Tax rates on digital products

Many digital products don't require taxes, though this is something you should check with your local tax authority.

Note

These changes are made at the variant level. This means that if, for example, you sell a book in both hard copy and digital form, you can adjust one variant and not the other.

Disable/enable taxes on digital products

To disable shipping and tax requirements:

  1. From your Shopify admin, click Products (or press G P P):

    Products

  2. Click the name of your digital product.

  3. In the Inventory & Variants section, click Edit next to the variant you want to update.

  4. In the Edit Variant dialog, you'll see these two options:

    • Charge taxes on this product
    • Requires shipping.

    These options are enabled by default.

    To disable one or both options, uncheck the boxes. (As digital products don't require shipping in a traditional sense, you should disable the shipping fees and shipping address requirements. )

  5. Save your changes.

To enable shipping and tax requirements:

  1. From your Shopify admin, click Products (or press G P P):

    Products

  2. Click the name of your digital product.

  3. In the Inventory & Variants section, click Edit next to the variant you want to update.

  4. When the Edit Variant dialog opens, check the box next to Charge taxes on this product, if you want to enable tax requirements.

  5. If you want to require a shipping address, you must:

    • enter an accurate weight in the Weight field of the Edit Variant dialog
    • check the box next to Requires shipping.
  6. Save your changes.

Advanced: CSV product imports with shipping required and taxable variants

If you need to edit the settings for a large number of products, you might want to perform a bulk update. For this, export the products that need to be updated as a .csv file, then edit the columns shown in the table:

Variant Requires Shipping Set to true or left blank if the variant is a tangible item. Set to false otherwise.
Variant Taxable Set to true or left blank if the variant is taxable. Set to false otherwise.
Variant Grams Enter a non-zero value if Variant Requires Shipping is set to true or left blank.
Leave blank or set to zero if Variant Requires Shipping is set to false.

When you've finished editing your .csv file, import it to your store. Be sure to check the option: Overwrite existing products that have the same handle.

Charging VAT in the EU for digital goods

Consumers living in the EU must pay VAT on digital goods at the rate applicable in their own country. This rule applies regardless of where the seller is located.

If you're selling digital goods to customers in the EU, you must charge VAT based on your customers' locations.

It's your responsibility to make sure that you comply fully with tax laws wherever your business operates. You should familiarize yourself with EU VAT rules as they apply to you.

Grow your business

Sufio can help you set up your store to follow EU VAT regulations, including everything from capturing and validating your business customers' EU VAT registration numbers and setting them as tax exempt when applicable, to creating invoices that are fully compliant in Canada and the countries of the European Union. Sufio offers an exclusive plan for Shopify stores. Business customers with valid VAT numbers are not charged VAT during checkout.

What are digital goods

Digital goods are defined in the legislation as broadcasting, telecommunications, and services that are electronically supplied instead of shipped. Gift cards sent online are not included in the definition.

For example, according to the United Kingdom HM Revenue & Customs, the following are covered by the new rules:

  • PDF documents automatically e-mailed to customers
  • stock photographs available for automatic download
  • online courses with downloadable videos (but not live webinars)
  • downloadable software
  • electronic/online media such as music, video, and eBooks
  • VoIP credits.

You must check with your local tax authority to determine if your business falls under these new rules.

What do the new VAT rules mean for me?

These changes mean that you must:

Registering for VAT

You must register for VAT in one of the following ways:

  • Register for VAT in every EU country where you do business.
  • Register for Mini One-Stop-Shop (MOSS) in the EU country where you reside. Your local tax authority (for example, HM Revenue & Customs in the UK) can provide you with more details on how to register for MOSS.

Charging VAT

For digital goods, you must now charge VAT based on the buyer's country, not on your location. For example, if you're a Dutch merchant and you sold a digital product to a customer in Germany, you'll have to charge the customer the German VAT rate of 19%. Enable our EU Digital VAT Rates feature to make this process easier.

Collecting evidence of a buyer's location

You are now required to obtain two pieces of evidence of the buyer's location. For every order, Shopify will provide you with the billing address and the customer's IP address.

Caution

You should obtain another piece of evidence (for example, the address of the customer's credit card provider) if the IP address appears to come from a different country.

Enable Digital Goods VAT Rates

You're responsible for making sure you charge VAT correctly. However, you can enable our EU Digital VAT Rates feature to make the process more straightforward:

  1. From your Shopify admin, click Settings, and then click Taxes.

  2. In the Tax settings section, find Enable EU Digital Goods VAT Tax rates and click Enable.

    Enable eu vat button

  3. In the dialog box, click Enable EU Digital Goods VAT Taxes.

    Enable digital vat

    This creates a manual collection with automatically-assigned VAT settings for each EU country.

    The collection is called Digital Goods VAT Tax (although you can use any of your collections once you've enabled the feature).

  4. Now you need to add your digital products. Click Digital Goods VAT Tax to open the collection (or open it from your Collections page).

    Digital goods collection

  5. Scroll down and click Add Products to choose your digital products from the drop-down menu.

    Add digital products

  6. Click Save when you've finished.

Whenever you sell a product from this collection, the correct VAT rate is automatically applied, based on the customer's billing address.

See the VAT rates you're using

When you've enabled Digital Goods VAT Rates, you'll be able to see the VAT settings that will be applied to each country in your shipping list.

Note

If you can't see a country, you need to add it to your Shipping list before you can continue.

To view the VAT rates for a country:

  1. From your Shopify admin, click Settings, and then click Taxes.

  2. In the Tax rates section, click the name of a European country.

  3. You'll see the VAT rate set as a tax override for that country.

    Croatia vat

Apply the Digital Goods VAT rates to a different collection

You can use our EU Digital VAT Rates feature with any collection of digital goods:

  1. You must enable the EU Digital Tax Rates feature first, to create the initial Digital Goods VAT Tax collection.

  2. When the feature is enabled, go to your Taxes page.

  3. In the Tax Settings section, click Choose an alternate collection.

    Eu digital goods vat enabled

  4. From the drop-down, choose the collection you want to use for the digital goods you sell in the EU.

    Choose digital goods collection

  5. Click Save Collection.

Disable Digital Goods VAT Rates

To disable the EU Digital VAT Rates feature:

  1. From your Shopify admin, click Settings, and then click Taxes.

  2. In the Tax Settings section, find Charge EU Digital Goods VAT Taxes and uncheck it.

    Disable digital vat

Caution

If you disable the EU Digital VAT Rates feature and then re-enable it, you'll have to reassign your preferred collection if you didn't use the default.

Find out more about the new VAT rules

You can read the rules for VAT on digital services in the EU here.

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