If you sell digital products to customers in the EU, you’re required to charge VAT based on the buyer’s country - not yours. This rule applies to ebooks, online courses, software downloads, digital music, streaming services, and similar products. Shopify has a built-in feature that handles this, but you need to enable it manually.

Below are the steps to set up EU digital goods VAT on your Shopify store, plus context on what the rules actually mean for your business.

Key Takeaways
1
EU law requires VAT on digital goods sold to EU customers, charged at the buyer’s country rate - not the seller’s.
2
Shopify has a built-in “EU Digital Goods VAT” feature you can enable in Settings → Taxes.
3
After enabling, add all your digital products to the digital goods collection so VAT applies correctly at checkout.
4
The EU One-Stop Shop (OSS) scheme lets you report and pay VAT for all EU countries through a single registration.

Why Digital Goods Have Special VAT Rules

Before 2015, digital goods sold across EU borders were taxed at the seller’s local VAT rate. That changed when the EU introduced rules requiring VAT to be charged based on where the customer lives. A UK-based store selling an ebook to a customer in Germany charges German VAT (19%), not UK VAT.

This affects any business selling digital products to EU consumers, regardless of where the seller is based - including stores in the US, UK, Canada, or Australia. If you sell digital downloads, SaaS subscriptions, online courses, or streaming access to EU buyers, you need to collect and remit VAT.

The One-Stop Shop (OSS) scheme simplifies this. Instead of registering for VAT in every EU country where you have customers, you register once in one EU member state and file a single quarterly return covering all EU sales. Shopify doesn’t file your OSS returns for you, but it does calculate and collect the correct VAT rate per country at checkout once you enable the digital goods VAT feature.

What Counts as a Digital Good for VAT?

Not everything sold online counts as a “digital good” under EU VAT rules. The key test is whether the product is delivered electronically and doesn’t involve a physical component. Here’s what qualifies:

  • Ebooks and digital publications - PDFs, EPUBs, digital magazines
  • Software and apps - downloadable software, SaaS subscriptions, mobile apps
  • Online courses and webinars - pre-recorded video courses, membership sites with digital content
  • Digital music and video - MP3 downloads, streaming subscriptions
  • Digital images and templates - stock photos, design templates, website themes
  • Gaming - digital game downloads, in-game purchases, online gaming subscriptions

Physical products shipped to customers, even if ordered online, are not digital goods. Services like consulting or coaching delivered live (not pre-recorded) also fall outside this category in most EU countries.

How to Enable VAT Rates for Digital Goods on Shopify

Step 1 - Log Into Your Shopify Admin

Go to your Shopify admin dashboard. You need to be on a plan that supports tax settings - all paid Shopify plans include this feature.

Step 2 - Go to Settings → Taxes

Click Settings in the bottom-left corner of your Shopify admin. From the settings menu, click Taxes and duties. This opens the tax configuration panel where you manage all tax rules for your store.

Step 3 - Enable EU Digital Goods VAT Rates

In the Tax Settings section, look for the line that reads “Enable EU Digital goods VAT rates”. Click Enable to continue. A dialog box will appear with details about how EU digital goods VAT works - read through it, then click the “Enable EU Digital Goods VAT Taxes” button to activate the feature.

Step 4 - Open the Digital Goods VAT Collection

After enabling, you’ll see a new option labeled “Charge EU Digital Goods VAT Taxes” with a link to “Digital Goods VAT Taxes” below it. Click that link - it takes you to a special collection that Shopify created automatically.

Step 5 - Add Your Digital Products to the Collection

Scroll down to the Products section in the collection page. Click Browse, then select every digital product in your store that should have EU VAT applied. Click Add to move them into the collection.

Any product in this collection will automatically have the correct EU VAT rate calculated and charged at checkout based on the customer’s location. Products not in this collection follow your standard tax settings.

If you have products that need a different tax rate - like items with special exemptions or reduced rates - you may need to create a separate collection with tax overrides to handle those cases.

Common Mistakes When Setting Up Digital Goods VAT

Getting the feature turned on is straightforward, but there are a few things that trip store owners up:

  • Forgetting to add products to the collection - Enabling the VAT feature alone doesn’t do anything. You must add each digital product to the Digital Goods VAT collection. New products you add later also need to be added manually.
  • Mixing physical and digital products - If you sell both physical items and digital downloads, only the digital products should go into the VAT collection. Physical goods follow different tax rules and shouldn’t be included.
  • Not registering for OSS - Shopify collects the VAT at checkout, but you still need to register with the One-Stop Shop (or register individually in each EU country) and file returns. Collecting VAT without remitting it creates compliance issues.
  • Ignoring the UK - Since Brexit, the UK has its own digital services VAT rules separate from the EU. If you sell digital products to UK customers, you may need to register for UK VAT separately. Shopify’s EU digital goods feature doesn’t automatically cover UK VAT.