How to set and manage the VAT on the store

Compatibility:

WebSite X5 Evo and Pro since version 2021.5

The Value-added tax (VAT) is a tax applied to the value added on the price of a product or service at each stage of production, distribution, or sale to the end consumer, which is used in many countries of the world, including the EU Member States. The VAT rate changes according to the product/service as well as to the country: because of this, setting up an e-commerce isn't always easy.

In this guide, and with the help provided by some examples, we will look at how to set the VAT for your e-commerce so to comply with the most common situations.

This article has information purposes only, and it doesn't intend to replace qualified legal or fiscal advice. For more precise information, please contact an expert in the field. 

1. Displaying the VAT
2. Case 1 - Applying a default VAT
3. Case 2 - Applying different VAT rates according to the product
4. Case 3 - Applying different VAT rates according to the country
5. Case 4 - Applying different taxes on the price of one product

Displaying the VAT

To comply with the regulations that protect the right of customers to be clearly and transparently informed, you need first of all to report whether the prices you display on your online store include the VAT. However, you don't necessarily need to report the specific VAT rate. 

• Go to Step 1- Settings > Shopping Cart > Options
• Use the Type option available in the VAT section to select one following possibilities:
  • VAT not applicable
  • VAT not included in the price
  • VAT included in the price

In the first case, the prices won't report any reference to the VAT. In the other two cases, the selected reference will be applied to all the products in the store. 

#tip - The rules to be followed for the invoices are different: please contact a legal expert to verify whether you need to report a VAT rate in the invoices. 

Case 1 - Applying a default VAT

Let's start with the most simple case: you've got an online store for products you sell in your country only, and for which a normal VAT rate is necessary. For instance, you're an Italian company selling only t-shirts within Italy only: a single product, for which the normal VAT rate at 22% should be applied. 

In this case, you don't have to do anything special. When you create a new product (Step 1- Settings > Shopping Cart > Products), the "Default" VAT value is preselected on Product Settings > General.

The default VAT is set according to the language chosen when installing WebSite X5: if you chose Italian, the default VAT value is 22%, if you chose French you will find a default TVA value at 20%.

Of course, you can edit the default VAT:

• Go to Step 1 - Settings > Shopping Cart > Options
• In the VAT > Settings section, click on  so to open the VAT settings window.
• Select the set of options set for the "Default" group and click on Edit.
• Use the available commands in the Tax Settings to apply the wished changes. 

Case 2 - Applying different VAT rates according to the product

Let's take a step further: you're an Italian company selling in Italy only, but this time you have both products which require a normal 22% VAT and goods that require a reduced 10% rate. For instance, customers can buy both top quality tea (VAT 10%) and funny mugs where they can drink it (VAT 22%).

You already know what to do for the mugs:

• Go to Step 1 - Settings > Shopping Cart > Products > Product Settings.
• Set the default VAT rate (which will be 22% if you haven't modified it).

As far as tea is concerned, you need to create a new Group:

• Go to Step 1 - Settings > Shopping Cart > Options
• In the VAT > Settings section, click on  so to open the VAT settings window.
• Click on Add to create a new Group: it will be listed under the Default entry.
• Edit the Group you created in the  Tax Settings window.
• Repot the name (eg. Reduced VAT rate) and the rate % Value (eg. 10%) .
• Click ok to close the window. 

Now that your Group for products having a reduced VAT rate is ready, you can apply it to the tea:

• Go to Step 1 - Settings > Shopping Cart > Products > Product Settings.
• As far as the VAT in concerned, open the drop-down menu and select the available Reduced VAT rate entry. 

By proceeding in this way, you will be able to create all the Groups you need according to the taxes you need to apply on your store. If you were in Italy, for instance, you could create another Group with a reduced 5% VAT rate and one for a minimum 4% VAT rate.

Case 3 - Applying different VAT rates according to the country

Let's take another step further: you are an Italian company selling in Italy and abroad in the EU. In this case, you have to deal with the new EU VAT regulation entered into force since July 1st, 2021.

#tip - For more information about the changes introduced by the EU, see: VAT and distance selling: What has changed since July 1st, 2021

As you probably know, the regulation introduces a minimum €10,000 threshold. If during the current financial year and during the previous one (i.e. during the last two years) your distance selling towards another EU country was worth less than €10,000, you can consider that selling as if it came from your own country. Should you exceed this amount, you have to apply the VAT rate the product would have in the customer's residence country.

Let's assume you are an Italian company selling t-shirts in Italy, France and Germany. Selling goes particularly well in France, and during the last 2 years you generated more than €10,000 sales. On the other hand, in Germany you don't go that well yet, so that the sales don't exceed the €10,000 threshold.

When setting up your store, you then need to consider that:

• if an Italian customer places an order (i.e. the same country as the company), the normal 22% VAt rate is applied; 
• if a German customer places an order  (EU Country; <€10,000), the same Italian 22% VAT rate is applied;
• if a French customer places an order (EU Country; >€10,000), the French 20% TVA rate is applied.

In this case, so, you don't need to create different product groups which you need to apply a new tax for, but you need to apply different VAT rates to a single product group according to the country the order is placed from. With the Pro edition of WebSite X5 you can do this pretty easily.

Because the 22% VAT is set as default value, you need to edit the "default" option by reporting the necessary conditions:

• Go to Step 1 - Settings > Shopping Cart > Options
• In the VAT > Settings section, click on  so to open the VAT settings window.
• Select the default group setting set (VAT, 22%) and click on Edit.
• In the Tax Settings look for "Italy" and "Germany" is the Available Countries list and use the arrow to add them to the Selected Countries.
• Click OK to confirm: now the 22% VAT will be applied to the purchases coming from Italy and Germany.
• Now, still in the VAT Settings window ,click on Add to add a new setting set.
• In the Tax settings window, type in the Name TVA and set 20% as % Value.
• Select "France" from the Available Countries list, then use the arrow to add it to the Selected Countries.
• Click OK to confirm: now the 20% VAT will be applied to the purchases coming from France.

Even if your  reference markets are Italy, France and Germany, you may receive some orders from other countries as well: what VAT rate should be applied in such cases? Instead of creating a long list of possible countries, you simply need to report which setting set should be considered by default:

• Still in the VAT Settings window, select the "VAT, 22%" set and click on Default.

Now set the default VAT (Product settings > General) for all the t-shirts of your catalog. 

Case 4 - Applying different taxes on the price of one product

There is still a case we need to consider: what if a country needs multiple taxes to be applied to the same product, for instance a federal tax (5% FT) and a provincial one (10% PT)?

 By working with the Pro edition, edit the tax set as default so to have your 5% FT:

• Go to Step 1 - Settings > Shopping Cart > Options
• In the VAT > Settings section, click on  so to open the VAT settings window.
• Select the default group setting set and click on Edit.
• In the Tax Settings window type in "FT" as Name and 5 as % Value.
• Select the wished country from the Available Countries list and use the arrow to add it  to the Selected Countries.

For the same product sold in the same country, you also need to add a 10% TP, you then need to add a setting set for the default group we mentioned earlier:

• Still in the VAT Settings window, select the Default group and click on Add so to add a new setting set.
• In the Tax Settings window type in "TP" as Name and 10 as % Value.
• Select the same country from the Available Countries list and use the arrow to add it  to the Selected Countries.

In this way  both the 5% FT and the 10% TP will be applied to the final product price in case of a purchase coming from the reported country.