Configuring VAT

The following instructions include a sample procedure to set 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, make sure to 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. See VAT ID Validation.

Step 1: Set up customer tax classes

The process of creating a tax rule begins by adding a tax rate.

1. On the Admin sidebar, go to Stores > Taxes > Tax Zones and Rates.

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 this tax class does not already exist, click Add New Tax Rate.

   Set up customer tax classes

3. Enter the Tax Identifier for the new tax class.

   All tax rates are displayed in the Tax Rate field in the Tax Rule Information when you create tax rules.

4. To set the zip code range (from / to) select the Zip/Post is Range checkbox.

5. Choose the Country where the tax rate applies.

6. Enter the Rate Percent that would be used for the tax rate calculation at purchase.

7. When complete, click Save Rate.

Based on the submitted tax rate, you can create subsequent tax rules. In the absence of tax rates, the creation of tax rules becomes impossible.

Step 2: Set up product tax classes

1. On the Admin sidebar, go to Stores > Taxes > Tax Rules.

2. Click Add New Tax Rule.

3. Expand the Additional Settings section.

4. Under Product Tax Class, click Add New Tax Class.

5. Enter the Name of the new tax class and click the checkmark to add the new class to the list of available product tax classes and create three new classes:

   • VAT Standard
   • VAT Reduced
   • VAT Zero

6. Click Save Class for each new class that you add.

7. Click Save Rule.

   Set up product tax classes

Step 3: Set up tax zones and rates

1. On the Admin sidebar, go to Stores > Taxes > Tax Zones and Rates.

   For this example you can remove the U.S. tax rates, or leave them as they are.

2. Click Add New Tax Rate and 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 Save Rate for each rate.

   Set up tax zones and rates

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 sidebar, go to Stores > Taxes > 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 Save Rule for each rate.

   Set up tax rules

Step 5: Apply tax classes to products

1. On the Admin sidebar, go to Catalog > Manage Products.

2. Open a product from your catalog in edit mode.

3. On the General page, find the Tax Class option and select the VAT Class that applies to the product.

4. When complete, click Save.

   Apply tax classes to products