Shopify Tax’s proportional shipping VAT calculation creates compliance issues in EU countries with multiple VAT rates. When carts contain items taxed at different rates (e.g., Germany’s 19% and 7%), the system calculates a single blended/effective rate for shipping (like 18.403% or 16.1582%) instead of breaking it down into separate VAT lines.
The Problem:
Generated invoices show irregular effective rates that violate German and UK tax regulations
These invalid rates get submitted to third-party systems
Proper tax reporting requires separate breakdowns showing how much shipping was charged at each applicable rate
Resolution:
Shopify has rolled out a fix for this issue
Requirements to access the fix:
Must use Shopify Tax (not Basic Tax or Manual Tax)
Must use product categories for exemptions instead of product/shipping overrides
Stores using product overrides will be excluded from proportional shipping calculations
The fix is now fully available without requiring early access.
Summarized with AI on October 24.
AI used: claude-sonnet-4-5-20250929.
We have Shopify Tax enabled in a shop based in Germany, which includes the new proportional calculation of tax on shipping rates: Shopify Tax on Shipping.
In Germany (as in other EU countries), we have two separate VAT rates: 19% and 7%. When a cart contains items subject to both VAT rates, the VAT on shipping should be calculated proportionally based on the tax rates of the items in the cart.
While Shopify Tax correctly calculates the total VAT amount, it applies an irregular effective VAT rate instead of listing two separate VAT lines for shipping. Instead, Shopify generates a single blended VAT rate based on both tax rates. This rate also appears on the generated invoice, which is not valid under German tax regulations.
Attached is an example where an effective VAT rate of 18.403% is displayed.
Is there any way to fix this, because the effective VAT rate is also submitted to third party systems and currently Shopify Tax (a service which costs extra money) generates invalid invoices for Germany.
Hey @robin_sch and @neode apologies for the issue and the delay; we have a fix ready for this. Could ya’ll shoot me an email with the store URLs that you’d like this improved on and I’ll get them on the early access?
Hi all, this enhancement was fully rolled out. Please note two things:
You must be on Shopify Tax; Basic Tax and Manual Tax are no longer being updated. This can be updated by going to Settings > Taxes and Duties > European Union (or United Kingdom) and tapping the menu next to Basic Tax.
You must be using product categories instead of product and shipping overrides to apply exemptions. Shopify Tax looks at the product category of the good (set on its product details page) and automatically reduce or zero rates it. If there’s a product override present, Shopify Tax will skip the line item and exclude it from things like proportional shipping. You would see these on the bottom of the Taxes and Duties > European Union page.
Thank you for all of the feedback; please keep it coming!
