New Tax Configuration for EU - What you need to know

Donohue
Shopify Staff
Shopify Staff
69 1 11

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.

Donohue | Product Manager @ Shopify 
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Replies 27 (27)
Unforgiven
New Member
2 0 3

On my opinion this is a critical change in your settings.

In my specific b2B shop, we have daily moderate volumes of new customers and new orders but there are good chances to reach really high volumes soon. But now, this change you have made are influencing our business.

The solution you suggested for B2B is not the right one, please remind that most customers are registering while making their first orders, and anyway we do not have a dedicate person who checks which are the new customers and from where they are ordering. 

Please make a fix where we can mass flag which country we do not want to collect VAT, or many of your b2b customers might opt for alternative solutions to shopify

Unforgiven
New Member
2 0 3

Just to clarify.

EU regulations explain that if you sell goods to a business and these goods are sent to another EU country, you do not charge VAT if the customer has a valid EU VAT number. There are some exceptions but in most of the case is like mentioned.

Donohue
Shopify Staff
Shopify Staff
69 1 11
Totally. B2B customers should use the exemption functionality on the
customer in Shopify once the VAT ID has been verified. We don't
automatically do this today.

Donohue | Product Manager @ Shopify 
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muckypuddle
Shopify Partner
2 0 5

Hi Donohue,

Just having a chat with a Guru as we're having new problems with shipping tax since this change and don't have an explanation for our client yet. In essence:

  • In carts containing no taxable products, shipping is not taxed
  • In carts containing 1 or more taxable products, shipping IS taxed

Even though we've got the 'Charge tax on shipping rates' box ticked.

Is this a oversight? Or some side effect of the recent changes?

Donohue
Shopify Staff
Shopify Staff
69 1 11
Hey there,

This is a bug on our part. We've automated shipping taxability based on the
taxability of the items on an order, but haven't fully deprecated that
button.

Donohue | Product Manager @ Shopify 
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muckypuddle
Shopify Partner
2 0 5

Hi Donohue,

Thanks for the prompt reply. In the case that an order’s line items are all set to ‘not apply tax’, but the shipping should still be taxed, how do we go about setting this up?

We’ve got a situation with a client where, since this update, some orders have shipping taxed, and others not, which is unacceptable. It’s needs to be uniform.

SkyClothify
Excursionist
23 0 4

Hi @Donohue!

This is the best news for beginners I think.. 

I created my website before one month and I am still waiting for my VAT and Organization numbers. 

It's my first time doing the tax stuff and I am not sure if I did it write.. 

I wrote my personal number in the configuration instead of my organizational number, and I did not add any rate for the tax, is that enough? Or it's need the organization number?

Best Regards, 

SkyClothify 

daniel_cojocari
New Member
2 0 1

What can we do in the case when we are working with AN Post, an Irish company that does not charge VAT? Why should we charge the clients VAT if for shipping we don't pay it?

Donohue
Shopify Staff
Shopify Staff
69 1 11

Hey there, if you're using An Post, you can use a shipping override to accomplish a zero-rated shipping transaction. We don't have insight into whether or not you're just passing on the cost of zero-rated postage or not.

Donohue | Product Manager @ Shopify 
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FredBart
New Member
2 0 0

Hi Donohue,

Do you have any information on when this bug will be resolved? We have the same issue.

Best

Fred

MrPorter
Tourist
3 0 1

Can you please make a simple check box in the tax section which, being having it checked, permits to collect VAT only for customers which are located in the same country of the shop?

I think this influences the customer behaviours, the customers say more expensive prices, which causes less sales for the shops and by consequence less transaction fees for you.

 

carlomat
New Member
2 0 0
Actually this change was very problematic for our store. If you are selling within the EU there is the so called " Threshold for application of the special scheme for distance selling" (please check the documents I attached). These are official EU guidelines. For Austria you have a tax exemption limit of 35.000€ which we haven't exceeded by now. That's the reason why we didn't charge VAT for customers from Austria by now. With the new tax system @Shopify introduced shortly the customers get charged VAT. 
 

@MrPorter is absolutely correct. This influences customers behaviours a lot.
 
Donohue
Shopify Staff
Shopify Staff
69 1 11

 Hi @FredBart , please be more specific about the bug that you see.

Donohue | Product Manager @ Shopify 
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Donohue
Shopify Staff
Shopify Staff
69 1 11

Hi @MrPorter - are you selling primarily to B2B customers? 

If you are selling to B2B customers, you could think about using our customer exemptions feature. It doesn't properly determine between home VAT country or not, so it blanket exempts everyone but in the coming months we are looking to get feedback around EU VAT B2B functionality - watch for the post.

Donohue | Product Manager @ Shopify 
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Donohue
Shopify Staff
Shopify Staff
69 1 11

Hi @carlomat, thank you for your feedback. 

If you're selling primarily to B2C customers (non-VAT registered persons), you should be applying your local VAT to all sales in the EU until you reach the distance threshold for the destination country. After this time, you register with the destination country and then apply that country's VAT rate on your sales within the destination country. Please see the resource I posted in the original post.

If you're selling primarily to B2B customers, I can see how our setup may be confusion. You could use our customer exemption functionality if you want to exempt specific VAT-registered persons from VAT. 

If you have documentation to the contrary, feel free to post it - but we made this change so that merchants would be correctly sourcing and applying B2C VAT on their sales. If we gain enough feedback from the B2B selling community we will investigate further changes.


Donohue | Product Manager @ Shopify 
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MrPorter
Tourist
3 0 1

Hello Donohue, 

we are only selling B2B. 

The solution suggested by you is not enough, we are currently excluding the customers manually as described by your solution but this requires additional daily work. In addition to that, it does not help when a new customer register an account and then try to finalise a purchase. We noticed a lot of abandonment of new customers because of this 20% more.

We tried also to change the % of VAT to set to 0 because we sell more abroad than in our country but is not possible to make this change.

FredBart
New Member
2 0 0

Hi Donohue, I am referring to this post below. You are writing that it is a bug on your side. When will this bug be fixed?

***

09-18-2020 10:33 AM -
Shopify Staff - 61 1 8
Hey there,

This is a bug on our part. We've automated shipping taxability based on the
taxability of the items on an order, but haven't fully deprecated that
button.
***
To explain you: Our products (shoes) are taxed 16% in Germany because of Covid-19 (usually 19%). So shipping has to be taxed the same. But if we ship 100 flyers for free to a customer, shipping does not get taxed by Shopify. However, under German law, we have to tax shipping with the same rate as our products which are mainly shoes. With the new settings, shipping does not get taxed if we ship goods for free and this creates a problem for us.
Can you put the setting back so that shipping always gets taxed the same rate no matter how many products are shipped and what prices we charge for these products?
Best
Fred
Donohue
Shopify Staff
Shopify Staff
69 1 11

Hi @MrPorter do you mind DMing me? I'd love to collect this feedback and learn a bit more about your situation 

@FredBart can you DM me? I want to understand a bit more about the bug, I have some questions. 


Donohue | Product Manager @ Shopify 
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MrPorter
Tourist
3 0 1

Can anyone tell me if you managed to use the following feature?

I tried to create a collection with Collection Type = Automatic with condition price >0€ but this collection is not shown in the list.

I hope someone of the support shows up and finally reply to my emails

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