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Value Added Tax (VAT)
Some countries charge a value added tax, or VAT, on goods and services. There can be different VAT rates depending on which stage you as a merchant are at in the manufacture 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.
This section provides a sample procedure for setting up a 20% VAT in the U.K. for sales to retail customers. For other tax rates and countries, follow the general procedure but enter specific information that corresponds to your country, VAT rate, customer types, and so on.
Before proceeding, find out which rules and regulations apply to VAT in your area.
In certain business-to-business transactions, VAT is not assessed. Magento can validate a customer’s VAT ID to ensure that VAT is assessed (or not assessed) properly. To learn more, see: VAT Validation.
Step 1: Set Up Customer Tax Classes
| 1. | On the Admin menu, select Sales > Tax > Customer Tax Classes. |
| 2. | Ensure that there is a customer tax class that is appropriate to use with the VAT. For this example, ensure that there is a customer tax class named Retail Customer. If Retail Customer does not exist, click the Add New button and add it. |
Step 2: Set Up Product Tax Classes
| 1. | On the Admin menu, select Sales > Tax > Product Tax Classes. |
| 2. | Click the Add New button and create three new classes: |
- VAT Standard
- VAT Reduced
- VAT Zero
| 3. | Click the Save Class button for each new class that you add. |
Step 3: Set Up Tax Zones and Rates
| 1. | On the Admin menu, select Sales > Tax > Manage Tax Zones & Rates. |
For this example you can remove the U.S. tax rates, or leave them as they are.
| 2. | Click the Add New Tax Rate button. Add new rates as follows: |
-
VAT Standard
Tax Identifier:
VAT Standard
Country and State:
United Kingdom
Rate Percent:
20.00
-
VAT Reduced
Tax Identifier:
VAT Reduced
Country and State:
United Kingdom
Rate Percent:
5.00
| 3. | Click the Save Rate button for each rate. |
Step 4: Set Up Tax Rules
A tax rule is a combination of a customer tax class, a product tax class, and a tax rate.
| 1. | On the Admin menu, select Sales > Tax > Manage Tax Rules. |
| 2. | Add new tax rules as follows: |
-
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 Customer
Product Tax Class:
VAT Reduced
Tax Rate:
VAT Reduced Rate
| 3. | Click the Save Rule button for each rate. |
Step 5: Apply Tax Classes to Products
| 1. | On the Admin menu, select Catalog > Manage Products. |
| 2. | Open a product from your catalog in edit mode. |
| 3. | On the General page, find the Tax Class field. Then, select the VAT Class that applies to the product. |
| 4. | When complete, click the Save button. |