What do you need to know about the latest EU VAT regulation changes?

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Euroopa kaibemaksumuudatus 2021 juulis

The EU VAT change, which enters into force on 01.07.2021, affects to a greater or lesser extent all e-shops that are serving European customers.

Fortunately, Shopify has simplified your life, and the functionalities required by the new regulation are already included in the base functionality of all Shopify plans. All you have to do is log in to the Shopify e-store admin panel and make the necessary selections and settings according to the specifics of your business.

This blog post does not contain any tax advice. We are just introducing Shopify features and explaning how they work.

You may have noticed that Shopify has recently asked e-shops to reconfigure their tax records in accordance with the new EU regulations. It would be wise to make the appropriate settings at the first opportunity, otherwise it will be cumbersome to report VAT on orders sold to other European countries.

To put it simply, the company has 3 options in the future:

  1. The company can register for VAT in all European countries where it has sold at least one order. (Country-specific registration)
  2. A company can join the One Stop Shop (OSS) special scheme and report VAT on orders from all EU countries to its home tax office.
  3. A company that sells mainly in its home country and its annual turnover to foreign EU countries does not exceed 10 000 € (Micro-business special arrangement).

Most companies with sales to more than € 10,000 in other EU countries are likely to opt for the second option, as registering a business as a VAT payer in all European countries is quite costly and paying VAT directly is a bit cumbersome.

You can read more about the tax change from EMTA.

How to make the necessary settings in Shopify?

Fortunately, Shopify has included the necessary functionality in all packages as a default solution and you do not need to install any third-party apps.

  1. In the administration environment of your Shopify e-store, select the Settings sub-section in the lower-left corner and go to Taxes.
  2. If you have already set up VAT in your e-shop, you will see that the European Union is in “Collecting” status. Click the “Manage” button next to “Collecting” text.
  3. Now you will see that Shopify asks you to make “VAT rules are changing in the EU on July 1” choices. Click the “Update VAT registration” button.
  4. In the modal pop-up, you can make the right choice from three options according to the specifics of your company.
    1. One-Stop Shop registration
    2. Micro-business exemption
    3. Country-specific registration
  5. After making your selection, click the next button, check in the next view that your home market selection and VAT number are correct, and click the Save button.

Video guide:

How does the solution work?

If you have selected the One Stop Shop or Country-specific registration VAT calculation logic, then from 01.07.2021 the percentage of the order’s VAT will be applied in the e-shop purchase view according to the delivery country selected by the customer.

With the micro-business exemption option, Estonia will still be subject to 20% Estonian VAT on all orders within the EU (if your home market is Estonia).

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