Recommended Tax Configuration for EU Stores (Magento CE 1.8 and EE 1.13)

Table of Contents

Note: This article provides information about how to set up tax calculations in Magento Community Edition (CE) and Enterprise Edition (EE). The information is based on CE 1.8 and EE 1.13; some options here might not apply to earlier versions.

Important: No guarantee is offered with respect to any of the information given here. Please contact an expert before you take any decisions about tax matters.

Overview

This article walks you through an example setup for a store based in France that sells > 100k Euros in France and > 100k Euros in Germany.

Note: If you have stores that operate in many states or countries, or if you have revenues exceeding approximately $2M per year, we recommend that you use a third-party tax provider because there can be a considerable number of tax rules and tax zones to manage.

This article assumes that you are familiar with general tax settings in Magento. For detailed instructions on how to set up general tax calculations, see Understanding How to Set Up Taxes in Magento CE 1.8 and EE 1.13 (Four-Part Series).

Notes for this example:

  • Tax calculations are managed at the website level.
  • Currency conversion and tax display options are controlled individually at the store view level (you click the checkbox and override the website default).
  • By setting the default tax country you can dynamically show the right tax for the appropriate jurisdiction.
  • You might need to edit the catalog and ensure that it shows up in the right category/website/store view.
  • You need to add an appropriate FPT attribute for each country/region where FPT applies to appropriate catalog items. For more information about FPT, see Setting Up a Fixed Product Tax (FPT) in Magento CE 1.8 and EE 1.13.
  • Flush caches to see your changes.

Detailed EU Example Configuration: Sales in France and Germany with VAT

Step 1: Create Three New Product Tax Classes

Sales > Tax > Product Classes

  • Create a VAT-Standard product tax class.
  • Create a VAT-Reduced product tax class.
  • Create a VAT-Free product tax class.

Note: This example assumes no need for multiple VAT-Reduced product tax classes.

Step 2: Create New Tax Rates for France and Germany

Sales > Tax > Manage Tax Zones & Rates

Create new tax rates with the settings shown in the following table.

New Tax Rate Settings
France-StandardVAT
  • Country: France
  • State/Region: *
  • ZIP/Postal Code: *
  • Rate: 20%
France-ReducedVAT
  • Country: France
  • State/Region: *
  • ZIP/Postal Code: *
  • Rate: 5%
Germany-StandardVAT
  • Country: Germany
  • State/Region: *
  • ZIP/Postal Code: *
  • Rate: 19%
Germany-ReducedVAT
  • Country: Germany
  • State/Region: *
  • ZIP/Postal Code: *
  • Rate: 7%

Step 3: Manage Tax Rules for the New Rates

Sales > Tax > Manage Tax Rules

Create new tax rules with the settings shown in the following table.

New Tax Rule Settings
Retail-France-StandardVAT
  • Customer Class: Retail Customer
  • Tax Class: VAT-Standard
  • Tax Rate: France-StandardVAT
  • Priority: 0
  • Sort Order: 0
Retail-France-ReducedVAT
  • Customer Class: Retail Customer
  • Tax Class: VAT-Reduced
  • Tax Rate: France-ReducedVAT
  • Priority: 0
  • Sort Order: 0
Retail-Germany-StandardVAT
  • Customer Class: Retail Customer
  • Tax Class: VAT-Standard
  • Tax Rate: Germany-StandardVAT
  • Priority: 0
  • Sort Order: 0
Retail-Germany-ReducedVAT
  • Customer Class: Retail Customer
  • Tax Class: VAT-Reduced
  • Tax Rate: Germany-ReducedVAT
  • Priority: 0
  • Sort Order: 0

Step 4: Set Up a Store View for Germany

  1. In the Admin panel in the upper left, click the Manage Stores link.
  2. Create a store view for Germany under the default website.
  3. Go back to System > Configuration, and in the Default Config box, choose the French store.
  4. In the General section, click to expand Countries Options and set the default country to France with appropriate locale options.
  5. To switch to the German website as the current configuration scope, go to System > Configuration > General.
  6. Click to expand Countries Options and set the default country to Germany, and change locale options as appropriate for the language.

Step 5: Configure General Tax Settings for France

System > Configuration > Sales > Tax

Configure general tax settings as shown in the following table.

Tax Settings Recommended Options
Tax Class for Shipping Shipping (shipping is taxed)
Tax Calculation Method Based On Total
Tax Calculation Based On Shipping Address
Catalog Prices Including Tax
Shipping Prices Including Tax
Apply Customer Tax After Discount
Apply Discount on Prices Including Tax
Apply Tax On Custom Price if available
Default Country France
Default State
Default Postal Code * (asterisk)
Include Tax in Grand Total Yes
Enable FPT Yes
All FPT Display Settings Including FPT and FPT description
Apply Discounts to FPT No
Apply Tax to FPT Yes
Include FPT in Subtotal Yes

Note: FPT is included for relevant goods as a product attribute. For more information, see Setting Up a Fixed Product Tax (FPT) in Magento CE 1.8 and EE 1.13.

Step 6: Configure Settings for Germany

System > Configuration > Sales > Tax

  1. Use the Current Configuration Scope picker in the upper left to select the German store.
  2. Click to expand the Default Tax Destination Calculation section.
  3. Override the Default Country setting and set it to Germany.
  4. Override the Default State setting and set it to *
  5. Override the Default Post Code setting and set it to *

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