VAT & Taxes
VAT and taxes are complicated issues which all business with an international online business presence need to address.
VAT – or Value Added Tax – is a form of consumption tax popular in Europe, Japan, and many other countries.
The chief difference between VAT and a sales tax is that with VAT, only the difference between the seller-purchased price and the resale price is taxed at every transaction stage (and then refunded to non-consumers, e.g. businesses) – whereas a sales tax is only charged once, at the point of sale to the consumer.
Dynamicweb ships with the ability to handle all kinds of VAT and Tax scenarios, including
- Reverse charges on VAT (and per EU directive),
- Differentiated VAT rates on particular types of products
- Products belonging to different VAT groups in different countries
- The ability to create complex region- and country-specific tax setups
- Integration with the Avalara Tax service – one of the most widely used tax provider services in North America
- VAT on gift cards
Read more below!
Prices & VAT
We strongly recommend that you use prices excluding VAT in the backend. Dynamicweb is capable of handling VAT across countries, and VAT groups for countries with differentiated VAT-rates, but things become messy if we have to first subtract VAT, then add a different kind of VAT, then remove it for business customers, and so forth.
If you need to use prices including VAT anyway, you must go to Settings > Ecommerce > Advanced Configuration > Prices and check the Prices in database include VAT checkbox (read about the settings here).
VAT is a complicated matter.
Different types of products may have different VAT rates, some countries charge VAT on shipping and delivery fees and some don’t, and of course some countries charge VAT for B2C transactions, and not for B2B transactions.
Naturally, the complicated nature of real-world VAT practices means that VAT in Dynamicweb is fairly complicated too, with:
- System VAT, which is the VAT rate applied to all products on your solution, unless other VAT types are defined
- Country VAT, which can be set for each country on your solution, and replaces the system VAT for that country
- VAT Groups, which allow you to create differentiated VAT on certain types of products – e.g. in Denmark, newspapers have a VAT rate of 0% and art a VAT rate of 5%
- The VAT Group Matrix, which allows you to properly classify products which belong to different VAT groups in different countries
In this document, you can familiarize yourself with how VAT is set up in Dynamicweb. You can also find information about more advanced concepts, such as the reverse charge for VAT setting and how to create a custom VAT provider.
On Prices and VAT
We strongly recommend that you provide prices excluding VAT on your products. Dynamicweb is capable of handling VAT across countries, and VAT groups for countries with differentiated VAT-rates, but things become messy if we have to first subtract VAT from a product price, then add a different kind of VAT, then remove it for business customers, and so forth. Not least because rounding correctly routinely becomes a problem.
However, if you are unfortunate enough to have a product catalog with prices including VAT, please read more below.
System VAT is the VAT rate applied to all products on your solution, unless other VAT rates are defined – e.g. before a delivery country is selected during checkout.
The System VAT rate is undefined by default, but setting a System VAT rate is easy:
- Go to Settings > Ecommerce > Advanced configuration > Prices
- Enter the desired value in the System VAT field (Figure 3.1)
(You can read more about the settings here)
In most cases, however, the VAT rates should be defined for – and calculated on the basis of – each delivery country.
For that purpose, you can use the Country VAT settings (see below).
If prices on your products include VAT, the System VAT setting is used to subtract VAT from the product when recalculating VAT.
For each country created on your solution, you have access to the country settings – here you can set the country VAT rate (Figure 4.1).
Using the country VAT setting, you can set a general VAT rate for the country.
Any VAT rate set – even 0% – will overrule the System VAT on your solution.
Creating and working with countries, currencies and languages in general is described in the internationalization documentation.
VAT and billing/delivery country
Please note, that per default VAT is calculated based on the billing country. In many cases, it may be desirable or required by law to calculate VAT based on the delivery country. To do so, check the use alt. delivery country when calculating VAT setting under Settings > Ecommerce > Advanced Configuration > Prices. Read more below.
Most countries have some kind of differentiated VAT rates:
- In 2007, Ireland had 2500 subgroups of products and services, each assigned to either a standard (21.5%), a reduced (13.5%), or an exempt (0%) VAT group.
- In Denmark, the standard VAT rate is 25%, but newspapers are exempt from VAT, and art has a VAT rate of 5%.
- 18 EU-member states have lower VAT rates on very specific labor-intensive sectors of the economy.
To help you face the complex reality of VAT in the real world, Dynamicweb Ecommerce ships with the ability to create VAT groups.
With VAT groups, you can create a category – e.g. electronics – and matching VAT rates for each country on your solution.
To create a VAT group:
- Go to Settings > Ecommerce > Internationalization > VAT Groups
- Click New in the toolbar to open the VAT group window (Figure 5.1).
From here, you must:
- Name the VAT group – e.g. Danish VAT
- Optionally provide a native name for it – e.g. MOMS in Danish
- Select the type – either Default or Provider. Dynamicweb does not ship with any VAT providers, but you can create custom VAT providers.
In the country rates section enter the appropriate VAT rate for each country on your solution (or leave blank to use the country VAT).
You can read more about reverse change for VAT under "Advanced VAT settings" in this article.
If products are classified differently in different countries, e.g. a beverage which is classified as wine in Denmark (taxed 25% in DK and 10% in United States), but spirits in the United States (taxed 25% in DK and 15% in the United States), they can be assigned to different VAT groups per country (Figure 6.1).
You can access the VAT group matrix for a product from the product details ribbon bar.
Advanced VAT settings
A number of advanced settings can be used to tweak VAT calculations on a solutions - they can be found under Settings > Ecommerce > Advanced configurations > Prices and are described here.
Reverse charge for VAT
As per EU-legislation, B2B shops are allowed to sell goods and services across EU-borders without charging VAT if the buyer has a valid VAT number. Please note, that it is the responsibility of the seller to ensure that the customer has a valid VAT number, for example by using the VIES service.
To activate Reverse Charge for VAT – which basically means turning off VAT for select customers – you must:
- Open the website Ecommerce-settings and set Reverse Charge for VAT to Yes
- Create a number of VAT Groups and assign products to them with the Reverse Charge for VAT checkbox checked for countries in the EU which is not your own
- On each user with a valid VAT number check the Reverse Charge for VAT checkbox (you should verify that the number is valid)
Then, when a customer with the Reverse charge for VAT checkbox checked goes through checkout, products in a VAT group with Reverse charge active for the customer country will not incur VAT, provided that Reverse charge for VAT is set to true in the website Ecommerce settings of the website or language layer where the purchase is made.
Registered customers without Reverse Charge for VAT set will be charged the VAT rate specified on the VAT Group. Anonymous customers will not be charged VAT (please verify that they have a valid VAT number).
In addition to VAT, Dynamicweb ships with a system for handling taxes in general, e.g. sales taxes in the US – one of the few countries with conventional sales taxes – or extra taxes on e.g. alcoholic beverages, fossil fuels or luxury goods, separate from a standard VAT rate.
To do so, Dynamicweb allows you to do two things:
- Integrate with an external tax provider service. Dynamicweb currently ships with an Avalara Tax Provider for the US domestic market
- Create flat-rate taxes and apply them on a country- or region-basis, on all or only selected products or product groups
To create a tax:
- Go to Settings > Ecommerce > Product Catalog > Taxes
- Click New in the toolbar to open the tax settings window (Figure 9.1)
From here you must:
- Name the tax – this name will be used in the frontend, unless you’re using an external tax provider
- Activate or deactivate the tax on your solution
- Select the countries and regions a tax should apply for
- Select a tax provider and fill out any associated parameters
Currently, you have access to the default provider – the Avalara Tax Provider – and the Flat rate tax provider.
Before using taxes, we recommend setting a default country for your website. To do so, go to your website settings and click Ecommerce in the ribbon bar to open the default Ecommerce settings for your website, and select an appropriate country.
Read more about working with languages, countries, currencies and more in the Internationalization documentation.
The Flat Rate Tax Provider
The Flat rate tax provider is Dynamicweb’s own provider for assigning taxes to an order.
When selected, you will have access to the parameters for the provider (Figure 10.1).
With the parameters, you must:
- Enter a number in the amount field, and decide if the amount type is fixed or a percentage
- Select either all products in a particular shop or select any number of products and/or groups
Apart from the Flat Rate tax provider, the Avalara tax provider is available for US domestic scenarios.
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