Preheat your oven to 350°F (175°C). Grease and flour two 9-inch round cake pans.
In a large mixing bowl, whisk together the gluten-free flour, sugar, baking powder, baking soda, and salt until well combined.
In another bowl, mix the coconut milk, vegetable oil, eggs, and vanilla extract. Pour the wet ingredients into the dry ingredients and stir until just combined. Gently fold in the shredded coconut.
Divide the batter evenly between the prepared cake pans. Bake for 25-30 minutes or until a toothpick inserted in the center comes out clean. Allow the cakes to cool in the pans for 10 minutes before transferring them to a wire rack to cool completely.
While the cakes are cooling, prepare the frosting. In a medium bowl, beat the softened butter until creamy. Gradually add the powdered sugar, alternating with the coconut milk, and mix until smooth. Stir in the vanilla extract.
Once the cakes are completely cool, place one layer on a serving plate. Spread a layer of frosting on top, then place the second layer on top. Frost the top and sides of the cake with the remaining frosting.
Sprinkle the toasted shredded coconut on top of the frosted cake.