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DIY Tax Exempt (TEC) for Shopify: How VAT Works, Limitations, and Best Practices

The DIY Tax Exempt (TEC) app is designed to help Shopify merchants support customers who qualify for tax exemptions, including VAT exemptions, by connecting a customer’s declaration to Shopify’s native tax engine.

TEC does not calculate VAT or adjust prices. Its role is to ensure Shopify knows when a customer should not be charged VAT, so Shopify can apply the correct tax behavior at checkout.

This article explains how TEC works with Shopify for VAT-exempt customers, why VAT may work well in some stores and not others, and the current limitations merchants should be aware of.

The Problem TEC Solves

In Shopify, VAT exemption is handled at the customer level, not through a simple checkbox or checkout option.

Without TEC, merchants often face:

  • Manual customer edits to mark someone as tax-exempt

  • Refunds after checkout to correct VAT charges

  • Confusing instructions for customers who qualify for VAT relief

  • Increased support and compliance risk

TEC solves this by providing a customer-facing exemption workflow that Shopify does not offer out of the box.

What TEC Does

TEC acts as a bridge between the customer and Shopify’s tax system.

Specifically, TEC:

  • Presents a tax exemption form to the customer

  • Collects exemption details and declaration

  • Applies a tax-exempt status to the customer in Shopify

  • Triggers Shopify to automatically remove VAT at checkout when applicable

TEC enables Shopify to do what it already knows how to do, at the right time in the customer journey.

What TEC Does Not Do

TEC does not:

  • Calculate VAT

  • Split VAT out of product prices

  • Remove embedded VAT from prices

  • Determine VAT rates or eligibility

  • Apply VAT exemptions at the product level

All tax calculations, including VAT, are handled entirely by Shopify’s tax engine.

How VAT Is Applied (and Removed) at Checkout

Once TEC marks a customer as tax-exempt, Shopify determines whether VAT should be charged based on the store’s tax configuration and the customer’s location.

In a typical VAT-friendly setup:

  • Product prices are tax-exclusive

  • Shopify’s automatic taxes and regional VAT rules are enabled

  • VAT is added at checkout for non-exempt customers

  • VAT is not added at checkout for tax-exempt customers

In this setup, VAT is handled cleanly without needing to reverse-calculate tax amounts.

Helpful Shopify resources:

Why VAT Behavior Can Vary Between Stores

VAT issues usually arise when VAT is embedded directly into product prices.

When prices are tax-inclusive:

  • Shopify does not clearly expose the VAT portion of the price

  • Neither TEC nor Shopify can reliably determine how much VAT to remove

  • VAT relief may appear inconsistent or incorrect

These limitations come from Shopify’s pricing and tax model, not from TEC.

Cart Page VAT Displays

Some stores display messaging such as:

  • “With VAT Relief”

  • “Incl. VAT”

  • “VAT Relief Saved”

These displays are not provided by TEC and are not standard Shopify behavior. They are typically created using custom theme logic for informational purposes only.

Actual VAT application or removal still happens at checkout through Shopify.

Product-Level VAT Eligibility (Current Limitation)

TEC currently applies VAT exemption at the cart and customer level.

There is no built-in option to:

  • Mark specific products as VAT-eligible or non-eligible within TEC

  • Show or hide the exemption form based on product tags or collections

This can be challenging for stores selling a mix of VAT-exempt and non-exempt products, such as medical equipment retailers.

Shopify does offer tax overrides for products and collections, but these are configured directly in Shopify and operate independently of TEC:
https://help.shopify.com/en/manual/taxes/tax-overrides

Best Practices for VAT-Based Stores Using TEC

For the most reliable VAT experience:

  • Use Shopify’s native tax engine

  • Configure prices as tax-exclusive when possible

  • Enable automatic taxes and correct regional VAT rules

  • Use TEC to apply customer tax-exempt status

  • Avoid manual VAT calculations or custom price adjustments

In Summary

TEC does not remove VAT itself.
TEC makes Shopify aware that VAT should not be charged.

When Shopify’s tax settings are configured correctly, TEC provides a clean, compliant, and self-service way for VAT-exempt customers to receive the correct tax treatment at checkout.