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How to Enable VAT Rates for Digital Goods on Shopify

Last updated: October 22 2024

Written and researched by experts at Avada Learn more about our methodology

If you're selling digital goods to customers in the European Union (EU), it's crucial to comply with VAT (Value-Added Tax) regulations. Luckily, Shopify makes it easy to enable VAT collection and automatically apply the correct rates for each EU country.

In this guide, we'll show you how to activate VAT collection for your digital goods in a few simple steps.

Let’s dive in!

Enabling VAT Rates for Digital Goods on Shopify: Step-by-step

When you enable this feature, Shopify creates a special collection. Any product in this collection will have the correct VAT rate applied automatically, based on where the customer is located.

By default, this collection is called Digital Goods VAT Tax, but you can change it to any of your existing manual collections. For more information, check out the Apply digital VAT rates to a different collection guide.

Let's walk through the steps:

On Desktop

Step 1: From your Shopify admin, go to Settings > Taxes and duties.

go to Settings > Taxes and duties.

Step 2: Scroll down to the Global settings section, click Charge VAT on digital goods. Then click Save.

click Charge VAT > click Save.

Step 3: Back to your Shopify admin, click Products > Collection > Click Digital Goods VAT Tax collection.

click Products > Collection > Click Digital Goods VAT Tax collection.

Step 4: Search for products or click Browse to add your digital products to the collection.

Search for products or click Browse

Step 5: Click Save.

On iPhone

  1. Open the Shopify app and tap the three dots (...) button.
  2. Go to Settings > Store settings > Taxes and duties.
  3. Find the Global settings section and turn on Charge VAT on digital goods.
  4. Tap Save.
  5. Go to your Collections page and tap Digital Goods VAT Tax.
  6. Add your digital products to this collection.
  7. Tap Save.

On Android

  1. In your Shopify app, tap the three dots (...) button, then tap Settings.
  2. Go to the Store settings section and tap Taxes and duties.
  3. Under Global settings, click the Charge VAT on digital goods box.
  4. Tap Save.
  5. Go to your Collections page and tap the one called Digital Goods VAT Tax.
  6. Use the search or browse function to add all your digital products to this collection.
  7. Tap Save again.

FAQs

Which Shopify plans support the VAT on digital goods feature?

The VAT on digital goods feature is available on all Shopify plans.

How do I know the correct VAT rate to apply for each EU country?

Shopify automatically calculates and applies the appropriate VAT rate based on the customer's billing address. You can also review and adjust the rates for specific countries in your tax settings.

What happens if I don't enable VAT on digital goods for my EU sales?

Failing to comply with VAT regulations can result in penalties and legal issues. It's crucial to enable this feature and ensure you're charging and collecting VAT correctly.

How do I provide VAT invoices to my customers?

Shopify automatically generates VAT invoices for eligible orders. You can customize the invoice template and include VAT information in your order confirmation emails.

Do I need to register for VAT in each EU country where I sell digital products?

Depending on your sales volume and specific circumstances, you might need to register for VAT in certain EU countries. It's recommended that you consult a tax professional for guidance on VAT registration requirements.

Final Thought

Enabling VAT collection for digital goods on Shopify is a vital step in ensuring your store's compliance with EU tax regulations. Follow these steps to automate the process and provide transparent pricing to your European customers.

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Sam Nguyen is the CEO and founder of Avada Commerce, an e-commerce solution provider headquartered in Singapore. He is an expert on the Shopify e-commerce platform for online stores and retail point-of-sale systems. Sam loves talking about e-commerce and he aims to help over a million online businesses grow and thrive.