Gift cards and European Union VAT

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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 and we always encourage you to check with a licensed professional in your jurisdiction to verify your VAT obligations. 

  • As of Jan. 1, 2019, “vouchers” or gift cards sold in the European Union may be subject to VAT. 
  • The new rules state that “single use” vouchers, which are good for a specific product or service, are subject to VAT at the time of purchase. 
  • Conversely, “multipurpose” vouchers that can be used on multiple products and services are generally not subject to VAT at the time of purchase because there is no way to know what product or service is purchased and, therefore, if VAT is applicable. 
  • 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 at the time of purchase. 
  • Instead, the recipient of the gift card would need to pay any VAT at the time they place their order following tax rules that you’ve set up in the taxes admin of Shopify

There are two possible exceptions to this rule, 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.”
  • 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. 
  • If you decide your gift cards are subject to VAT at the time of purchase, you can use Shopify’s existing tax features to appropriately apply taxes at the time of purchase to your gift card products. Note that you will need to use the bulk editor view to enable charging tax on gift card variants. 
  • However, because Shopify cannot adjust tax rates based on payment method, this approach would result in both the purchaser of the gift card (gift giver) and the recipient paying VAT. 
  • A possible workaround to this would be to include taxes in the cost of your products, especially if you only have one product.

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