Navigating EU VAT Compliance for UK Shopify Merchants

In the wake of Brexit and new EU VAT regulations, UK-based Shopify merchants face significant challenges when selling to EU customers. One of the most pressing issues is finding an affordable and efficient way to handle VAT collection and remittance. This blog post explores the options available, with a focus on integrating Taxamo with Shopify, and provides insights into potential solutions for merchants of all sizes.

The Challenge: IOSS and VAT Compliance

Understanding IOSS

The Import One-Stop Shop (IOSS) is a new system introduced by the EU to simplify VAT collection on low-value goods (under €150) imported from non-EU countries. For UK merchants, this means finding a way to collect VAT at the point of sale and remit it to the appropriate EU authorities.

The Shopify Dilemma

Many UK Shopify merchants have found themselves in a difficult position. While Shopify offers built-in tax calculation features, integrating with IOSS-compliant services like Taxamo has proven challenging, especially for those not on the Shopify Plus plan.

The Search for Solutions

Merchants have been actively seeking affordable and user-friendly solutions to comply with the new regulations without sacrificing their EU customer base.

Taxamo: A Potential Solution

What is Taxamo?

Taxamo is a service that offers IOSS compliance for non-EU merchants. It calculates and charges VAT to customers, then remits it to the EU on behalf of the merchant.

The Integration Challenge

While Taxamo seems like an ideal solution, integrating it with Shopify has proven difficult for most merchants. The primary issue is that Taxamo’s API integration requires access to the Shopify checkout, which is only available to Shopify Plus users.

Cost Considerations

Taxamo charges £2 per transaction, making it an attractive option for smaller merchants who can’t justify the expense of more comprehensive solutions.

Alternative Solutions

Crossborderit (CBIT)

Several merchants have turned to Crossborderit (CBIT) as an alternative. CBIT offers IOSS services with a flat fee of €1 per transaction and a monthly subscription fee.

Pros of CBIT:

• Lower per-transaction fee compared to Taxamo
• Shopify app available for easier integration
• Provides IOSS number for merchants

Cons of CBIT:

• Some users report communication issues with support
• Manual data upload required initially (before app integration)

Other IOSS Providers

Some merchants have explored other IOSS providers, but many find them prohibitively expensive for small businesses.

The Shopify Response

Current Limitations

Shopify has acknowledged the issue but has not yet provided a comprehensive solution for non-Plus users. They have, however, implemented some features to assist with EU VAT calculations.

Registration-Based Taxes

Shopify has introduced “Registration-Based Taxes” which allows merchants to input their tax registration IDs for various countries. This feature helps with automated tax calculations but doesn’t fully solve the IOSS integration issue.

Best Practices for UK Merchants

1. Stay Informed

Keep up to date with changes in EU VAT regulations and Shopify’s updates regarding tax features.

2. Explore Multiple Options

Don’t rely on a single solution. Investigate various IOSS providers and compare their features and pricing.

3. Consider Your Volume

If you’re selling a high volume to the EU, investing in a more comprehensive solution might be worthwhile. For lower volumes, services like CBIT might be more appropriate.

4. Utilize Shopify’s Built-in Features

Make full use of Shopify’s tax settings and Registration-Based Taxes feature to ensure you’re collecting the correct VAT amounts.

5. Communicate with Customers

Be transparent with your EU customers about potential additional charges they may face upon delivery.

The Future of EU Selling for UK Shopify Merchants

Potential Shopify Developments

There’s hope that Shopify will develop more integrated solutions for non-Plus users in the future. Keep an eye on Shopify’s updates and announcements.

Evolving Third-Party Solutions

As the market adapts to these new regulations, we can expect to see more third-party apps and services designed to bridge the gap between Shopify and IOSS requirements.

The Importance of Flexibility

Merchants should remain flexible and ready to adapt their strategies as new solutions emerge and regulations potentially change.

While the current situation presents challenges for UK Shopify merchants selling to the EU, there are workable solutions available. The most promising option for many seems to be using a service like Crossborderit (CBIT) in conjunction with Shopify’s built-in tax features. However, each merchant should carefully evaluate their specific needs and sales volume to determine the best approach.

As the e-commerce landscape continues to evolve, staying informed and adaptable will be key to successfully navigating the complexities of cross-border selling in the post-Brexit era.