Let us consider a few typical cases of tax setup you can implement using the VAT / GST add-on:
DISCLAIMER: The VAT rates used in samples serve demonstrative purposes only and may not be valid for a particular country. For all countries you do business with, always get the correct rates from the authorized institutions
VAT-Inclusive Prices for Your Business Location
For example, you are doing business in Germany. In Germany, prices usually include VAT, so we need to set VAT-inclusive prices. Most types of goods in Germany require a VAT rate of 19%.
To set up VAT-inclusive prices for sales in Germany, follow these steps:
First, when adding products to your store catalog via Admin area, enter product prices with VAT included - the way they do it in Germany. For example, let's take a product and set its price at 119 euro (This price includes the base price of 100 euro + VAT of 19 euro, which corresponds to 19% of the base price of 100 euro).
Set up a zone for Germany. Buyers from this zone will have to pay VAT 19%.
Go to Store Setup > Taxes and set up VAT, adjusting the tax settings as follows:
In the "The VAT / GST inclusive prices as defined in the product details are intended for" setting, specify the zone you created for Germany, declaring that the database prices are actual for Germany.
Enable the "Display prices in the catalog including VAT / GST" option.
Adjust the "Display 'inc/ex VAT' labels next to prices" setting according to your needs. For example, to display the "including VAT" label, select "On all catalog pages" or "On product details pages only." Suppose you do not want to use the label, set this to "Never" (In this case, you will have to inform your customers that the prices on your site are VAT-inclusive in some other way).
Set the VAT rate for Germany to 19%
Prices and VAT for Different Countries in Europe (VAT-Included)
For example, you have business in Germany and sell products to buyers from Germany and other European countries (Spain, Russia, etc.)
When adding products to your catalog via Admin area, enter product prices with VAT included - the way you are used to doing it in Germany. Most types of goods in Germany require a VAT rate of 19%. So, for the sake of example, let's take a product and set its price at 119 euro. This price includes the base price of 100 euro + VAT of 19 euro, which corresponds to 19% of the base price of 100 euro.
Configure zones for every country where you will sell products and need a different VAT rate.
Go to Store Setup > Taxes and set up VAT, adjusting the tax settings as follows:
In the "The VAT / GST inclusive prices as defined in the product details are intended for" setting, specify the zone you created for Germany, declaring that the database prices are actual for Germany.
Enable the "Display prices in the catalog including VAT / GST" option.
Adjust the "Display 'inc/ex VAT' labels next to prices" setting according to your needs.
Configure the VAT rates you require for each zone.
For example, the VAT rate for Germany = 19%, the VAT rate for Spain = 21%, etc.
Russia is not part of the EU, so you must not charge European VAT on sales to Russia. However, to enable Russian buyers to see the correct product prices, not including VAT, set the VAT rate for Russia as 0%.
With prices and VAT configured as described above, a buyer from Germany will see the prices the way you entered them in the product details. For buyers from other countries, the costs will display according to the buyer's zone. To display the correct VAT-inclusive prices to visitors outside Germany, your online store will subtract the Germany VAT from the product price to find the product's base price. Then it will calculate the VAT amount for the visitor's zone and add this amount to the base product price.
This way, the product from our example - the one for which we set the price at 119 euro - will cost 119 euro (including 19% VAT) for Germany, 121 euro (including 21% VAT) for Spain, and 100 euro (including 0% VAT) for Russia.
VAT-Exclusive Prices and Zone-Specific VAT Tax Application
Suppose we set product prices excluding VAT. However, we have buyers from countries that require VAT, and we need to charge them properly.
When adding products to your catalog via the Admin area, specify product prices without VAT.
Configure zones where you need to charge VAT (use these zones to set VAT rates). Also, set up a zone for the country/countries where you do not need to use VAT.
Go to Store Setup > Taxes and set up VAT, adjusting the tax settings as follows:
In the "The VAT / GST inclusive prices as defined in the product details are intended for" setting, specify the zone you created for the country or countries with no VAT.
Enable the "Display prices in the catalog including VAT / GST" option.
Adjust the "Display 'inc/ex VAT' labels next to prices" setting according to your needs. For example, if you want the "including VAT" label to display, select "On all catalog pages" or "On product details pages only." If you do not want to use the label, set this to "Never" (In this case, you will have to inform your customers that the prices on your site are VAT-inclusive in some other way).
Configure the VAT rates you require for each of the zones. For example: VAT rate for [zone that must use VAT] = 20% VAT rate for [zone without VAT] = 0%
Display VAT at Checkout for VAT-Exclusive Prices
Suppose you need to set up prices and VAT the following way:
the database prices don't include VAT;
the storefront prices have the "Excluding VAT" label on them and display without VAT too;
VAT is added at checkout.
Then do as follows:
When adding products to your catalog via your store back end, enter product prices without VAT.
Set up a zone for each country where you need to use VAT (You will use these zones to set VAT rates). Also, set up a zone for the country/countries for which you do not need to use VAT.
Go to Store setup > Taxes and set up VAT, adjusting the tax settings as follows:
In the "The VAT / GST inclusive prices as defined in the product details are intended for" setting, specify the zone you created for the country or countries with no VAT.
Disable the "Display prices in the catalog including VAT / GST" option.
Set "Display 'inc/ex VAT' labels next to prices" to ether "On all catalog pages" or "On product details pages only." (Remember, we want the "excluding VAT" label).
Configure the VAT rates you require for each of the zones. For example: VAT rate for [zone that must use VAT] = 20% VAT rate for [zone without VAT] = 0%
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