EU can get a discount of our Shopify usage as we have to pay for an app to be able to sell our products legally?
That would be a generous way to deal with this ridiculous issue. 

Best regards
Koppany

[i3orny]

I've read every word of this thread. I'm a UK business and I'm under the UK laws, and I have an accountant telling me I need to fix this ASAP... so, I require a solution @Victor. Please can you flag this again with whoever you need to flag it with. There are thousands ok UK businesses using Shopify and currently breaking the law selling gift cards without tax...

Please help be to fix this. 

[xbyx]

@Victor Please advice a timeframe for a solution. Currently we are operating against the law. wich requires to add VAT to gift cards. Please offer a solution to add VAT.

[Victor]

Hi @xbyx,

I do not have an update to provide, nor do I have any sort of timeframe on when a change may be made. I know that this issue is with the relevant internal team and if I hear any updates on this matter, I will be sure to share it here as soon as I do.

Kind regards,

Victor | Shopify Social Care

[Bene1]

Is there already an update available ? 

Same issues here! 

[TNBC]

Any news on this? My accountant raised the issue as well.

On top, the new Tax module says I should edit my variants to charge tax, there's a technical error when I try to do so.

'Charge Tax on this product' is also not available in the edit price for gift cards.

[Sandra_N]

Hi Victor,

I already talked several times with the German Shopify support and posted this topic in the  German forum.

This topic is quite urgent to most merchants in Germany (and maybe other European countries) as Christmas time is coming up.

There is no useful workaround and we can currently not sell vouchers at all. I have tried overriding categories with tax regulations as suggested by the Germany shopify Support, but they have apparently not tested it themselves, as Shopify doesnt allow to override gift cards or categories including the gift cards.

Is this topic in the technical Roadmap already?

Many thanks for your understanding,

Best regards,

Sandra

[PetraS]

I'm in the same boat  and have been for years. Please Shopify, fix this issue. We (European vendors) are paying customers for your service, but can't use one of the vital parts of it because it looks like your company is ignoring all of our pleas to remedy this issue.

Using an app is NOT an option (it doesn't fix the tax issues).

Please please please change this so we can have a fair way of using gift cards in our shops.

[lolly2020]

Any update on this!!

[Sandra_N]

Shopify  can you please reply to me? Is this topic on the roadmap? Thanks!

[Bubblebobblw]

Any thing more on this Shopify?? This is just ridiculous! 

[ESSuperCo]

Hi All,

I'm not sure if this will help with the issue. But to clarify since the issue is possibly paying tax on Gift Card sale and the Product redeemed and as of the moment it is not possible to use Gift Card to remove the tax on the product redeemed is it okay to just discount the gift card value when they purchase it? 

For example: Customer purchase a gift card 100 they will only pay 78( 100 - 22% VAT). 

Once they use this Gift card and purchase a product worth 100 then the tax is applied to that purchase. 

Just throwing out suggestions here, hope this helps for now while waiting for Shopify resolve the issue. 

If you need dev or admin work you can contact us https://bit.ly/36CgHKQ.

[PetraS]

With the new VAT rules that went into effect July 1st of this year, I'm not sure if this would be a fix.

That being said we're over 16 months past the date of the initial changes going live and shopify clearly doesn't think small businesses in the EU are worth investing in their platform for.

Amazing shopify *golfclap*

[lolly2020]

Has this been fixed? Any update

[lolly2020]

@Victor 

Is there any update on this?

any work around without extra bookkeeping?

[BP99]

This is what I am thinking... my store only sells a single product but if I ship to an EU country then no UK VAT is due. That means that a gift voucher is technically multi purpose as my customer might choose to ship their order outside the UK (I think I have understood this correctly). That means I will apply VAT (or not) on the eventual sale rather than on the gift voucher.

If you don't ship outside the UK then perhaps as workaround you could allow shipping to a non UK place that you are happy to ship to (Channel Islands?) or to a country with a low likelihood of ordering (Vatican State?). That would then allow you to justify voucher a multi purpose rather than single purpose and would likely have no extra book-keeping.

Please note that I am not an accountant, nor have I had accountancy advice on this!