VAT on shipping costs: how does it work?

Many online retailers have questions about calculating VAT on shipping costs on their invoices. This guide focuses specifically on how VAT on shipping costs works under Dutch tax rules. We regularly get asked:

• Do you have to pay VAT on shipping costs?

• Why do I need to charge VAT on shipping costs?

• Which VAT rate should I use for shipping costs (standard or reduced)?

• How does VAT on shipping costs work for international orders?

• How do I pass shipping costs on to my customer?

That confusion is understandable. The Dutch Tax and Customs Administration's (Belastingdienst) rules can get complicated. In this guide, we'll walk you through exactly how VAT on shipping costs works under Dutch tax rules.

VAT on shipping costs: where does the confusion come from?

Can't see the forest for the trees? You're not alone. There's a lot involved in e-commerce logistics.

As you probably know, no VAT is charged on postage stamps and parcel stamps from PostNL, the Dutch postal service. Because of that, many entrepreneurs assume they also don't need to charge VAT on shipping costs.

There's also a lot of uncertainty about VAT on shipping costs for international orders and for goods that fall under the margin scheme. Let's look at the most common questions about VAT on shipping costs, starting with the most important one.

Do you have to pay VAT on shipping costs?

The answer is: yes. If you charge your customer for shipping, they need to pay VAT on it.

You always calculate VAT on the total invoice amount, which includes shipping costs. This also applies to things like travel costs, phone costs, and packaging costs.

But aren't postage stamps VAT-exempt?

You're right that postage stamps and parcel stamps are indeed VAT-exempt. That's why it's a natural assumption that you also don't need to charge VAT on the stamp when a parcel is shipped.

That's not the case, though. Once you charge your customer for the stamp or other shipping costs, it becomes a product you're "selling" them, and VAT applies to that, just as it would to the stamps themselves.

Why do I need to charge VAT on shipping costs?

Many online retailers find it odd that VAT applies to shipping costs. But there's a clear reason the Belastingdienst requires it.

If you didn't have to pay VAT on delivery costs, it would create a tax loophole: you could charge a lower amount for the goods and a higher amount for shipping.

That would let you pay VAT on a lower amount overall, which the Belastingdienst wants to prevent. That's why delivery costs aren't VAT-free.

Which VAT rate should I use for shipping costs?

You use the VAT rate that applies to the goods on the invoice. That can be either the standard rate or the reduced rate.

The VAT rate used for shipping costs in the Netherlands is variable: 0%, 9%, or 21%. The rate depends on the type of goods you're shipping. You apply the same VAT rate to shipping costs as you apply to the products themselves.

For most businesses selling within the Netherlands, the standard VAT rate of 21% applies. If you're not sure which VAT category your products fall under, check the Belastingdienst's guidance for the current rates.

As a general rule:

• Do you supply goods that are exempt from VAT? Then you don't pay VAT on shipping costs either.

• Is the VAT rate on your goods 9%? Then you charge 9% VAT on shipping costs.

• Is the VAT rate on your goods 21%? Then you charge 21% VAT on shipping costs.

Below is a simple example of a correct and an incorrect calculation on an invoice when it comes to VAT on shipping costs. This example uses a VAT rate of 21%.

The difference might look small, but across many shipments over a year, it can add up significantly.

My goods have different VAT rates, what now?

If your invoice includes goods with different VAT rates, you split the VAT on shipping costs proportionally.

Here's an example to illustrate this:

Your customer orders two items. The first, a pair of hiking boots, sells for €45.00, and the second, an informational book about hiking, costs €15.00.

The hiking boots fall under the standard VAT rate, so 21% applies. The book falls under the reduced VAT rate, so 9% applies.

The total for the two products is €60.00. In this case, 75% of the invoice falls under the 21% VAT rate, and 25% falls under the 9% VAT rate.

If shipping costs are €6.00, you calculate the 9% VAT rate on 25% of the shipping cost and the 21% rate on the remaining 75%. In this example, that means 21% on €4.50 and 9% on €1.50.

What about VAT on shipping costs for international orders?

VAT on shipping costs for international orders follows the same logic as the rest of the invoice when you send a parcel abroad.

• Shipping to a private individual without a VAT number within the EU? Then you simply use the Dutch VAT rate, and charge VAT on shipping costs as described above. Always keep the distance-selling thresholds for each country in mind.

• Shipping to a business, and therefore a VAT-registered entity within the EU? Then VAT can be reverse-charged. The recipient then handles VAT under their own country's rules. You don't charge VAT on shipping costs, and you note "VAT reverse-charged" on the invoice.

• Shipping a parcel outside the EU? Then you never charge VAT, including on shipping costs. Customs in the destination country will handle any necessary charges there.

Not sure? Check the Belastingdienst's guidance on supplying goods abroad if you're uncertain.

Note: you're always required to verify your customer's VAT number before adding it to the invoice.

What about VAT on shipping costs under the margin scheme?

You do pay VAT on shipping costs for goods that fall under the margin scheme.

For goods under the margin scheme, if you can't deduct VAT as an online retailer, you only pay VAT on your profit margin.

That's because it's a special product on which VAT has already been paid once before. But the shipping cost for delivering margin-scheme goods is a "new" cost, so you do pay regular VAT on it.

How do I record shipping costs in my bookkeeping?

You record shipping costs the same way as your goods. You purchase shipping from a carrier (or an intermediary like Sendcloud) and "sell" it to your customer.

You pay VAT yourself when purchasing shipments, and you charge your customer VAT on the shipping cost. In your bookkeeping, you can record the full invoice amount as a single line item, or enter goods and shipping costs separately.

Can I reclaim or deduct shipping costs?

You can deduct shipping costs. You pay shipping costs to the carrier, and since it's a business expense, it's deductible.

If you paid VAT on the shipping costs, you can deduct that VAT as input tax. That VAT is then subtracted from the VAT you owe on your revenue.

If you didn't pay VAT on (part of) the shipping costs, you can't reclaim VAT, but you can still deduct the remaining shipping costs. This is the case, for example, with PostNL postage and parcel stamps.

How do I calculate shipping costs to charge my customer?

Most consumers dislike shipping costs. We understand that few people are willing to pay €7.25 (€5.99 + 21% VAT) for shipping. That's why it's important to pass on shipping costs smartly.

For example, you could raise your product prices slightly and lower your shipping cost, so customers don't have to pay €7.25 upfront for shipping.

But if customers often buy multiple products in one order, it's not a great idea to hide too much of the shipping cost in your product price, since they'll typically only pay shipping once no matter how many products they buy.

How do I calculate shipping costs "smartly" for my customer?

We recommend charging no more than €5.00 (ideally a maximum of €4.95) for a standard shipment. That amount includes 21% VAT, so it breaks down into €4.09 in shipping costs and €0.86 in VAT. That means you'd still need to factor €1.90 (€5.99 - €4.09) into your product price.

If you sell higher-priced or niche products, this usually isn't an issue. But if you sell a lot of lower-priced products (under €20.00), a €1.90 price difference could put your competitive position at risk.

In that case, we recommend combining a few strategies:

• Treat part of the shipping cost as a marketing expense. Figure out how much shipping cost you can add to your product price without hurting your competitive position, and count the remaining amount as a marketing expense. You don't make real profit from a single sale of a low-priced product anyway. If you want customers to keep coming back, and low shipping costs support that, it can make sense as part of your marketing budget.

• Focus on cross-selling. If you can only absorb a small part of the shipping cost into your product price, aim to get customers to buy multiple products. That way you lose less on cheaper shipments. Set your store up for cross-selling, meaning you sell multiple products to the same customer. There are several ways to do this, but the most effective is encouraging customers to buy more by offering free shipping above a minimum order value.

• Free shipping threshold. The best way to encourage cross-selling and raise your average order value is to use a free shipping threshold.

And one last tip...

Choose the cheapest shipping option available. We often see parcels shipped in a way that could have been sent as a letterbox parcel instead. Relatively inexpensive products don't always need to be shipped as a standard parcel.

This can save you real money: a letterbox parcel can easily be half the price, which adds up to a real advantage.

While there's a lot of confusion around VAT on shipping costs, it's actually not that complicated. The rule of thumb: if you pay VAT on your products, you also pay VAT on the shipping costs.

We hope this article answered all your questions. Still have questions? Feel free to leave a comment.