vat

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.
Process Overview:
Step 1: Set Up Customer Tax Classes
Step 2: Set Up Product Tax Classes
Step 3: Set Up Tax Zones and Rates
Step 4: Set Up Tax Rules
Step 5: Apply Tax Classes to Products

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:


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:

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.

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