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How to set up EU taxes in your Shopify store

Hi, I’m Jan, and in this video I’m going to
show you how to set up taxes in Shopify if your store is based in the European Union. If you have a Shopify store in the EU,
you should understand when to charge VAT on your sales and which rate to apply to which customer. In this video, you will learn how taxes work
for stores based in the EU and how to set them up in Shopify. The most important distinction when it comes to charging VAT
and generating valid invoices in your store is whether your business is VAT registered or not. If your annual turnover is below a certain threshold,
you do not have to register for VAT. In that case, you do not charge VAT on your sales regardless of where your customers come from. If your business is VAT registered, you have to charge VAT to some of your customers and include your VAT registration number on your invoices. Whether or not you charge VAT on a specific sale
depends on which country your customer is in and whether they’re a consumer or a business. When selling to customers in the same country as your store is located,
you are required to charge them VAT. If you’re selling to a different country within the European Union,
you have to distinguish between consumers and businesses. You should charge VAT to consumers,
however you do not charge VAT to your business customers. If your customer resides outside the EU,
you do not charge them VAT at all. So out of these four scenarios,
you charge VAT to your customers only in the first two cases. Now, let’s look at which VAT rate applies to which customer. If your customer is from the same country as your store,
you of course have to charge the VAT rate of your country. Setting up tax rates in different countries
of the EU can be a little tricky, as you need to charge different tax rates
for physical and digital goods. Let’s start with physical goods. There’s two scenarios. The first and most common one is that you will be charging
the VAT rate of your home country. So if you’re based in Germany for example,
and a customer in Spain buys a physical product, you should charge them the German VAT rate. Now, if you’re a large business and you’re doing
lots of sales to a specific EU country, you might be surpassing the country’s local VAT threshold. If you’re a German store and your yearly turnover to Spain
exceeds 35,000 euros per year, you must register for a local Spanish VAT number. In this case, you will charge the customers in Spain
their VAT rate instead of yours, and you also need to display your Spanish VAT number clearly
on each order and invoice that you send to the country. These VAT thresholds are different from country to country,
but generally range from 35,000 euros to 100,000 euros. You can find out the exact threshold for each country
simply by searching “EU VAT thresholds” online. Also, you only need to set up these taxes
for countries in the EU because VAT isn’t charged for orders
placed outside of the European Union. Now, let’s look at digital goods. When selling digital goods to customers in the European Union,
you charge the VAT rate of the customer’s country. If your store is based in Germany, and a customer
from Spain buys a digital product from you, they should be charged with the Spanish VAT rate. Therefore, you will be charging different VAT rates
all around Europe based on the countries your customers come from. Now that we’ve gone over the VAT rates for EU consumers, let’s look at businesses from other EU countries. Remember, when selling to businesses
with a valid VAT number in other EU countries, you do not charge them VAT. Such customers should be marked as tax exempt in your Shopify store. Sufio allows you to capture and validate EU VAT numbers and automatically set your business customers as tax exempt. Your customers’ VAT numbers are then displayed on your invoices, and when applicable, taxes are not charged. That leaves us with one last scenario, selling to a country outside the EU. In this case, you simply do not charge VAT to your customer. Alright, now that we’ve looked at how taxes work in the EU,
let me show you how to set them up in your Shopify store. In order to charge VAT to some customers and not to others, all of your product prices in your store must be set without VAT. This means, you will need to exclude taxes from your product prices. So, let me open up my Shopify Dashboard and show you how to set this up. Let’s head over to Settings and click on Taxes. Here we have a checkbox that allows you
to show all prices with tax included. Make sure this checkbox remains unselected. This way you’re able to charge VAT to consumers
but exempt business customers. Now, let’s see how to set up taxes for physical goods. So in your Shopify Dashboard, go to Settings and click on Taxes. You should see a list of all countries in the European Union. If you do not see all EU countries on this list,
go to Shipping zones and click on Add shipping zone. Under Countries and regions, click on Manage,
and select all the countries that are currently in the European Union. Now, let’s save this shipping zone and head back over to Taxes. Here, you must set each EU country’s tax
to the VAT rate of your store’s country. To do this, you must click on each country and set its tax rate
until all EU countries are marked as “Collecting”. Keep in mind, if you reach the yearly turnover
threshold to a certain EU country, you will then charge the customers of that country their VAT rate. Great! Now that we know how to set up
our taxes correctly for physical goods, let me show you how simple it is
to set up the tax rates for digital goods. Once again, in your Shopify Dashboard
head over to Settings and then Taxes. Here we have a checkbox that enables you
to charge VAT on digital goods. Select it, and you’re done! This creates a new product collection
where you will put all your digital products. Shopify will then automatically apply
the correct VAT at checkout for your EU customers. Great, we have now set up taxes
for both our physical and digital goods. Now keep in mind, when selling to customers
throughout the European Union, it is important that you generate valid invoices
with detailed VAT breakdowns. These commercial invoices also serve as important
export documents when selling goods outside the EU. With Sufio installed in your Shopify store,
you can create beautiful invoices tailored to your brand. Invoices include detailed VAT breakdowns and all the necessary information
about your business and your customers to make them fully compliant with accounting legislations in the EU. Also, these invoices can be automatically created in over 30 languages. I really hope this video has helped you guys, and if anything still remains unclear, leave a comment
right down below and I’ll personally get back to you. Thanks for watching, I’m Jan, and I’ll see you guys in the next video.

Reader Comments

  1. So if I understand correctly you're not eligible to charge VAT when your annual turnover is bellow the required threshold. So for example, my store Is selling only to certain countries in Europe and in US,UK,Australia,Canada and New Zealand. By default shopify is collecting only taxes from the country where the business is located in. But I don't provide shipping to my country, so I don't need to collect any taxes right?

  2. Hello, I got an order from austria and I am in the U.S they were charged %20 and it went to me, do i have to send them the %20 VAT ?

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