As per ecommercenews.eu, eCommerce sales in the EU hit €602 billion which indicates big sales opportunities for International eCommerce retailers. If any online eCommerce business owner wants to grab this big market then it is necessary to understand the European tax structure and regulation mainly basic terms, VAT rates, VAT registration, exemptions. 

The European Union has Value added tax, which is known as EU VAT, is added on goods services within the EU. As sales tax works, VAT is also collected at every stage of the supply chain. Means Suppliers, manufacturers, distributors, retailers and end consumers all pay the VAT on their purchases.

The VAT is being levied on all taxable goods and & services including persons, corporates, individuals that carry out regular supplies. An exemption has been given to public offices and government.

An eCommerce merchant shall have basic knowledge and understanding of basic facts about EU VAT:

EU VAT is applicable to all 28 state members with exclusion of some territories. For E.g. Channel Islands (UK), Gibraltar and the Canary Islands (Spain).

In European VAT Directives there are standard and broad VAT rules, but EU countries can apply them differently.

VAT is chargeable on most sales and purchases within the EU. Some goods or services such as postal services, medical care, insurance are exempted from VAT.

VAT isn’t charged on services or goods for exports to countries outside the EU. In such a scenario, import tax is paid in the country of import. The requirement is to provide evidence that the goods were exported to a non-EU country.

VAT rates in the EU

Different EU member states have different VAT rates. i.e. for Luxembourg it is 17% where in Hungary it is 27%. Avalara Inc gives live VAT rates. There are 5 VAT rates in the EU.

Standard rate

  • Reduced rate
  • Super-reduced rate
  • Zero rate
  • Special & parking (intermediary) rates

Standard rate:

Like other countries, the EU too has state-wise flexibility to set their standard VAT rates. The 29 EU states can set their VAT rates not less than 15%. The standard rate throughout the EU is 17%.

Following are some examples of services and goods to the standard rate are:

  • Solicitor services
  • Furniture
  • Batteries
  • Motor vehicles
  • Consultancy services
  • Tyres

Reduced rate

Reduced rates may apply to a limited variety of sales & normally they cannot go below 5%. Following are some of the goods and services in which reduced rate of Value-Added Tax (VAT) is applied: –

  • Certain fuels
  • Certain building services
  • repair services
  • Cleaning and maintenance services (generally)
  • Certain photographic supplies
  • The importation of certain works of art and antiques
  • The supply of food and drink (excluding alcohol, soft drinks, and bottled water) in the course of catering
  • The supply, by means of a vending machine, of food and drink that would otherwise be zero-rated
  • Hairdressing services
  • Hot take-away food and hot tea and coffee
  • Hotel lettings, for example, guesthouses, caravan parks or camping sites
  • Admissions to cinemas, theatres, certain musical performances, museums, art galleries or exhibitions
  • Amusement services which includes supplied in fairgrounds or amusement parks
  • The supply of live horses, other than those normally intended for use in the preparation of foodstuffs or in agricultural production
  • Hire of horses
  • Supply of greyhounds
  • Certain printed matter, such as brochures, leaflets, catalogs or printed music (different rates apply to books and newspapers).

Super-reduced rate

The super-reduced rate is also known as the second reduced rate of VAT. There are certain goods and services comes under this, including:

Newspapers And Periodicals

Certain eBooks, e-Newspapers and e-Periodicals (excluding those which wholly or predominantly are devoted to advertising, or consist wholly or predominantly of audio or video content)

The provision, by a person other than a non-profit making organization, of facilities for taking part in sport.

There are few those apply a super-reduced rate below 5% on some sales. For example, Spain has a super-reduced rate of 4% applied to certain services, e.g. maintenance of means of transport for people with disabilities.

Zero rate

The zero rate VAT is applicable on certain sales for some of the countries. In the case of zero rates, consumers don’t have to pay VAT. However, you still have the right to deduct the VAT you’ve paid on purchases directly related to the sale.

Zero rate VAT applies to goods and services, including:

  • Exports
  • Intra-Community supplies of goods to VAT-registered persons in other European Union (EU) the Member States
  • Certain food and drink
  • Oral medicine
  • Certain books and booklets
  • Certain animal feeding stuffs, certain fertilizers, seeds, and plants used to produce food
  • Clothing and footwear appropriate to children under 11 years of age
  • Supplies to VAT-registered persons authorized by Revenue under the zero-rating scheme for qualifying businesses.

Special & parking (intermediary) rates

Some countries can apply specific special rates on some sales. A parking rate applies to some goods and services that are not eligible for a reduced rate.

As per the EU VAT norms and regulation cross-border VAT is declared in the same way as domestic VAT.

VAT Exemption

There are some goods and services like healthcare, education, and financial services are exempt from VAT, without the right to deduct. 

As per www.revenue.ie  “If you make exempt supplies you are a taxable person, but not an accountable person in respect of such supplies. In such a scenario, unless you also make taxable supplies you are not entitled to register for Value-Added Tax (VAT) in respect to your supply of exempt goods and services. VAT registration refers to your taxable supplies only. If you make an exempt supply of goods or services, you are not entitled to reclaim VAT incurred on expenditure in connection with the exempt supply.”

If you are a Magento store owner, then you can follow below steps to configure EU taxes for your Magento store.

Step 1: Add Three Product Tax Classes

  • Add VAT-Standard> VAT-Reduced & VAT-Free product tax class.

Step 2: Add Tax Rates for France and Germany

  • Next Complete the requirement of creating a new tax rate.
  • Then select the correct countries in EU as required.

Step 3: Create the Tax Rules

  • Complete the requirement of creating a new tax rule.

Step 4: Create a Store View for France

  • In Admin Panel go to Stores > Settings > Select All Stores.
  • Create a store view for France.
  • In Admin sidebar select Stores > Settings > then Configuration.
  • Set Default Config to the France store.
  • Now select General > Countries Options > Choose France.
  • Fill out required information.

Step 5: Create a Store View for Germany

  • In Admin Panel go to Stores > Settings > Select All Stores.
  • Create a store view for Germany.
  • In Admin sidebar select Stores > Settings > then Configuration.
  • Set Default Config to the Germany store.
  • Now select General > Countries Options > Choose Germany.
  • Fill out required information.

Step 6: Complete Tax Settings for France

  • In Admin Panel go to Stores > Settings > Select All Stores.
  • under Sales > Tax.
  • Tax Classes section> set Tax Class for Shipping.
  • Open Calculation Settings workplace,
  • Allow calculating the tax on “Total” value of the order.
  • Including Tax” to Catalog Prices and Shipping Prices.
  • Include discount amount. Choose After Discount” in the Apply Customer Tax field.
  • Then choose “Including Tax” in the Apply Discount on Prices field.
  • Select “Custom Price” (if available).
  • Expand the Default Tax Destination Calculation section.
  • Set Include Tax in Grand Total to “Yes”
  • Apply the FPT when you choose “Yes” for Enable FPT.
  • Include FPT and FPT description for all settings
  • Select NO to Disallow applying discount to FPT
  • Set Apply Tax to FPT and select “Yes”.
  • Agree Yes to include FPT in Subtotal

Step 7: Complete Tax Settings for Germany

  • In Admin Panel go to Stores > Settings > Configuration
  • Select Sales > Tax.
  • Set Store View to Germany.
  • Remove the Use Website checkbox in Default Country field and enter Germany into the field.
  • Remove the Use Website checkbox in Default State field, then leave “*” symbol into the field.
  • Remove the Use Website checkbox in Default Post Code field, then leave “*” symbol into the field.
  • Save Config

OSC’S VAT Exempt Module

Value-Added Tax-Exempt Module is the consumption tax assessed on the value added to the products and services mainly in the European Union. Some countries in EU offer VAT Exemption on certain services such as charity, education, financial services etc. Basically, the module is offered to disabled people on specific category of healthcare products and services.

To implement such VAT Exemption in Magento 2 store, OSC professionals have developed VAT Exemption for Magento 2 extension that facilitate the customers to claim for VAT Exemption at the checkout page. While the module allows store owners to offer products with no VAT charges! At the checkout page. Also, the admin can easily create and manage the allowed disabilities reasons for VAT relief from the backend. To buy the extension you click on: https://www.oscprofessionals.com/magento-extension/vat-exempt-relief-magento-2-module/