Okay, I’ll admit it. VAT confused the heck out of me when I first started selling digital products on Payhip.
Like, really confused me. I’m based outside the EU, so I didn’t think it applied to me. Spoiler alert: it does.
If you’re selling to customers in the EU or UK, you have to collect VAT — even if you’re not located there. That was a punch to the gut when I realized I’d been selling ebooks and not charging the correct tax. I had no clue how to handle it. But thankfully, Payhip makes it easier than I expected — once I figured out where everything lives in the dashboard.
Wait… What’s VAT Again?
Just to clear things up: VAT stands for Value Added Tax. It’s a consumption tax that applies to digital products (like ebooks, courses, printables) sold to customers in the EU and UK. The tax rate depends on the buyer’s location — not yours.
If you’re still fuzzy on the rules, here’s a great breakdown of the EU VAT rules for digital products to bring you up to speed.
Payhip automatically calculates the correct VAT rate based on where your customer is. Which, honestly, is a life-saver. But here’s the catch: you still have to choose how VAT is shown on your product prices.
Inclusive vs Exclusive VAT: What’s the Difference?
This tripped me up for weeks.
Payhip gives you two options:
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Inclusive VAT: The price your customer sees already includes VAT. So if your ebook is listed at $10, that’s what they pay — and Payhip takes out the VAT portion automatically.
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Exclusive VAT: VAT is added on top of your listed price at checkout. So that same $10 ebook might cost a customer in Germany $11.90 or more, depending on their tax rate.
I originally had mine set to “exclusive,” and people were dropping off at checkout like flies. I’m guessing they didn’t like the surprise fees. So I switched to “inclusive,” and boom — higher conversion rate almost immediately. People like knowing what they’ll pay upfront.
Need help deciding what works for your store? This article on how Payhip automates VAT collection really helped me understand what happens behind the scenes.
How to Actually Set VAT Preferences on Payhip?
Alright, here’s how you do it — step by step. It’s not hard once you know where to click:
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Log into your Payhip account.
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Go to “Account Settings” > “Taxes (VAT)”.
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Scroll down to “VAT Display Preferences.”
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Choose whether to show prices inclusive or exclusive of VAT.
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Hit Save.
Easy, right? Once that’s done, Payhip will handle all the VAT calculation automatically at checkout based on the buyer’s country.
If you’re offering memberships or ongoing subscriptions, you’ll want to check out this guide on VAT compliance for subscription-based products to make sure you’re fully covered.
A Few Extra Things I Learned (the Hard Way)
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If you’re selling to non-EU customers, VAT won’t be added — so don’t stress about it for U.S., Canada, Australia, etc.
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You don’t need to register for a VAT number unless your business is based in the EU or UK — Payhip handles the collection and remittance otherwise.
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You can manually override VAT settings for specific products, but I only do that if I’m running a promo or bundling multiple items.
If you ever need to provide documentation to customers, understanding how to issue VAT-compliant invoices is crucial — especially for B2B buyers or clients in stricter tax regions.
And when it comes time to track what you’ve collected? Payhip lets you export reports, but I also use tools from this roundup of the best VAT calculation and compliance software. Game changer.
Final Thoughts: Keep It Simple and Transparent
At the end of the day, the goal is to make buying from your store as smooth and clear as possible. Hidden taxes? Yeah, nobody likes that. But transparent pricing? That builds trust.
If you’re unsure what to do, go with inclusive VAT. Trust me, fewer abandoned carts, happier customers, and one less headache for you.
And if you’re just getting started with Payhip? Don’t sweat it. The platform takes care of a lot behind the scenes, so you can focus more on selling and less on stressing about tax codes.
