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How to Enable VAT Rates for Digital Goods on Shopify
Last modified: November 22, 2023
Generally, digital goods are free from taxes. This is because it is hard to determine where the tax should be paid. For instance, if you sell products to the US from the UK, do you pay US or UK rates? However, there are some areas and products that do have VAT charges applicable to them.
There are ways that you can add the charge for VAT to those products that require the payment. This allows you to accept the payment and comply with international VAT rules. Below are the instructions for you to add VAT to a collection of digital products.
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Step 1 – Login
The first step is to ensure that you’re logged into your Shopify account and are on the Shopify dashboard.
Step 2 – Head to Taxes
On the Shopify dashboard, you need to click on the ‘Settings’ option and then click on the gear icon beside it. Then you need to go down the first column of the settings list, and you’ll find the ‘Taxes’ option.
Step 3 – Enable
There are two sections within the ‘Taxes’ section. The first is the ‘Tax Settings’ and the next is the ‘Tax Rates’. In the ‘Tax Settings’ there is a line that reads ‘Enable EU Digital goods VAT rates’. The ‘Enable’ should be underlined. Click on ‘Enable’ to continue.
Step 4 – Choose Enable EU Digital Goods VAT Taxes
After you’ve clicked to enable, another dialog box will display. This will include a short description related to the setup. Be sure to read this information carefully. It will include a lot about the VAT charge. You can then click on the ‘Enable EU Digital Goods VAT Taxes’ button. This will activate the settings.
Step 5 – Select Digital Goods VAT Tax
Now you should see an option that will be stocked that reads ‘Charge EU Digital Goods VAT Taxes’. Below this, you should see ‘Digital Goods VAT Taxes’ in a blue color. You need to select this.
Step 6 – Add Products to Collection
Now you will be directed to the collection for digital goods that need to have VAT taxes charged against them. You should scroll down the page until you get to the ‘Products’ section. Click on the browser button, and then you will need to tick on all the products you want in the list.
Once you’ve done this, click on the ‘Add’ option to move all the selected products to the collection of products that have VAT charged.
Conclusion: How to Enable VAT Rates for Digital Goods on Shopify
Don’t fall foul of EU digital VAT tax laws, ensure that you’re charging VAT on the digital goods you sell through the easy-to-follow steps above. If you’re selling digital goods. There are also some apps that can help you with charging for digital goods.
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Does enabling VAT rates for digital goods on Shopify affect my tax reports?
Yes, enabling VAT rates for digital goods on Shopify ensure that tax amounts are accurately recorded in your tax reports. It helps you maintain compliance and facilitates precise reporting to tax authorities.
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Can I set different VAT rates for different EU countries on Shopify?
Yes, Shopify allows for setting different VAT rates for various EU countries. This ensures compliance with each country’s specific VAT requirements.
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Can Shopify automatically calculate VAT for digital goods?
Yes, Shopify can automatically calculate VAT for digital goods based on the customer’s location. It can also apply the appropriate tax rates and display them during the checkout process.
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