Set up taxes for the Shopify connection

In this article, we'll investigate how various settings in Shopify affect the storefront prices and taxes that display to customers. We'll also cover how to configure Business Central to support the settings in Shopify. This article is not intended to be a comprehensive taxation guide. To learn more, contact your local tax authority or a tax professional.

The article assumes that you are liable to pay taxes when you sell goods locally or internationally.

Pricing if you sell domestically

After you configure your Shopify to collect taxes in your domestic country or region, you can decide how to display prices on your storefront.

You specify whether to include tax in prices by turning on or off the Include sales tax in product price and shipping rate toggle in the Taxes and Duties settings in your Shopify admin.

The toggle is typically enabled for the following countries/regions:

• Australia
• Austria
• Belgium
• Czech Republic
• Denmark
• Finland
• France
• Germany
• Iceland
• Italy
• Netherlands
• New Zealand
• Norway
• Spain
• Sweden
• Switzerland
• United Kingdom

In markets such as these, a price of 100 EUR defined on the product card already contains value-added tax (VAT). The price, including VAT, is displayed to the customer in the storefront and at checkout.

In the USA and Canada, customers don't expect prices to include taxes because the final tax depends on where products ship to. Tax is added at checkout, so the Include sales tax in product price and shipping rate toggle is usually turned off. In this case, a price of $100 defined on the product card is the price without tax. At checkout, taxes are added to the price.

To support the scenario where Include sales tax in product price and shipping rate is selected, in Business Central, fill in the following fields on the Shopify Shop Card page:

1. Turn on the Prices including VAT toggle.
2. In the VAT Business Posting Group field, specify the posting group you use for domestic customers.

Now, define item prices in the Item Card or Sales Price List fields, with or without tax. When exporting prices to Shopify, Business Central includes domestic taxes in the calculated price and shows that price for the product in Shopify.

Note

These settings affect the export of prices. When you import orders from Shopify, the information about whether prices include tax comes directly from Shopify, which is useful when selling to different markets using the Include or exclude tax based on your customer's country setting in Shopify Admin.

Pricing if you sell internationally

This section explores settings for scenarios where you're required to collect taxes when selling to another country/region, such as other countries/regions in the EU.

Currently, the Shopify connector only lets you export one price. Shopify automatically applies local taxes, currencies, and rounding. The Include sales tax in product price and shipping rate toggle results in the actions described in the following subsections.

All prices include tax is selected

-	Domestic sales	Foreign country/region where you're collecting taxes	Foreign country/region where you're not collecting taxes
Price displayed in the storefront	1200	1200	1200
Tax rate percentage	20	25	0
Price at checkout	1200	1200	1200

The price for the customer stays intact, regardless of their location, but your margin is affected due to differing tax rates per country/region.

All prices include tax is not selected

-	Domestic sales	Foreign country where you're collecting taxes	Foreign country where you're not collecting taxes
Price displayed in the storefront	1000	1000	1000
Tax rate percentage	20	25	0
Price at checkout	1200	1250	1000

Shopify adds local taxes to the price defined on the product card based on where goods are shipped to.

Dynamic tax-inclusive pricing

Countries/regions have different requirements for including tax in prices. If you want prices to automatically include tax, you can turn on Dynamic tax-inclusive pricing in Shopify.

Depending on the implementation for the market you're in:

• In your Shopify admin, select Include or exclude tax based on your customer's country in the Other Markets - Preferences section of the Markets settings.

• If you use new markets, in your Shopify admin, go to [Markets], and choose the market that you want to customize. Choose the (+) icon next to Tax and duties. In the Tax display field, choose Dynamic tax display.

Note

This setting doesn't affect prices in domestic markets, which is controlled by the Include sales tax in product price and shipping rate toggle.

All prices include tax is selected

-	Domestic sales	Foreign country/region where tax is included in price	Foreign country/region where tax is excluded
Price displayed in the storefront	1200	1250	1000
Tax rate percentage	20	25	10
Price at checkout	1200	1250	1100

The price for each customer changes, depending on their location.

All prices include tax is not selected

-	Domestic sales	Foreign country/region where tax is included in price	Foreign country/region, where tax is excluded
Price displayed in the storefront	1000	1250	1000
Tax rate percentage	20	25	10
Price at checkout	1200	1250	1100

Note

The Include sales tax in product price and shipping rate toggle doesn't change how prices display to international customers.

Pricing if you sell to EU customers

Different EU countries/regions have different local tax rates. However, if you're located in the EU and sell to other EU countries/regions, you can use your local tax rate in some cases.

In your Shopify admin, check the Collect VAT checkbox in the European Union section of the Taxes and Duties settings.

Collect VAT	VAT rate
Micro-business exemption	Use your domestic tax rate for all sales inside the EU
One-stop shop or specific country/region registration	Use the VAT rate of your customer's country/region

Collect VAT set to one-stop shop registration

In the following example, the Include sales tax in product price and shipping rate toggle is turned on. The price on the product card is set to 1200.

-	Domestic sales	Foreign country/region
Price displayed in the storefront	1200	1250
Tax rate percentage	20	25
Price at checkout	1200	1250

Shopify uses the tax rate in the foreign country/region when it calculates final prices.

Collect VAT set to micro-business exemption

In the following example, the Include sales tax in product price and shipping rate toggle is turned on. The price on the product card is set to 1200.

-	Domestic sales	Foreign country/region with local tax rate of 25 percent.
Price displayed in the storefront	1200	1200
Tax rate percentage	20	20
Price at checkout	1200	1200

Shopify uses the domestic tax rate and ignores the tax rate in the foreign country/region when it calculates final prices.

Taxes in imported Shopify orders

Although the Shopify orders you import have tax information, the tax amounts recalculate when you create the sales document. The recalculation means it's important that your VAT or sales tax settings are correct in Business Central.

You can review imported tax details in the Tax Lines page, which you can open from the Shopify Order page.

Multiple product tax or VAT rates

Some product categories are eligible for reduced tax rates, such as pharmaceutical products or children's clothing and footwear. You can use the tax override feature in Shopify to specify that. When you import those products and create items in Business Central, they use the tax setup specified on the item template code in the Shopify shop. Before you import orders with such items, update the VAT product posting group.

Address-dependent tax rates

If you're collecting taxes from multiple countries/regions, you must define a specific country/regional setting in Business Central.

You specify country/region-specific settings on the Shopify Customer Template page. You can define the Default Customer No. or Customer Template No.. In either case, ensure the customer or template has the following fields filled in:

1. General Business Posting Group (used for foreign customers).
2. VAT Business Posting Group (used for foreign customers).

For merchants using the US or Canadian localizations:

3. Tax Liable

4. Tax Area Code

   Use the Tax Area Priority field together with the Customer Templates page to define how to fill in the Tax Area Code field on the sales document. The Tax Area Priority field specifies the priority regarding where to get the information about the country or region and state or province. If not selected, the Tax Area Code from customer is specified in the Sell-to Customer No. field of the Shopify order. If selected, the connector finds the relevant record in the Shopify customer templates table based on the addresses in the Shopify order, and uses the Tax Area Code when creating the sales document.

Prices including VAT

The value of the Prices including VAT field comes directly from Shopify when you import orders and refunds. For local sales it is defined by Include sales tax in product price and shipping rate and for international sales

Important

For merchants using the US or Canadian localizations, review the Include sales tax in product price and shipping rate in Shopify Admin. If enabled, you can't convert imported orders into sales documents because Business Central doesn't support backward sales tax calculation.

If this field is selected and you don't charge taxes, you can manually turn off the VAT (Tax) Included field on the Shopify Order page and proceed.

Related information

Shopify Connector overview
FAQ for the Shopify connector
Troubleshoot the Shopify Connector
Walkthrough: Setting Up and Using Shopify Connector