VAT stands for "Value Added Tax" and is used in countries where the price includes the tax amount.
Please note that you cannot simply work out 17.5% of the final value and use that figure as it will be too high. For the example below, an item has a Taxable Amount and Price of £84.99 and the VAT rate is 17.5%. The calculation is as follows:
( 100 / ( 100 + [VAT Rate] ) * [Final Price] = [Pre-VAT Price]
For example
( 100 / ( 100 + 17.5 ) ) * 84.99 = 72.33 (rounded)
The formula has to be calculated this way so that the VAT percentage is actually 17.5% of the Taxable Amount. For instance, if we take the final price 72.33 * 17.5% we get 12.66. Adding this back in we get 72.33 + 12.66 = 84.99.
In order summary, VAT will be displayed with the Subtotal as the Final Price with tax included. The calculated tax is shown, but never added back in.
Example:
Subtotal: $84.99
Tax: $12.66
Shipping: $10.00
Total: $94.99
VAT is calculated off the Taxable Amount of the item, NOT the Price of the item.
This is required because every time tax is recalculated the price is split out between Tax and price, so if we used price the sum would reduce every time tax was recalculated.
Since VAT uses taxable amount, if you set an item to have a taxable amount of $0, this will result in a price of $0.
VAT is integrated into the shopping cart, however the cart does not check for VAT taxes in the USA to save processing. This means that if you are testing, make sure to have a test rep outside of the USA.
The back office order summary currently does NOT support VAT.
While the tax calculations will properly calculate the tax amounts, and the tax research page will show the VAT breakdown, the displaying totals will not behave as shown above. Instead, the subtotal would show price before tax, and then the total would add in the tax.
VAT is integrated to Shipping and Handling Taxes, but it is calculated as a simplified tax using the VAT percentage.
VAT on group items uses the group taxable amount field to calculate, but the parent item's tax is updated rather than adding price to the child items.
VAT only supports country-level jurisdictions.
When configuring an item for use with VAT, it must be configured for the specific VAT rate that will be applied. This means that inventory by country must be used to control the availability of the item so that only the specified VAT tax rate is used. As inventory by country does not support further granularity beyond a country selection, VAT rates can only be applied at the country level.
Because the price is overwritten during the tax calculation, you cannot use Promotions or Party Rewards to directly discount Price. The discounted price will always be overwritten based on the taxable amount. It is possible to discount based on the tax multiplier by reducing the tax and thus the price, but some countries do not allow tax to be discounted. In these cases, the client will not be able to discount the items using Promotions or Party Rewards.
If Price and taxable amount on the inventory item are not equal, the shopping cart checkout may partially fail when processing the payment as it will not be able to accurately calculate the subtotal of the order when validating the payment amount. It will usually fail before the payment is made, but if not, the order will be left in entered status.
There is an option for a "VAT Amount" on inventory prices that can be enabled through Freedom Settings, but this is not used by any tax calculations.