Inquiry Regarding VAT Charges for EU and UK Customers

[fancypeople_24]

We are currently configuring our tax settings and need clarification regarding VAT charges for our customers in the UK and the EU. Specifically, we would like to know if it is possible to set up our Shopify store in a way that:

1. EU customers do not pay VAT if they are purchasing from an EU country.
2. UK customers are required to pay VAT.

We understand that, by regulation, VAT should be charged based on the shipping address. If the shipping address is in the EU, VAT must be applied. However, we would like to confirm if there is a way to implement a setup where only UK customers are charged VAT while exempting EU customers.

Could you please provide guidance on how we can configure our tax settings accordingly? If this setup is not possible directly in Shopify, do you have any recommended workarounds or third-party solutions that could help us achieve this?

[Blake_Digital]

Hey Fancypeople,

Yes, Shopify does allow you to configure VAT rules based on customer location, but the setup you’re looking for—charging VAT for UK customers while exempting EU customers—requires a combination of Shopify’s built-in tax settings and potential third-party solutions.

1. Configuring Shopify Tax Settings

By default, Shopify determines VAT based on the shipping address, meaning that EU customers should still be charged VAT when purchasing from an EU country. However, you can set up tax overrides to achieve a partial workaround:

For UK Customers:
Navigate to Settings > Taxes and Duties in Shopify.
Ensure that VAT is enabled for the UK under Tax regions.
Shopify will automatically apply the correct VAT rate for UK orders.

For EU Customers (VAT Exemption for B2B Sales):
If you are selling to EU businesses with a valid VAT ID, you can enable VAT exemptions using Shopify’s EU VAT exemption feature (Shopify Plus required) or a third-party app like “Exemptify” or “Simply VAT”.
If you want to exempt all EU customers from VAT (even B2C), Shopify doesn’t support this natively, but you can adjust pricing accordingly or use a tax app.

2. Possible Workarounds
   Since Shopify doesn’t provide a direct option to charge VAT only for UK customers while fully exempting EU ones, consider these solutions:

Third-Party Tax Apps:
Apps like TaxJar, Avalara, or Exemptify allow for more flexible tax rule customization.
They can apply VAT only for UK customers while recognizing EU addresses and exempting them.

Custom Shopify Scripts (Shopify Plus Only):
If you’re on Shopify Plus, you can use Shopify Scripts to create tax logic that charges VAT for UK customers while exempting EU ones.

Manual VAT Pricing Adjustment:
Some merchants adjust product prices to account for VAT differences and display different pricing based on customer location using GeoIP-based pricing apps.

3. Recommendations
   If you’re on Shopify Plus, the best approach is to use Shopify Scripts to customize tax rules.
   If you’re on a lower plan, consider integrating a third-party tax app like Exemptify or TaxJar.
   If you primarily sell B2B in the EU, enable VAT exemptions for EU business customers in Shopify’s tax settings.

Let me know if you need further clarification or a step-by-step implementation guide!

[fancypeople_24]

Hi, thank you so much for your prompt reply and for providing me with an
explanation. However, I’m new to VAT for Shopify, could you please provide
me with a step-by-step implementation guide? I would appreciate it. Thanks!

P.S. I am still awaiting for the step-by-step implementation guide. Please assist me with my latest reply. Thank you.

[Blake_Digital]

You’re welcome! Since you’re new to VAT on Shopify, here’s a step-by-step guide to help you set it up correctly:

Step 1: Enable VAT for UK Customers

1. Log in to your Shopify Admin.

2. Go to Settings > Taxes and Duties.

3. Under Tax Regions, locate United Kingdom and click Set up.

4. Ensure Charge VAT on sales is enabled (Shopify will automatically apply 20% VAT).

Step 2: Exempt EU Customers from VAT (For B2B Sales)

If you want to exempt VAT for EU businesses with valid VAT IDs, you have two options:

Option 1: Using Shopify’s VAT Exemption Feature (Shopify Plus Required)

1. Under Settings > Taxes and Duties, select European Union.

2. Enable VAT registration number validation.

3. This allows EU business customers to enter their VAT ID at checkout for automatic VAT exemption.

Option 2: Using a Third-Party VAT App (For Non-Shopify Plus Users)

Install a VAT exemption app like Exemptify or Simply VAT from the Shopify App Store.

Configure it to validate VAT IDs and apply tax exemptions automatically.

Step 3: Adjust Product Pricing for VAT

In Settings > Taxes and Duties, choose whether to:

Include tax in product prices (VAT-inclusive pricing).

Add VAT separately at checkout (VAT-exclusive pricing).

Step 4: Test the Checkout Process

Add a product to the cart, enter a UK address, and verify that VAT is applied.

Enter an EU address and check if VAT is removed for eligible customers.

Step 5: Automate VAT Compliance & Reporting

Consider using tools like TaxJar or Avalara for automated VAT calculations and reporting.

If you find any part of this setup challenging or need expert assistance, I’d be happy to help you get it done quickly and correctly. Let’s connect—just let me know, and we can set up a time to discuss.

[Rostislav]

HI Fancy ,

You do not need to follow provided advise for EU customers really. There is a simpler way if you want to exempt all EU sales from VAT .

Follow up with the provided instructions for the UK customers. For the EU in tax and settings just do not set any taxation rules for the EU and switch to basic tax for the EU market. That way there will be no taxation applied whatsoever to your EU sales .

Yours,

Rostislav

[fancypeople_24]

Hi Rostislav,

Thank you for the reply and the explanation.

Regards,

May