What is VAT and what rate is it applied at? What determines the VAT rate for domestic and foreign transactions? Can one item be sold with different VAT rates depending on the circumstances? We will try to explain this in a simple way.
Properly determining the VAT rates in your store (including an online store) is very important, both for the buyer and for the tax office controlling us. The VAT rate may be different depending on who and where the purchase is made in our store.
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VAT is a tax on goods and services. It is an indirect tax, which means that consumers/final recipients pay it and remit it to the Tax Office - entrepreneurs, for whom in theory VAT is a neutral tax. The VAT acronym itself stands for Value Added Tax, as it is a tax added to the net transaction value. Example: Company X Wholesaler sells a product for 100 PLN net, adds 23% VAT to the net price - the gross price of the product is 123 PLN. Company Y Seller buys this product from the wholesaler and sells it to the final recipient for 120 PLN net, adding VAT also at 23%, the gross price of the product is 147.60 PLN. The seller pays 27.60 PLN VAT to the Tax Office, deducting the VAT previously paid for the product in the wholesaler and the VAT resulting from other costs of running the business (e.g. renting a premises). The final recipient of the product bears the cost of VAT, as he pays the gross amount and does not deduct this tax.
More information about VAT: https://www.podatki.gov.pl/vat
In each country the standard VAT rate can be different. In Poland the standard VAT rate is 23%. And most goods and services are taxed with it. For some goods and services reduced VAT rates are applied: 8% (e.g. for some catering and repair services) and 5% (e.g. for books and live animals). Some services are exempt from VAT (VAT rate designation - zw), such as educational services and those related to sport.
More about tax rates: https://www.podatki.gov.pl/vat/stawki-podatkowe
VAT rates within one online store can be different, they change during the store's operation (in accordance with changes in regulations) and depending on the sold assortment.
The store allows the seller to add and edit VAT rates and assign them freely to the sold goods. The VAT value for a given good can be displayed on the product card and on the cart page.
See how the VAT rates configuration looks in SOTESHOP: VAT Rates
Since VAT rates are different in different European countries, the concept of intra-Community supply of goods was introduced. The rules for VAT, if the seller and buyer are from two different EU countries, are different than in the case of a domestic transaction. If the buyer is a company, and the seller is registered as a VAT UE taxpayer and both parties have a European VAT number - VAT UE, then the online store can sell the goods with a VAT UE rate of 0, which means that the buyer will pay only the net amount in the store, and the VAT from this transaction will be paid in their country and according to the rate applicable in their country.
In most online stores you can enable this feature on the cart page. After entering the correct VAT UE number (checked in the VIES database) the VAT rate changes and it is possible to buy the goods at the net price.
See how to use it in SOTESHOP: VAT UE for Businesses
The situation looks different when the buyer is a regular individual. In this case, the store sells the goods with the VAT rate applicable to the buyer's country. Example: A customer from the Czech Republic buys goods in a Polish online store. As the country of delivery and the country of residence of the buyer, he specifies the Czech Republic. The rate in the basket changes from 23% to 21% (the basic VAT rate in the Czech Republic). These regulations apply to all stores that have exceeded the 40,000 PLN limit in transactions to individuals in other EU countries in the course of a year.
The proper use of this functionality requires the proper configuration of VAT rates for each country on the store side.
More on this topic: VAT Changes from July 1, 2021
Given that the rates applicable in different countries differ, it is important to use the appropriate amount when making intra-EU transactions.
Below is a table of VAT rates applicable to different EU countries.
|EU Country||Standard Rate||Zero Rate|
When selling outside the EU in transactions, VAT ex (export value of 0) is applied. The condition is to deliver the goods outside the EU.
This VAT is usually applied automatically in online stores if the country of delivery is outside the European Union.
See how to configure the VAT ex rate in SOTESHOP: VAT ex
After Brexit, the EU VAT rate of 23% can no longer be applied to transactions in which the seller from the EU country delivers the goods to the UK. In this situation, VAT ex is now applied. An additional complication is the need for the seller to pay VAT directly to the UK office for transactions below 135 pounds. That is why online stores often introduce transaction limits above this amount.
See more on this topic: VAT Brexit
VAT is a tax that has a very big impact on the final price of a product. The seller must be fully aware of which VAT rate to apply to the goods and services they are selling. This rate may vary in foreign transactions, depending on where the goods are being shipped, and in special cases, it also matters how much the goods were bought for and what turnover is generated by orders from other EU countries.
Set up your SOTESHOP online store for 14 days for free.
Check out the new version of SOTESHOP 8.