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Digital product taxes

Digital goods are downloadable files or some other kind of electronically supplied product. Consumers living in the European Union (EU) must pay a value added tax (VAT) on digital goods at the rate that applies in their own country, regardless where the seller is located.

But in some jurisdictions, you don't need to charge sales tax on digital products. Check with a local tax expert to make sure you know the requirements in your region.

On this page

Exempt a digital product from tax

If you have just a few digital products that are exempt from tax, you can prevent taxes from applying to these individual products. Digital products don't require shipping in a traditional sense, so you can turn off the shipping feature at the same time.

Steps:

  1. From your Shopify admin, go to Products.

  2. Click the product that you want to edit.

  3. In the Price section, click Charge tax, and then deselect Charge tax on this product.

  4. In the Shipping section, make sure that the Physical product setting is deactivated.

  5. Click Save.

Exempt a large number of digital products by doing a bulk update

If you need to exempt a large number of digital products at the same time, you can do a bulk update. To do this procedure, you need to be comfortable editing .csv files.

Steps:

  1. Export the products that need to be updated as a .csv file, then edit the values in the following columns:

    Fields to edit in Product CSV
    CSV fieldSetting
    Variant Requires ShippingSet this value to false.
    Variant TaxableSet this value to false.
    Variant GramsSet this value to 0.
  2. When you've finished editing your .csv file, import it to your store. Be sure to check the option Replace any current products that have the same handle.

Digital goods in the European Union

Digital goods in the European Union are defined in legislation as broadcasting, telecommunications, and services that are electronically supplied instead of shipped. Gift cards sent online are not included in the definition.

You can read the rules for VAT on digital services in the EU. Consult with a tax expert so that you know how the EU VAT rules apply to you.

VAT based on the customer location

If you're selling digital goods to customers in the European Union, then you need to charge VAT based on your customers' location.

For example, if you're a Dutch merchant and you sell a digital product to a customer in Germany, then you have to charge the customer the German VAT rate of 19%. You can enable the EU Digital VAT Rates feature to make this process easier.

VAT registration

You can register for VAT in one of the following ways:

  • For EU merchants: Register for One-Stop-Shop (OSS) for intra-EU sales of digital goods to other European Union countries.
  • For non-EU merchants: Register for Non-Union OSS for sales of digital goods or services to European Union consumers. Alternatively, set up local VAT registrations in each EU country where you do business.

Contact your local tax authority for more details about VAT registration options and requirements.

Evidence of a buyer's location

If you sell digital goods, then some tax authorities require that you collect and record two pieces of evidence of a buyer's location. For every order, Shopify provides you with the billing address and the customer's IP address. The billing address appears on the order page. You can verify the IP address by clicking View Full Analysis in the Fraud Analysis section.

If an IP address appears to come from a different country than the billing address, then you should get another piece of evidence of their location. Check with a tax expert to make sure you have enough evidence for the tax authorities.

Enable VAT rates for digital goods

To simplify charging VAT on your digital goods, you can automatically assign VAT rates for each EU country.

If you enable VAT rates for digital goods, then a collection is created, and whenever you sell a product that is in the collection, the correct VAT rate is automatically applied based on the customer's billing address.

Enabling VAT rates creates a product collection with automatically-assigned VAT settings for each EU country. The default collection is called Digital Goods VAT Tax, but you can change this to use any of your collections. For more information, refer to Apply digital VAT rates to a different collection

Steps:

Desktop

  1. From your Shopify admin, go to Settings > Taxes and duties.

  2. In the Tax calculations section, click Charge VAT on digital goods.

  3. Click Save.

  4. On your Collections page, click Digital Goods VAT Tax.

  5. Add products to the collection.

  6. Click Save.

Mobile

  1. From the Shopify app, tap Menu, and then tap Settings Settings.

  2. In the Store settings section, tap Taxes and duties.

  3. In the Tax calculations section, tap Charge VAT on digital goods.

  4. Tap Save.

  5. On your Collections page, tap Digital Goods VAT Tax.

  6. Add products to the collection.

  7. Tap Save or ✓.

Apply digital VAT rates to a different collection

After you create the initial Digital Goods VAT Tax collection, you can apply the rates to another collection of digital goods.

Steps:

  1. From your Shopify admin, go to Settings > Taxes and duties.

  2. In the Tax calculations section, click change collection.

  3. Search for the collection that you want to use, or choose the collection from the list.

  4. Click Save.

See the VAT rates you're using

If you've enabled Digital Goods VAT Rates, then you can see the VAT settings that are applied to each country in your shipping list.

Before you view your rates, make sure that each country is in your Shipping zone list.

Steps:

Desktop

  1. From your Shopify admin, go to Settings > Taxes and duties.

  2. In the Tax regions section, click Set up or Edit beside the name of a European country. The digital goods VAT is displayed in the Tax overrides section.

Mobile

  1. From the Shopify app, tap Menu, and then tap Settings Settings.

  2. In the Store settings section, tap Taxes and duties.

  3. In the Tax regions section, tap Set up or Edit beside the name of a European country. The digital goods VAT is displayed in the Tax overrides section.

Disable the VAT rates for digital goods

If you disable the EU Digital VAT Rates feature and then re-enable it, you have to reassign your preferred collection if you didn't use the default.

Steps:

Desktop

  1. From your Shopify admin, go to Settings > Taxes and duties.

  2. In the Tax calculations section, uncheck Charge VAT on digital goods.

Mobile

  1. From the Shopify app, tap Menu, and then tap Settings Settings.

  2. In the Store settings section, tap Taxes and duties.

  3. In the Tax calculations section, uncheck Charge VAT on digital goods.

Charge taxes for in-person events or services

If you sell event tickets or provide services at a specific location, then you might need to charge taxes based on the event or service location instead of the customer's billing address. To calculate taxes correctly, set up the ticket or service as a physical product with in-store pickup at the event location.

Steps:

  1. Create a location for the event or service venue.
  2. Go to Settings > Shipping and delivery and add this location to your shipping settings. Don't add shipping rates to this location.
  3. Go to Settings > Taxes and duties and verify that the event location's region is set up to collect taxes.
  4. Create your ticket or service product:
    • In the Shipping section, activate This is a physical product.
    • Set the product's inventory to be available only at the event location.
    • Set the product for local pickup only.
  5. In the product description, inform customers that this product must be purchased separately from other items.