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A simplified guide for New EU VAT rules 2015 for digital goods and setting them up in J2Store

If you are a seller of digital goods and services, you would probably wondering about the new European VAT rules that came into effect from January 1, 2015.

Since the rules are a bit of pain, we have come up with a simplified guide which will help you implement the new rules easily in your J2Store joomla shopping cart.

The New VAT rules

In simple terms, the new VAT rules are:

  • if the company sells to any countries in the EU, they will have to charge VAT in the country of the buyer instead of the seller.
  • if the buyer of the digital goods is an individual, the company has to charge the VAT percentage from the country of the buyer
  • if the buyer of the digital goods is a company (with a valid VAT number), there is a 0 percent VAT charge.
  • if the buyer of the digital goods is a company without a VAT number or has an incorrect VAT number, then VAT of the country of the buyer must be charged.
  • if the company sells digital goods to companies or individuals in their own country, local VAT needs to be charged.

Implementing VAT rules in J2Store

EU VAT plugin

We have created a VAT plugin that helps you implement the VAT rules automatically.Download and install the plugin from here:http://j2store.org/extensions/general-plugins.html

Then go to Joomla admin -> Plugin Manager and Enable the EU VAT plugin

Implementation

Let us assume that your company is located in : United Kingdom, BristolAnd your home country (local ) VAT is 21 %

  1. Store Configuration

Go to Joomla admin – J2Store – Set up – Configuration - Store tab

Set the Default Country to United KingdomSet your Default Zone to Bristol

  1. Tax rule for Home Country

First, we should define the geozone and tax rates for the home country, that is the country in which your shop is located.

2.1 Define Geozone

Go to Joomla admin – J2Store – Localization – Geozones – New

Geozone Name: Home VAT Zone ( It can be anything. It is used just as reference )

State : Published

Add country / Zone

Choose United Kingdom from the Dropdown list and add it

Save and close

2.2. Define Tax rate:

Go to Joomla admin – J2Store – Localization – Tax Rates – New

Name : Home VAT RateTax Percent : 21Geozone : Home VAT Zone Status : Published

  1. Tax rule for an EU Country Let us take Germany for this example. Let us say, Germany’s VAT charge is: 25 %

A few countries might have same VAT rate for the digital goods. You can group them under one geozone.

For this example, I am going to stick with one EU country, that is Germany.

3.1 Define Geozone

Go to Joomla admin – J2Store – Localization – Geozones – NewGeozone Name : Germany VAT Zone ( It can be anything. It is used just as reference )State : Published

Add country / ZoneChoose Germany from the Dropdown list and add it

If some other EU countries also implement a 25 % VAT, then you can group them under this geozone itself

Save and close

3.2. Define Tax rate:

Go to Joomla admin – J2Store – Localization – Tax Rates – New

Name : Germany VAT RateTax Percent : 25Geozone : Germany VAT ZoneStatus : Published

  1. Setting up the tax profile

It is sufficient to set up ONE tax profile for digital goods, in which we can associate many tax rates.

Go to Joomla admin → J2Store – Localization → Tax profiles → New

Tax Profile Name : Digital Goods Tax ProfileState : Published

Tax Rates Mapping

4.1. Choose Home VAT Rate 21 % and choose Billing Address as the Associated Address.

4.2. Choose the Germany VAT Rate 25 % and choose Billing Address as the Associated Address.

Save.

  1. Applying tax profile to a product

J2Store uses native Joomla articles as products. So go ahead and create a product.

Go to Joomla admin – Article Manager – New or open your digital product.

In J2Store Tab → Item Tax , Choose Digital Goods Tax Profile.

Fill in other relevant fields for your product and save.

Application of VAT rules with Examples:

Now we have successfully configured the tax rules in J2Store. Let us see how they will get applied for different scenarios

Example 1: Buyer ( can be an INDIVIDUAL or company ) from the same country (Home country )

Our shop is located in United Kingdom. And the buyer is from the same country. So local tax of 21 percent applies.

Example 2: Buyer ( INDIVIDUAL ) from a different EU country (Germany )

The buyer is from Germany and he is an Individual customer. So we are charging him the Germany’s VAT rate of 25 %

Example 3: Buyer ( COMPANY ) from a different EU country WITHOUT a valid VAT Number

The customer is from Germany. He has entered a company name. But his VAT number is INVALID. So we apply the Germany’s VAT rate of 25 %.

(the EU VAT plugin validates the VAT number provided against the EU database )

Example 4: Buyer ( COMPANY ) from a different EU country WITH a valid VAT Number

The customer is from Germany. His VAT number is VALID. So NO tax is applied. If you have any questions or suggestions, please post in the ticket system.