What Ecommerce Sellers Need to Know
Are you a Shopify business owner based in the European Union? Are you nearing the reporting threshold? If so, do you understand when to charge, collect, and pay VAT?
When most Shopify businesses open their store, they are not required to register for VAT. However, once your annual turnover exceeds a certain threshold, you are required to file and pay VAT.
In this article, we’ll cover when you need to register for VAT and the different reporting requirements based on where your customers are located.
When VAT is Not Required
VAT is not required to be collected or remitted if your annual turnover for the past twelve months is below the country’s VAT filing requirements. This means that you do not have an obligation to impose any VAT on your sales, regardless of where your customers are located.
In the United Kingdom, you are required to register for VAT once annual turnover exceeds £90,000. However, using the EU One-Stop Shop portal has a lower threshold of €10,000. Your resident location can also dictate when VAT registration is required. Many countries have annual turnover thresholds between €35,000 and €100,000.
Shopify VAT Collection for Registered Businesses
There are two factors that determine if you should charge VAT or not: the home location of your customer and the type of customer. Here’s a chart that breaks down when you should collect VAT based on location and customer type:
| Selling destination | Consumers (B2C) | Businesses (B2B) |
|---|---|---|
| Same EU Country | VAT | VAT |
| Different EU Country | VAT | No VAT |
| Outside of the EU | No VAT | No VAT |
Customers in the Same EU Country
When you sell to customers and businesses that are located in your home country, you will charge VAT based on your country’s rate. Your local VAT rate will apply to both digital and tangible goods.
Customers in a Different EU Country
Charging VAT to customers outside of your home location will depend on the type of customer. Selling directly to other businesses will not trigger VAT while selling to consumers will have applicable VAT.
Under the EU One-Stop Shop portal, Shopify businesses with an annual turnover under €10,000 are not required to register or collect VAT. Once this threshold is exceeded, you can register and pay taxes through the portal in one single EU country, even if you sell to other EU countries.
Customers Outside of the EU
VAT is not applicable to sales to countries outside of the EU. You will not collect or remit any taxes on these sales. However, you still may be required to report the sales to these countries, with no VAT liability.
Understanding VAT on Services
Businesses that sell cross-border telecommunication, television and radio broadcasting, and certain other digital services might qualify for VAT Mini One Stop Shop (MOSS). Other services include website hosting, access to databases, app and music downloads, online gaming, distance teaching, and software.
Similar to the One Stop Shop portal, MOSS allows you to register and pay VAT through one single registration. EU VAT imposed on services follows similar regulations as the sale of general goods. For example, B2C sales might be excluded from VAT and the taxability relies on the location of the customer.
Maximizing Compliance with EU VAT
The EU has specific rules on how VAT is charged, collected, and reported. Many of these requirements are found on the invoice you issue to customers. Your invoice needs to clearly state the rate of VAT charged, the date of the order, a description of the goods or services, the VAT number of the supplier, the VAT amount, and the date of issuance.
As a result, it’s important to have the right invoicing software on your side. BUSINESS provides Shopify owners with automatic invoice generation tools that integrate with Shopify. Reach out today to schedule your free consultation or learn more about BUSINESS.