How to Set Different VAT Rates for Different Product Categories in Shopify

Setting up different VAT rates for various product categories in your Shopify store doesn’t have to be complicated. Whether you’re selling books at 0% VAT and electronics at 20%, or managing reduced rates for essential goods, Shopify’s tax override system makes it straightforward to comply with regional tax requirements.

How to Set Up Different VAT Rates

The key to managing multiple VAT rates lies in Shopify’s collections and tax override features. Think of collections as folders that group similar products together, while tax overrides tell Shopify to apply specific tax rates to those groups.

Step 1: Create Product Collections for Each VAT Rate

First, you’ll need to organize your products into collections based on their tax requirements.

Navigate to Collections:

1. Go to your Shopify admin dashboard
2. Click Products in the left sidebar
3. Select Collections
4. Click Create collection

Set Up Your Collections:

• Create a collection for each different VAT rate you need
• Use clear, descriptive names like “Standard VAT Items” or “Reduced VAT Books”
• Choose Manual collection type for precise control over which products are included
• Add a brief description noting the VAT rate for future reference

Step 2: Assign Products to Their Appropriate Collections

Now you’ll add the relevant products to each collection based on their VAT requirements.

For Manual Collections:

1. Open each collection you created
2. Click Add products
3. Search for and select products that should have the same VAT rate
4. Save your changes

Pro tip: You can also add products to collections directly from the product editor by scrolling to the “Search engine listing” section and selecting the appropriate collections.

Step 3: Configure Tax Overrides

This is where you’ll tell Shopify to apply specific VAT rates to each collection.

Access Tax Settings:

1. Settings → Taxes and duties
2. Click specific country/region
3. Scroll to Tax overrides section
4. Click “Add a tax override”
5. Choose Products or Shipping
6. Configure the override details

Step 4: Configure Your Default VAT Rate

Don’t forget to set your standard VAT rate for products not covered by overrides.

1. In the same Taxes and duties section
2. Find your country under Tax calculations
3. Set your standard VAT rate (this applies to products without overrides)
4. Save your changes

For more detailed guidance on tax settings, refer to the Shopify Tax Settings Documentation.

How to Check if Your VAT Setup Works

Testing your VAT configuration ensures customers see the correct tax amounts at checkout and helps you avoid compliance issues.

Test with Sample Orders

Create Test Orders:

1. Add products from different VAT categories to your cart
2. Proceed to checkout (use a test mode if available)
3. Review the tax breakdown before completing the order
4. Verify each product shows the correct VAT rate

Check Your Order Details:

• Navigate to Orders in your admin
• Open recent test orders
• Look for the tax breakdown section
• Confirm VAT amounts match your expected calculations

Use Shopify’s Tax Preview

Access the Preview Tool:

1. Go to Settings > Taxes and duties
2. Click Preview taxes
3. Enter a customer address in your target market
4. Add products from different VAT categories
5. Review the calculated tax amounts

Verify in Your Analytics

Monitor Tax Reporting:

• Check your Analytics > Reports section
• Look for tax-related reports
• Verify the tax amounts align with your VAT rate expectations
• Compare with your accounting records

Important: Always test with actual customer addresses from your target markets, as VAT rates can vary by location even within the same country.

Conclusion

Setting up different VAT rates for product categories in Shopify is a three-step process: organize products into collections, configure tax overrides for each collection, and test thoroughly to ensure accuracy.

Your next steps:

1. Audit your products – List all the different VAT rates you need to apply
2. Create collections – Group products by their tax requirements
3. Set up overrides – Configure the specific rates for each collection
4. Test everything – Verify the setup works correctly before going live

Remember to review your VAT setup whenever you add new product categories or if tax regulations change in your markets. Proper VAT configuration not only ensures compliance but also builds customer trust by showing transparent, accurate pricing at checkout.

For additional resources on managing collections and understanding EU VAT requirements, you can reference the Shopify Collections Guide and EU VAT Rates Reference.