Many merchants operating in a Print-on-Demand (POD) business model often feel they are being taxed twice when VAT appears both at the fulfillment stage and on their storefront. This article explains why this happens and clarifies that it is not actual double taxation but rather how VAT is structured in a supply chain.
Who Is Involved in the VAT Process?
Merchant: You, the business owner, who purchases products from Gelato and sells them to customers.
Supplier: The Print-on-Demand provider (e.g., Gelato) that fulfills the merchant’s orders.
End Customer: The person who buys the final product from the merchant’s online store.
Why Does VAT Appear Twice?
In a typical POD setup, VAT is applied at two different stages:
When You Purchase from Your POD Supplier
When you buy a product from your POD supplier (e.g., Gelato), the supplier may be required to charge VAT on the sale, depending on your business location and tax status.
This VAT is known as Input VAT, which VAT-registered businesses can often reclaim or deduct later.
When You Sell to Your End Customer
When you sell products on your storefront (e.g., Shopify, Etsy), you may be obligated to charge VAT to the end customer based on their location, your tax obligations, and the VAT sales threshold in that country.
This is called Output VAT, which you collect and remit to the tax authorities.
Example of VAT Flow in a Gelato Transaction
Let’s assume the VAT rate is 20%:
Step 1: Merchant Purchases from Gelato
Base Product Cost: €10
Input VAT (20%): €2
Total Paid by Merchant: €12
Step 2: Merchant Sells to End Customer
Selling Price: €20
Output VAT (20%): €4
Total Charged to Customer: €24
Step 3: VAT Remittance
Output VAT Collected from Customer: €4
Minus Input VAT Paid to Supplier: €2
VAT Remitted to Tax Office: €2
Why This Is Not Double Taxation
VAT is a consumption tax collected at different stages, but is ultimately borne by the end customer. VAT-registered merchants can offset the VAT they pay on purchases (Input VAT) against the VAT they collect from customers (Output VAT), ensuring that VAT is only remitted on the value added at each stage.
VAT Treatment for VAT-Registered vs. Non-VAT-Registered Merchants
VAT-registered merchants don’t lose money on VAT; they just collect and pass it along after deducting the VAT they already paid on business purchases.
Non-VAT-registered merchants are generally unable to reclaim VAT, so it becomes an added cost to them. However, in certain situations, such as if your sales are below the registration threshold, you may be eligible to apply for a reclaim. We strongly advise consulting your tax advisor to determine what applies in your case.
Considerations for Non-VAT Registered Merchants
If you are not VAT-registered, you are generally unable to reclaim VAT. This means the VAT charged by your supplier is an additional cost to your business.
You may still be required to charge VAT to customers based on your local tax regulations.
Key Takeaways
VAT appears twice, but it is not double taxation; it follows a structured flow where registered businesses can deduct input VAT.
Non-VAT registered merchants should factor VAT into pricing to ensure profitability.
Understanding VAT flow helps businesses stay compliant and optimize tax handling.
If you have questions about how VAT is calculated on your storefront or eCommerce platform, we recommend reaching out to their support teams for more details, as their tax settings may impact what is displayed on invoices.
For more details, check our Getting Started with Taxes guide or consult a tax professional to ensure compliance with your local regulations.