Setting up VAT

Some countries charge a value added tax, or VAT, on goods and services. (In some countries this is referred to as a goods and services tax, or GST.)

There can be different VAT rates depending on which stage you as a merchant are at in the manufactuer or distribution of the products, materials, or services that you sell to your customers. In this case you may need to use more than one VAT rate in your store for tax calculation purposes.

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Applying VAT requires familiarity with tax rule creation. We illustrate how to create tax rules in detail here.

Set Up Customer Tax Class

From Set-up > Tax > Customer Tax Classes, select or create a tax class to use for your VAT rate. We recommend adding a class titled "Retail Class" if you don't have one yet. Click Save when you are done.

Set up Product Tax Class

From Set-up > Tax > Product Tax Classes, click Add New.

Then, add three classes with the following titles:

  • VAT Standard
  • VAT Reduced
  • VAT Zero

When you finish, click Save.

Set Up Tax Zones and Rates

From Set-up > Tax > Tax Zones & Rates, Add New Tax Rates.

From Tax Rate Information, add new rates, paying special attention to the following fields:

Tax Identifier

Name of the tax rate.

Country

Name of the country represented by the VAT rate.

Rate Percent

Current VAT Rate.

When you finish, click Save.

Create a VAT Tax Rule

A tax rule is a combination of a customer tax class, product tax class, and tax rate. From Set-up > Tax > Tax Rules, click Add Tax Rule.

Then, add in the following values:

VAT Standard

Name

VAT Standard

Customer Tax Class

Retail Customer

Product Tax Class

VAT Standard

Tax Rate

VAT Standard Rate

VAT Reduced

Name

VAT Reduced

Customer Tax Class

Retail Class

Product Tax Class

VAT Reduced

Tax Rate

VAT Reduced Rate

Apply VAT Tax Classes To Products

From Catalog > Products, select a product for your VAT tax class.

Then, from General Information, select the corresponding tax class you created for VAT from the Tax Class menu.

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Before Proceeding

Make sure to find out the rules, regulations, and rates for VAT in your area.