A Shopify Tax calculation error affects EU merchants selling products with reduced VAT rates (e.g., 7%) to tax-exempt customers.
The Issue:
When a product priced at €167.56 gross (including 7% VAT) should yield €156.60 net for tax-exempt customers
Shopify incorrectly applies the standard rate (19%) instead of removing the reduced rate (7%)
Result: Customer is charged €140.81 instead of the correct €156.60
Current Status:
One user confirms this is a longstanding issue (“going on for years”)
A workaround exists: setting prices as tax-exclusive, though this creates compatibility problems with external apps
Screenshots provided demonstrate the calculation discrepancy
Recommended Action:
Contact Shopify Support with specific order examples to determine if this is a configuration issue or a bug. Recent experience shows Shopify has been actively fixing VAT-related bugs in their tax system, particularly for cross-border EU/UK transactions.
Summarized with AI on October 25.
AI used: claude-sonnet-4-5-20250929.
In the EU (e.g. Germany, but also other countries) there are multiple VAT rates, typically a standard rate (19–23%) and a reduced rate (around 5–10%). We are using Shopify Tax to automatically assign the correct VAT rate to products.
The problem: When selling products with a reduced VAT rate (7%), Shopify calculates the wrong net price if the customer is tax-exempt.
Example:
Product price: €167.56 gross incl. 7% VAT → correct net price should be €156.60 + €10.96 VAT.
For a tax-exempt customer, Shopify does not remove the reduced rate (7%), but instead applies the standard rate (19%) and shows €140.81 net.
Expected: Shopify should remove the VAT rate assigned to the product (7%) so the customer pays €156.60, not €140.81.
This seems to affect all cases where reduced VAT rates are used with tax exemptions. Has anyone found a solution or workaround?
My short and sweet advice is to contact Shopify support about this, and have ready a list of orders (test ones or real ones) that clearly show the problem you’re trying to solve.
They’ll help you work out either:
Which combination of settings will do what you want, or…
That there isn’t a combination of settings that’s designed to do what you want, or…
That there’s a bug.
In the last 3 months I’ve reported 3 pretty big bugs with Shopify Tax and how it’s handling cross-border VAT for all of my clients that collect VAT on orders going into the EU and the UK. Shopify support confirmed they’d already fixed the first bug by the time I reported it, they rolled out a fix for the second bug off the back of my report, and they’re currently investigating the third.
All of this is to say that if Shopify Tax is doing something unexpected, it’s not necessarily because you’ve set it up wrong. As I explained to a new client recently:
All this tax stuff is super-complicated to begin with.
Shopify Tax gives so much control that it makes some things seem far too easy, and other things seem much more complicated than they actually are.
Unfortunately, this is a problem that has been going on for years. We also have this problem with a coffee webshop. The workaround for us was putting the prices tax exclusive but this causes problems with external apps.
Just a short update, Shopify support could also not help us and said the create an internal ticket with their tax experts. Sadly we did not hear back from them.
If anyone from the Shopify team is reading this, please take a look at this as this calculates prices which are less than what should be charged and this is costing us money.
We encountered this issue with many of our customers, and we resolved it with our EU Tax Exemption App for Plus merchants. Our app is fully integrated into the checkout and supports using the “Show as included” setting instead of the “Dynamic tax display” option. This will likely solve the problem for you and for your future webshops.
