Traders and merchants who sell online to B2B customers are familiar with the problem of the different VAT obligations. These are different from the obligations that must be met for VAT with regard to B2C sales, especially when it comes to cross-border sales. In this article, we want to go into more detail about this issue and explain how it can be solved in a simple and quick way, even in Shopify stores.
Table of contents
- The problem with sales tax
- Shopify, sales tax and B2B
- VAT exemption and exemptions for B2B sales
- What control solutions are available for Shopify?
- Tax Exempt Manager - What can the app do?
- How much does Tax Exempt Manager cost?
- Who uses the Tax Exempt Manager?
- Is there anything else that needs to be taken care of after installation?
If you need help with sales tax exemption with Shopify, feel free to contact us and we'll be happy to help and advise you.
The problem with sales tax
As a business, you generally have to pay sales tax (also known as VAT) on sales in your own country (whether B2B or B2C) - assuming you don't claim otherwise (e.g. small business rule). However, depending on the type of products (physical or digital) you sell, the countries in which you operate, and who your buyers are, you may face different VAT obligations.
Reading tip: Shopify Enterprise - How enterprise merchants solve their challenges with Shopify Plus.
The rough overview:
Sales within Germany to B2B or B2C customers are subject to VAT.
Sales to countries outside the EU (whether B2B or B2C) do not require VAT reporting.
For B2B sales to another EU country, no VAT needs to be shown in the country of origin.
For sales to end customers in another EU country, the collection of VAT is mandatory.
Whether you have to apply the German tax rate or the tax rate of the respective target country depends on certain sales limits. It also depends on whether you sell digital products or physical goods, because here, too, there are different tax rates depending on the country. As you can see, the tax issue is, as always, a rather complicated one. Especially online stores that sell cross-border to business and end customers all over Europe with their Shopify store face a challenge. To save you from having to manually adjust each invoice to B2B customers and check each VAT ID individually, the Latori team has developed an app solution that we would like to introduce to you below.
Reading tip: We'll show you how to use Shopify in Germany in a legally compliant manner in this blog post.
Shopify, sales tax and B2B
The sales tax settings for B2B sales in Shopify are crucial to meet legal requirements and ensure that businesses are taxed correctly.
Location-based taxation: Shopify allows sales tax to be calculated based on the customer's location. For B2B sales, it is important to configure the correct tax rates for the respective country or region.
Customer information for B2B taxation: Shopify enables the collection of specific customer information, including their VAT ID number. This information is crucial to ensure that B2B customers are potentially exempt from VAT.
Exemptions and exclusions: Businesses can set up specific exemptions and exclusions for B2B customers in Shopify settings if they are eligible to be exempt from sales tax.
Sales tax exemption for specific products or services: Shopify allows certain products or services to be exempt from sales tax when allowed under applicable laws.
Automatic calculation of sales tax: By correctly configuring the sales tax settings, Shopify automatically calculates the appropriate sales tax for each sale based on the information collected.
Integration with tax advisory services: Shopify enables integration with various tax advisory services to ensure that VAT settings are always compliant with current legislation.
Monitoring of legal changes: It is important to keep an eye on changes in sales tax laws. Shopify makes it possible to be aware of updates and changes in tax regulations and adjust settings accordingly.
Audit and reporting: Shopify offers features to audit and report on sales tax transactions. This makes it easier for businesses to comply with accounting requirements and enables verification of sales tax payments.
By carefully configuring these VAT settings, companies can ensure that their B2B sales in Shopify comply with the applicable VAT regulations and are processed in a legally compliant manner.
VAT exemption and exemptions for B2B sales
B2B VAT exemptions and exceptions refer to specific regulations that allow companies to be exempt from VAT under certain conditions. These regulations vary depending on the country and legal system.
Value added tax identification number (VAT ID): In many countries, companies operating within the EU can be exempt from VAT if they have a valid VAT identification number (VAT ID). B2B transactions between companies with valid VAT IDs can then be treated as tax-free intra-Community supplies.
Proof of business status: In order to benefit from the B2B VAT exemption, companies often have to prove that they are carrying out a business transaction. This can be done by providing commercial registers, business registrations or other relevant documents.
Cross-border services: Specific regulations often apply to B2B services across national borders. Businesses need to ensure that they understand and comply with the applicable VAT exemption rules for cross-border services.
Reverse charge procedure: In some countries, the reverse charge procedure is used, whereby the responsibility for VAT payment is transferred to the recipient of the service. This means that the customer must pay the VAT in their home country themselves.
Exemption for certain services: Some countries grant a B2B VAT exemption for certain services or transactions. These can include consulting services, financial services or educational services, for example.
B2B VAT exemption for intra-Community supplies: Within the EU, B2B supplies between companies with valid VAT IDs in a member state may be exempt from VAT. Correct application requires compliance with the applicable EU directives.
Exemption for exports and international transactions: For cross-border transactions outside the EU, exports may be exempt from VAT. Companies must be familiar with the regulations of the country in which goods or services are exported.
Reading tip: We explain how to run your B2B business on Shopify in the linked guide.
What control solutions are available for Shopify?
One thing first: of course, suitable tax rates can be stored in the Shopify backend. VAT rates for digital products can also be adjusted here by country. For sales to other EU countries, you can deactivate the "Show all prices including taxes" function in the Shopify admin under Settings > Taxes.
However, retailers often offer their goods for more than just one country. Manually setting the VAT rate for each order from abroad is costly and time-consuming and should be avoided if at all possible. You can invest this time better! To find out the correct tax rate, you also need the VAT ID of the buyer. If the ID is available, it must finally be verified at the Federal Central Tax Office.
Imagine if you could automate all this work.
The Tax Exempt Manager from LatoriApps supports you in this! To the Tax Exempt Manager
Tax Exempt Manager - What can the app do?
Tax Exempt Manager ensures that you and your company comply with EU directives so that you can use the application comfortably and thus increase your business.
The Latori Apps team has developed an algorithm for this plugin that captures and automatically checks the VAT ID of your business customer against the official EU database VIES for tax numbers of the European Commission. If the VAT ID entered matches the correct pattern, the amount at checkout is automatically corrected and the customer can buy without VAT. The tax exemption takes place without the need to create an account. The validated VAT ID is then saved for the order and can be printed on invoices.
In the Filafarm shopping cart, the VAT ID can be easily entered thanks to the app
End customers outside the EU (e.g. Norway) can also see prices excluding taxes thanks to the app, whereas EU customers are shown the total price including tax. The Tax Exemption Manager thus lists the exact net prices for all B2B customers at the checkout. And it can also be used to display the VAT rates that are due depending on the country.
The app is safe from counterfeiting, as it only works with confirmed VAT IDs.
The app can be installed by you quickly and easily, and text and style can be customized by your own hand tampering with the code.
All advantages at a glance
For you as a merchant, one fact is certainly the most important: Thanks to the app, you no longer have to manually adjust invoices. Likewise, you are spared having to refund the tax for foreign merchants subject to VAT. So you save a lot of time! Moreover, even more advantages await you:
You increase sales through VAT exemption within the EU.
You maximize the convenience for your B2B customers, as they can benefit from the VAT exemption quickly and without creating customer accounts.
Tax Exempt Manager works with net prices as well as gross prices, increasing usability.
The app is easy to install - just insert the text field for the sales tax ID. We provide the code and instructions for it!
You keep track of all orders created after a positive VAT ID check thanks to a list.
It can be used both in the shopping cart and in the customer account
The Tax Exempt Manager is fully GDPR compliant
The VAT IDs are checked via the VIES EU database
How much does Tax Exempt Manager cost?
You can try Tax Exempt Manager for free for the first 14 days to make sure it works properly for your needs. After that, the app costs $9.99 per month.
Who uses the Tax Exempt Manager?
The Tax Exempt Manager is already in use by hundreds of Shopify merchants. Shopify user and Latori customer Filafarm laid the foundation and has since enabled its B2B customers to exempt VAT and display gross and net prices. Shopify stores like the Wikipedia Store also have the app in use. Many of our Latori customers who sell with Shopify or Shopify Plus benefit from the app, including Doxa Watches, DEGELER or Dear Reality.
Reading tip: Would you like to get to know more of Latori's customers? Here you can find case studies of well-known companies that our team has had the pleasure to support.
Is there anything else that needs to be taken care of after installation?
After the app is installed, you can devote all your time to your core business. You continue to take care of your sales and Latori Apps' Tax Exempt Manager takes care of the tax regulation!
Frequently asked questions about reporting sales tax with Shopify.
What is B2B e-commerce?
B2B commerce, unlike B2C, involves selling to businesses rather than end customers.
How do I generate customers in B2B?
The most important thing here is to select the right touchpoints through which potential customers get in touch with you or become aware of you. These can be trade shows or events, for example.
How does B2B marketing work?
Since the target group for B2B e-commerce tends to be small, contact is a particularly important factor. For this reason, you should invest effort and time in customer care. When planning the marketing strategy, it should also be kept in mind that companies - unlike end customers - think primarily in economic terms.
What are the differences between B2B and B2C?
B2B and B2C differ in various aspects, including the target group, shopping carts, prices, the buying process or the customer journey.
What is a B2B online store?
A B2B online store is where products or services are sold to businesses. With the Shopify Plus plan, this can be easily implemented in Shopify - without any third-party apps or other intermediate solutions.
What is a B2B example?
One example of B2B commerce is Selecta. They offer business or wholesale customers the opportunity to purchase goods from their well-known vending machines. Another well-known example is Babbel. These also offer companies language courses for their employees and thus cover B2B.
Where can I enter the VAT ID in Shopify?
You can enter the VAT ID in the Shopify Admin in the settings, simply go to the Billing -> Tax registration section.