Understanding VAT Implications

The value added tax (VAT) is a form of indirect sales tax paid on products and services at each stage of production or distribution, based on the value added at that stage and included in the cost to the ultimate customer. At each stage, the tax is assessed as a percentage on the amount by which goods have been increased in value from the raw materials or semi-manufactured stage.

VAT is imposed throughout the European Community and European Free Trade Association (EFTA) countries and many other trading nations, but not the USA.

When customizing your storefront to handle VAT, you need to consider these best practices:

• Sites using VAT don't typically want to display tax amounts on the storefront because product prices include the VAT.
• To suppress the display of the tax amount on the storefront and ensure that customers are not charged twice for taxes, set the site's Taxation Policy to Gross. If you switch Taxation Policy to Gross, the product prices should also be provided as Gross (including tax).

  To display prices in the cart and the checkout templates, make sure you are using Gross prices and not Net prices.

• If you are using VAT and the taxation policy is set to Gross, even if you don't want to show your customers any tax info, set a Tax Rate on all the VAT Tax Classes so that the tax information is collected in the backend.