Location-based tax settings

For the the United States, Canada, and the the European Union, setting up taxes is based on tax registrations. If you’re based outside of these regions and you need to charge taxes, then taxes are applied at the country or regional level, depending on your local tax laws.

Set up location-based tax rates

Many countries charge taxes based on an order's destination, which means that you charge sales tax at the rate defined in the region where your product is delivered. If you're not sure about these details, then consult with a tax expert.

Before you set up taxes based on destination, verify whether you are obligated to charge sales taxes to your customers, and whether your product is taxable.

Steps:

  1. Confirm that your store address is outside the United States, Canada, or the European Union, and that you have set up a shipping zone for the destination country.
  1. In the Tax regions section, click the name of the country.

  2. In the Base taxes section, enter the rates that apply in the country and any regions. You can choose whether a tax in a region is used instead of a federal tax, or is added to or compounded with a federal tax. For more information on these options, refer to Make sure that taxes aren't duplicated.

  3. Click Save.

Include taxes in product prices

In some countries, such as the United Kingdom, you need to include sales tax in the displayed prices for most types of merchandise.

If you enable this feature, then the tax is calculated by using the formula Tax = (Tax Rate X Price) / (1 + Tax Rate). You and your customers will still see the tax as a line item, even though no taxes appear to be added. The subtotal and total will be the same, but the amount of tax you need to remit for an order will also be indicated.

Order details, tax shown as a separate line item

Steps:

  1. Check Show all prices with tax included.

  2. Click Save.

After you have set up your prices to include taxes, leave Charge tax on this product checked on your product pages so that the taxes are included in the displayed price. Customers will see the included amount of tax beside the total at the checkout.

Setting up your prices to include taxes does not affect your tax reporting.

Example: Comparison of tax calculations

Maya and Gabriel both live in the same region and both have online stores. The region has a 10% tax rate and allows business owners to choose whether to include taxes in their prices.

  • Maya doesn’t include taxes in her prices. If she lists a product for $100, then the tax is calculated to be $10, for a total sale price of $110. The formula for this is Total = List Price X (1 + Tax Rate):

    $100 X (1 + 0.1) = $100 X 1.1 = $110

  • Gabriel decides to include all taxes in his listed prices. To arrive at a $100 total listed price that includes tax, the tax-included formula is used to calculate the tax portion. The formula for this is Tax = (Tax Rate X Price) / (1 + Tax Rate):

    Tax portion of price = (0.1 X $100) / (1 + 0.1) = $10 / 1.1 = $9.09

    Product portion of price = $100 - $9.09 = $90.91

    These calculations are performed automatically. The tax amount is shown in the details of all orders so that both Gabriel and his customers see the actual tax amount charged.

Charge taxes on shipping rates

In some regions, you need to charge taxes on shipping. If your store is outside Canada or the United States, then follow the steps below to charge taxes on your shipping rates.

Steps:

  1. Check Charge tax on shipping rates.

  2. Click Save.

Make sure that taxes aren't duplicated

If you set up taxes for a country and its sub-regions, then you need to make sure that you specify whether a regional tax is added or compounded to any federal tax, or is to be used instead of the federal tax. If your customers in a country are getting charged taxes twice, then you might have the sub-region taxes configured to be added to the total tax for that country.

For example, suppose that you have an item that costs $100.00. A customer buys that item in an area where there are country and regional tax rates, both at 10%.

  • If you select added to, then the country and region are both charged and added together. In this case, the country tax amount is $10.00, and the regional tax is $10.00. These are added together for a total price of $120.00.

  • If you select instead of, then the regional amount is charged and the country amount is not. In this case, there is no country tax, and a regional tax of $10.00. The total price of the item is $110.

  • If you select compounded on top of, then the tax amount for the country is determined and then the regional amount is charged on that subtotal. In this case, the country tax amount is $10.00. Regional tax is then applied to the subtotal of $110.00, producing a regional tax amount of $11.00. When totaled, this results in a total price of $121.00.

You can verify or change your tax settings for a region.

Steps:

  1. In the Tax regions section, click Edit beside the country's name. The taxes are shown for the country and for the sub-regions by state or province.

  2. Choose an option from the drop-down menu under the sub-region tax rate to specify how you want to charge taxes.

  3. Click Save.

Change the default name of the VAT

For countries that have a value added tax, the default name that is given to the tax is VAT. The short form VAT appears on your checkout page, customer receipts, and in the Order details section of orders.

If you're in a country that uses a different short form for the tax, then you can change the name on the Taxes page. For example, several countries use IVA instead of VAT. You can change the name only if subregions are included for the country in the Shopify admin, such as for Italy and Spain. You can't change the name if subregions aren't included, such as for Austria and Norway.

Steps:

  1. In the Tax regions section, click the country.

  2. For each region, change VAT to the short form that you want to use.

    Change VAT to IVA
    The name is specific for each region, so you need to change it for each one.

  3. Click Save.

Considerations for tax exemptions with tax-included prices

If you include taxes in your product prices, then you can't display a tax-exempted price for certain customers, such as GST exemptions for customers outside Australia and New Zealand.

If you need to provide an exemption to specific customers, then consider the following options:

  • Do not include taxes in your prices.
  • Modify your theme to show tax exempt prices in your store, and use Shopify Scripts to apply the 20% VAT exemption during checkout.
  • Use an expansion store to allow international buyers to pay the non-tax price.

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