A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of general consumption tax that is collected based on the amount a product’s value has increased at each stage of production or distribution. It’s normally implemented as a destination-based tax, where the tax rate is based on the location of the customer.
VATs raise about a fifth of total tax revenues worldwide. As of 2014, 83% of the world’s countries employ a VAT, excluding the United States.
There are two main methods of calculating VAT: the credit-invoice or invoice-based method, and the subtraction or accounts-based method.
How To Configure VAT
You can configure your Tax settings to display prices including VAT or excluding VAT by going to Settings > Tax in your Admin Area and doing the following:
- Click Settings at the top of the page
- Select No next to Are You Based in the United States?
- Choose from the options within the VAT & GST menu
- Disabling VAT: This option hides all extra VAT-related text that appears on category and product pages. VAT will still be applied to products once an address is entered (or if the VAT tax is set as a default tax).
- Prices Inc VAT: This option adds the tax to the price of the item, and adds the text "Inc VAT" after the price (for example, $2.34 Inc VAT)
- Prices Exc VAT: This option does not add the tax to the price, but does show the text "Exc VAT" next to the price (for example, $2.00 Exc VAT)
- Prices Inc VAT and Exc VAT: This option shows the price including the tax, and also shows the price excluding VAT (for example, $2.34 - $2.00 exc VAT)
- Prices Exc VAT and Inc VAT: This option shows the price excluding the tax first, and also shows the price including VAT (for example, $2.00 - $2.34 inc VAT)
⚠️ Good To Know
- On the Shopping Cart page, the display is not affected by the display modes. If VAT is enabled, "exc. VAT" will show below the price per unit, and the total tax applied to that item will display under the total price for that item.
- You can override the VAT percentage for a product in a product's Advanced Info under the Pricing tab. This will only work as long as the product has been marked as a taxable product, and the checkbox for 'Tax rate for VAT/GST' is checked within the tax rate itself (this is available in Settings - Tax).
- You can change the text for how VAT is displayed in product prices and on orders (for example, if you want it to say "including VAT" instead of "inc VAT"). To find out how, check out our article, “How to Change GST or VAT Display.”
Taxes are a fact of life. And while it’s not fun to pay them, at least it’s easy to set your store up to collect them. We offer lots of options to let you display VAT taxes the way you choose.