Understanding Shopify Tax Reporting for Sellers Around the Globe

Michael Pignatelli
May 02, 2022

Shopify is one of the biggest ecommerce platforms that allow millions of merchants to sell their goods online. As of now, the Shopify platform has merchants in 175 different countries. Starting your online selling business is the easy part. You can start selling by determining the products to sell and setting up your account. But keeping your business running is an entirely different story. 

If you're a merchant, you know that most goods are levied with taxes. But depending on where in the world you are selling, the tax rates may differ, and you must get them right when setting up your taxes in your Shopify admin profile. Understanding and managing your taxes will help you collect them easily and properly. 

Here’s a quick guide to help you tax set-up in different locations. 

Setting up Your Tax Rate on Shopify 

The platform automatically collects Shopify sales tax to help merchants manage tax collection conveniently. But for this to work, you must input the correct information in your set-up process. Here are some important guidelines you should know of. 

For Shopify sellers in the United States 

For sellers in the United States, you have two options upon setting up your taxes. You can select automatic tax collection if it applies to your location, and the other option is manually specifying the tax rates depending on your state. From here, your tax setting can be: 

  • Destination-based: In this setting, you'll need to provide your zip code and economic nexus, but the sales tax computations will base on where your buyers are purchasing the product. 
  • Origin-based: In this setting, your sales tax calculations will be based on the tax nexus you belong in. So it doesn't matter where your buyers are coming from. Instead, your sales tax depends on the origin of the goods. 

For Shopify sellers in Canada 

Suppose you're a Shopify seller in Canada. In that case, it's your responsibility to go directly to your local agencies and determine if you can charge your customers' sales tax, and identify the proper rate so you can collect the taxes properly. From here, you need to set up a GST/HST account under the following conditions:

  • You sell taxable goods. 
  • Your income from your sales in the past four calendar quarters or the current calendar quarter is more than 30,000 Canadian dollars. 
  • If you're not from Canada but sell taxable products that originate from a warehouse located in Canada. 

After setting your GST/HST account, you start collecting taxes for your Shopify products. Shopify tax documents are available in your admin account. You can use these tax reports to file and remit your tax collection to your local tax revenue agency. 

For Shopify sellers outside the United States and Canada 

Shopify is also available to countries outside the US and Canada. You can check their list to see if the country you're in makes you eligible to start a Shopify business. The process is almost similar to Canadian sellers. You must also determine if you can charge sales tax on your goods. Similarly, different countries also vary in tax rates, so check with your local government or consult a tax professional to help set up your account properly. 

files on taxes

3 Tax Application Software to Help You Manage Tax Reporting 

Does Shopify collect sales tax for you? Yes! Almost all ecommerce selling platforms automatically collect sales tax once your customers check out their item. All you need to do is file and remit the sales tax to the revenue agency. Unfortunately, everything involving taxes is confusing and involves a lot of work. Good thing that there are taxation software options that can help automate your tax reports and other taxation workloads. 

Let's check the three best tax software compatible with the Shopify platform. 

TaxJar 

TaxJar is a great application if you want help ensuring that you charge the correct tax rate on your products. Although Shopify provides documents for tax collected, they’re not as detailed as what TaxJar can give. TaxJar can automatically publish detailed tax reports, which can help you file your taxes appropriately. In addition, this application can show the information on charged taxes no matter where state or country you sell your products. 

Avalara 

Avalara is another tax application that helps automate reports you can use for filling. This software syncs all your sales data to determine when you must file for your tax and how much you are due in that specific filing period. Moreover, Avalara is compatible with almost all ecommerce platforms. This application can consolidate all your sales from different selling platforms so you can file all your sales taxes in a single report. 

This application will help you swiftly organize your taxes, especially if you sell products on different platforms. 

Quaderno 

Having the Quaderno is like hiring your personal, professional accountant. This application can do so much to help with managing your business. Quaderno is an all-around tax assistant. This application can take care of your invoices and can do bookkeeping for your business. In addition, this application is highly customizable so that you can use it depending on your business's needs. 

Conclusion 

Collecting tax is a crucial part of online business wherever in the world you are selling. There's also no denying that managing taxes is one of the most confusing and time-consuming parts of running a business. No proper tax management can be the reason for your business's downfall, so it is crucial to be very keen on taxes upon starting. 

We hope this guideline gives you a clearer view of setting up your taxes. If you still find it too hard to manage, check out Unloop services that will run your Shopify tax reporting. We have professionals who are well-versed in the ecommerce market, so you will always be on top of your taxes. 

Don't forget to book a call with us today and start your business’s growth in our hands.

Sign up for weekly tips

Our newsletter is packed with the latest and greatest in ecommerce finance.

Stop guessing

Know exactly where your ecommerce business stands financially.
+1 877 421 7270
228 Park Ave S #82849
New York, NY 10003
United States
7676 Woodbine Ave #2
Markham, ON L3R 2N2
Canada
About unloop
Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting.. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.
cross