Magento VAT setup for companies trading worldwide

I have just finished setting up a Magento site with all the tax rules applicable to the client. They are a VAT registered UK company who are shipping worldwide, so it’s not totally straightforward to set up.

For those new to this there are a few points you might want to bear in mind;

  1. You only charge VAT within the EU. For EU VAT registered businesses outwith the UK you don’t have to charge VAT, but you would need to verify that they have a EU VAT number or you will be liable for it. No VAT is charged to customers (business or consumer) buying from outwith the EU.
  2. VAT is chargeable at your local tax rate. You don’t need to worry what the sales tax rate is in Bulgaria, if VAT is applicable (ie within the EU) it is charged at the UK rate regardless of where the delivery destination is. So 20% all round if it’s an item which attracts the standard VAT rate.
  3. VAT is a charge based on the location in which the goods are consumed. So if the billing address is outwith the EU, but the shipping address is within the EU then you have to charge VAT on it.
  4. You don’t charge VAT for deliveries going to the channel islands

You then create Magento tax zones and rates for each EU country, for each rate (the client might be selling a variety of products, some of which might be zero-rated and some subject to the reduced rate). You can import a CSV of these, I’ve built my own one based on the one that WebShopApps kindly provided in the Wiki Genevieve did. You can find it here, as you can see they’ve also added the comments I gave them into the guide for those running the B2C model.

You can download my CSV file here -> Magento Tax Rates

Then you set up your VAT Rules, easiest way is for me to post a screenshot;

In Magento you set it up to display prices inclusive of tax (once the customers who have a delivery address outwith the EU saved in their account login or register then the prices will automatically be shown without tax). To show the prices inclusive of VAT (as you are legally obliged to do in the UK), make sure you have set the UK as the default tax destination country in System -> Configuration -> Sales -> VAT (or if you’re not using the GB language pack, Tax).

The image below shows the way I set it up. Note that VAT isn’t applied to shipping here because they are using Royal Mail to provide the shipping. Only a few of the Royal Mail’s services are subject to VAT, the ones that don’t fall under what’s known as the Universal Service Obligation. You can read more about that here.