Important note: We are not legal or tax experts and therefore cannot provide specific advice in this area for your unique situation. However, the following information is provided as a general guideline. We always encourage you to check with a licensed professional in your jurisdiction to verify your tax obligations.
In general, gift cards are not subject to VAT or sales tax when purchased, but instead the recipient is charged applicable taxes when the gift card is redeemed.
- "Vouchers" or gift cards sold in some parts of the world may be subject to VAT or other sales tax under certain circumstances. For example, some rules state that "single use" vouchers, which are good for a specific product or service, are subject to VAT or other sales taxes at the time of purchase in some areas.
- Conversely, "multipurpose" vouchers that can be used on any products and services sold by the store are generally not subject to VAT or taxes at the time of purchase because there is no way to know what product or service is purchased and, therefore, if VAT or sales tax is applicable and at what rate.
- It's perhaps worth noting that the terms "single use" and "multipurpose" don't refer to the actual number of times the gift card can be used across multiple transactions — but rather the intended use in terms of the products or services the voucher can be used to purchase.
- In general, most gift cards sold by most Shopify stores likely fall under the "multipurpose" category since they can be used for any product on your store and therefore are likely not subject to VAT or other sales taxes at the time of purchase. In fact, Shopify does not let store owners restrict what products a gift card can be used for.
- Instead, the recipient of the gift card would need to pay any VAT or sales tax at the time they place their order following tax rules that you've set up in the taxes admin of Shopify.
- Of course, always be sure to remit any taxes you collect to the appropriate government body.
There are two possible exceptions to this rule in some countries that you should be aware of, however.
- First: If you sell gift cards in denominations that are a unique, specific price that matches only one product on your store. For example, if you sell a Widget for $13.29 and this is the only product on your store with this price, a gift card product purchased for $13.29 could be implied to be a single purpose voucher. However, since Shopify gift cards cannot be restricted to only be valid for a specific product, this may result in the gift card not being considered truly "single purpose." This could be up to a variety of interpretations, however.
- A good workaround to this is to simply avoid selling gift cards in exact amounts that match specific products.
- Second: If your store sells only one item and you sell gift cards only in that amount, the "single purpose" rule could come into play since, by definition, you are essentially selling a gift card that is only good for a specific product or service. A good workaround for this is to offer different denominations, even ones that are less than or greater than the cost of your single product (this can also be helpful for gift givers who may not be able to gift the full value or who might want to gift more than one item).
- If you decide your gift cards are subject to VAT at the time of purchase, then you should use one of the workarounds mentioned above (such as offering multiple denominations), consult with a developer for a way to collect VAT on gift card products or not offer gift cards. You should also consult with a tax or legal professional.