Do you want to start tracking the VAT amounts on Europe sales? You can easily track this in Shopify. I am assuming that you are only selling digital products when you’re reading this, but I’m sure it can apply to physical product stores too.
Before we start, you will need a VAT number to apply the VAT calculations. It’s a requirement to enter it.
Why does every digital product company need to sign up for the OSS (One-stop Shop) scheme?
If you’re not aware, in the past few years, it’s been a legal requirement for every store to collect VAT in all EU sales, even if your company is located outside of the EU. This was introduced because large companies such as Amazon sell eBooks worldwide and avoid paying massive amounts of taxes in the countries their customers are based in.
Unfortunately, these large companies have ruined it for many small businesses because now we need to pay the VAT in the customer’s billing country they enter at checkout. The OSS or MOSS schemes have been created to make it easier for companies to pay the VAT to each EU country.
How does the OSS VAT scheme work?
- Essentially your company needs to register for a VAT number in a single country EU country, then register for the OSS or MOSS scheme
- Once registered, you or your accountant will calculate all your customer’s billing countries and VAT rates, then total it up to find how much VAT you owe to each EU country.
- Then you will need to pay the OSS scheme the total payment of all the amounts you owe to each country
- The scheme will distribute the costs to all the other country’s governments. What a mess!
What does OSS or MOSS stand for?
OSS (One-stop Shop) and MOSS (Mini one-stop Shop). You can learn the difference between them below.
What’s the difference between OSS and MOSS?
The difference is simple – MOSS was what it was called until 21st July 2021, and then it converted into OSS.
How to apply for VAT OSS in the UK
The UK stopped the MOSS scheme on January 1st 2021. This caused an uproar because we had to re-register for MOSS/OSS in Ireland. Therefore we now need to pay our VAT bill in euros to Ireland for them to then distribute it to other EU countries.
You will still need to stay registered for VAT in the UK and do a separate VAT return. So essentially, you need to do two VAT returns.
How to set up your digital goods VAT tax settings in Shopify
Step 1 – Enter your VAT number into Shopify
Go to Settings > Billing > Scroll down to ‘Tax registration‘ > Enter your VAT number
Step 2 – Go to ‘Taxes’
On the ‘Taxes‘ page, scroll down and enable ‘Charge VAT on digital goods‘.
Step 3 – Go to ‘Shipping & delivery’
Click on ‘Manage rates‘
Scroll down and click on ‘Create shipping zone‘
Step 4 – Add ‘Europe’ as a shipping zone
Click on ‘Europe’ so it selects all countries in Europe. Unfortunately, you cannot search in the search box ‘Europe‘ at this time of writing this blog. You will need to scroll down and tick the ‘Europe‘ checkbox and click ‘Done‘.
Step 5 – Go back to ‘Taxes’
Scroll down to ‘European Union‘, click the button ‘Set up‘.
Step 6 – Click on ‘Collect VAT’
Step 7 – Click ‘One-Stop Shop registration’
Once selected, click the ‘Next‘ button.
Step 8 – Enter VAT details and registration country
Once you enter these details, click the ‘collect VAT‘ button.
Step 9 (Non-UK Users) – Set up UK if not included in Europe selection
You may need to set the United Kingdom up as a separate country to collect VAT. The UK are not in the EU anymore. I am based in the UK so I am unsure if it gets set up automatically with the EU setup above. Please comment and let me know below.
That is everything pretty much. This will add all the European countries to be tracked for VAT on your digital goods.
How to allow customers to deduct VAT on their orders
If you want to add the ability for customers to automatically deduct VAT from an order by supplying their VAT registration number (Business to business sales), you can do so by the following:
Download one of these apps that suits you better:
Sufio and Exemptify are apps to help you achieve this. DO NOT use the Digital Takeout apps; they do not reply and are terrible.
Meanings for the taxes settings on Shopify
‘All prices include tax’ meaning
Taxes charged on shipping rates are included in the shipping price.
‘Include or exclude tax based on your customer’s country’ meaning
If you sell internationally, then you can include or exclude taxes in your product prices based on your customer’s location. If you enable this setting, then customers in countries or regions such as the United Kingdom see prices inclusive of their local value-added tax (VAT) or exclusive of taxes in countries or regions such as the United States, where buyers expect to see taxes added at checkout. Learn more.
‘Charge tax on shipping rates’ meaning
You can charge tax on your shipping rates if you have a physical product store.
‘Charge VAT on digital goods’ meaning
This means that Shopify will charge the digital VAT rate in the customer billing country. If a customer types in “France”, then Shopify will automatically add Frances’s 20% VAT rate on the sale. Learn more about digital goods VAT.
There you have it, how to set up your OSS or MOSS system on Shopify to collect VAT rates in your customer’s country. I hope it’s been really helpful. If you feel anything is missing from the blog, please let me know in the comments, and I will add it.