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

Accounting & Taxes

Topic summary

EU-based merchants face a critical VAT compliance issue with Shopify’s gift card system that remains unresolved since 2019.

The Core Problem:

  • Under EU regulations effective since 2019, single-purpose vouchers (gift cards usable only on one website for products with known VAT rates) must be taxed at point of sale
  • Shopify treats gift cards solely as payment methods, not taxable products
  • This creates double taxation: merchants must pay VAT when selling the card AND again when it’s redeemed
  • The platform doesn’t allow enabling the “charge taxes” option on gift card products

Shopify’s Position:

  • Support staff (Victor_5) initially argued Shopify gift cards qualify as multi-purpose vouchers (exempt from upfront VAT) because they can be used for any product and shipping addresses aren’t predetermined
  • However, this interpretation is disputed by merchants’ accountants, particularly for stores selling only physical goods at uniform VAT rates

Current Status:

  • No solution implemented after 5 years despite repeated escalations
  • Merchants report being unable to legally sell gift cards, especially problematic during Christmas season
  • Suggested workarounds (discount codes, third-party apps like Rise) don’t fully replicate gift card functionality
  • Growing frustration among EU merchants who feel ignored by Shopify

Impact:
EU merchants face potential tax evasion accusations or must completely discontinue gift card sales.

Summarized with AI on November 4. AI used: claude-sonnet-4-5-20250929.
6

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