Setting Up VAT/GST in 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

Some countries charge a value added tax, or VAT, on goods and services. (In some countries this is referred to as a goods and services tax, or GST.) There can be different VAT rates depending on which stage you as a merchant are at in the manufacture or distribution of the products, materials, or services that you sell to your customers. In this case you may need to use more than one VAT rate in your store for tax calculation purposes.

This topic provides a sample procedure for setting up a 20% VAT in the U.K. for sales to retail customers, and a 5% VAT for VAT reduced sales. 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.

Note: Before proceeding, make sure to find out which rules and regulations apply to VAT in your area.

Step 1: Set Up Customer Tax Classes

To set up example VAT customer tax classes:

  1. From the Admin panel, select Sales > Tax > Customer Tax Classes.
  2. Check 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 Retail Customer does not exist, add it using the Add New button.

Step 2: Set Up Product Tax Classes

To set up example VAT product tax classes:

  1. From the Admin panel, select Sales > Tax > Product Tax Classes.
  2. Click the Add New button and add three new classes:
    • VAT Standard
    • VAT Reduced
    • VAT Zero
  3. Click the Save Class button for each new class that you add.

Step 3: Set Up Tax Zones and Rates

To set up example VAT tax zones and rates:

  1. From the Admin panel, select Sales > Tax > Manage Tax Zones & Rates.
  2. For this example you can choose to remove the U.S. tax rates, or leave them as they are.
  3. Click the Add New Tax Rate button. Add new rates as shown in the following table.
    New Tax Rate Settings
    VAT Standard
    • Tax Identifier: VAT Standard
    • Country and State: United Kingdom
    • Rate Percent: 20.00
    VAT Reduced
    • Tax Identifier: VAT Reduced
    • Including FPT: United Kingdom
    • Rate Percent: 5.00
  4. Click the Save Rate button for each new rate that you add.

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.

To set up example VAT rules:

  1. From the Admin panel, select Sales > Tax > Manage Tax Rules.
  2. Add new tax rules as shown in the following table.
    New Tax Rule Settings
    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 the Save Rule button to save your VAT tax rules.

Step 5: Apply Tax Classes to Products

To apply example VAT classes to products:

  1. From the Admin panel, select Catalog > Manage Products.
  2. Select a product from your catalog to edit.
  3. In the Product Information tab, in the General section, find the Tax Class option.
  4. From the list, select the VAT class that applies to the product.
  5. When finished, click the Save button.

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