I’m a business located in Denmark, and when I mail items out to customers, the shipping I purchase is VAT exempt. There is a feature to turn this off “charge tax on shipping”, however that doesn’t apply for my country apparently. This means that the system calculates taxes wrongfully and unfortunately there isn’t an ideal workaround for this. Does anyone know of a way I can make Shopify -not- charge taxes on shipping rates?
It says on the little label below the feature that it is automatically calculated for the EU. But why is it that? It’s not supposed to be, because not all shipping in the EU is subject to VAT. An example is seen on the picture below from where I buy shipping.
If there isn’t an ideal workaround to this, maybe it’d be something to implement this feature in the shipping rates section where I can then enable/disable tax on the individual carrier, just like I can on individual products.
You have to clearly distinguish between input VAT (paid by you for goods and services , including shipping services) and output VAT (VAT you get from you customers charged on items sold to them) . The very fact you may purchase shipping services free of VAT (in some countries postal services are free) does not create a situation that you “pass” these services to your customers VAT free. Quite to the contrarary : when you pass incidental costs along with merchnadise it should be levied with VAT. In most of the cases it is even not the same expenses that are passed to the end customer - you as en E-merchant may purchase the transportation service at 5 EUR , but may charge 10 EUR to the buyer of your goods for shipping. I am not aware of 0 VAT for shipping in Denmark , but still , magine that you purchased shipping services at 0 VAT for 5 EUR , and sold and item at 100 EUR (net of VAT) plus 10 EUR shipping , so totally it would be 110 EUR plus 27.5 EUR VAT (25 percent of VAT) = 137.5 . 27.5 is the output vat that is due on the sale . You can reclaim input VAT on the sale (0 EUR from shipping costs and VAT that you paid to the supplier , let us say 50 EUR x0,25 =12.5 - your input VAT). So you will be liable to pay 15 EUR to the tax man (27.5-12.5 EUR) …
That rule applies also for EU cross border sales (both B2C and B2B). In B2B case you will have a reverse charge situation with 0 vat paybale , but with B2C the situation is different - member state of consumption VAT shall be payble on these sales and as such all incidental expenses.
Within this logic it is right for Shopify to charge VAT for B2C deliveries to EU. Unfrotunaetely Shopify is not able to split shipment cost proportionally inbetween items sold in one order with different VAT rates (say one item is sold with standard rate ,the other with reduced) to apply respective standard and reduced rates to weighted shipment amounts.
Hello, and thank you for your very detailed response!
Also sorry for my own very late response!
Shopify usually have all the legal and tax related stuff under control, with lots of great detailed information to be found easily, so I hesitated to make a conclusion, but I read some articles on bookkeeping blogs that suggested that I should not obtain VAT for the postage so I got confused. I finally got through the phone queue for the danish tax department and asked them about it, and they could confirm to me, what you said.
So everything is in order! Thank you very much for clarifying this for me!
