Set up Tax Rules in the circuly Operations Backend
If you are shipping your products to customers within the European countries, you are subject to pay VAT. The tax obligations apply to your business if you are located within or outside the European Union (EU) and plan to ship your products to customers within the European Countries.
Furthermore, it's important to note that even if your operations are limited to a single country, you may encounter varying tax rates depending on the specific states or regions (such as USA) to which you are shipping. In such cases, the information provided in this article remains relevant and valuable to your business.
Note: If you are planning to operate in the USA, we have an integration with Taxjar for tax calculation. Get in touch with us via service desk to discuss the next steps.
You do not need to do anything with tax rates:
- If your business is active in only one country, that is if you sell in one country.
- If you do not have different tax categories for the products you rent.
- If the taxes do not change based on the region you ship.
Article Overview
- What is Value Added Tax (VAT).
- VAT regulations for cross-border sales within the EU.
- Factors influencing VAT calculation and application.
- Prerequisites: Define base country and delivery countries Setting up the tax rules.
- What happens when delivery countries are not specified.
- Setting up tax rules in the Products tab.
- Application of the taxes on the checkout page.
Value Added Tax (VAT)
VAT is a consumption tax that is charged as a percentage on the value of goods and services that the consumer intends to consume or purchase. Consumers pay the VAT as part of the price.
VAT applies to nearly all goods and services but different products may be subject to different tax rates depending on which category they fall in.
VAT regulations for cross-border sales within the EU
The EU has set a threshold amount for businesses situated within the EU and selling to customers in another EU country.
If the business makes less than 10,000 euros in the long-distance country (that is not the country where the business is actually situated but where the customer is) then the company charges the VAT rate of the country it is actually situated in.
Once the business reaches the threshold, the business should charge the VAT rate of the EU country where it is shipping to or the customer is situated in.
This article covers the procedure for setting up the tax percentages in the circuly Operations Backend and mapping them to different products.
Factors influencing VAT calculation and application
As mentioned above, the VAT is calculated and applied on the basis of three things:
- The category of the product - different products fall under different product categories and are therefore subject to the tax rates of the respective category.
- The country you plan on shipping to - if the minimum threshold amount is reached then the tax rates of the country you are shipping to apply.
- Whether or not the threshold amount has been reached - if the threshold amount has been reached then the tax rates of the country you are shipping to applies. If the threshold amount has not been reached yet then the tax rates of the country you are located in apply.
Note: If you are below the threshold you can choose to apply the tax rates of either the country you are located in or the country you are shipping to.
Prerequisites: Define base country and delivery countries Setting up the tax rules.
Before getting started with the tax rate set up you need to do the following:
- Define your base country. The base country is treated as your default country for tax calculation in case the minimum threshold has not been reached in the long-distance shipping country (the country you are shipping to).
- Define your delivery countries. When you define your delivery country, a new country column is added to the Tax rules tab so that you can assign the tax percentages to the product collections.
Defining your base country
In your circuly Operations Backend > Go to the Settings Tab > Click on Company Settings from the Settings menu > Under COMPANY DATA > Go to Country and from the dropdown menu select your default country > Scroll down to the bottom of the page and click on the SUBMIT CHANGES button.
Defining your delivery countries
In your circuly Operations Backend > Go to the Settings Tab > Click on Checkout from the Settings menu > Scroll down to DELIVERY > Go to Delivery countries and from the dropdown menu select your delivery countries >Click on the SUBMIT CHANGES button.
What happens when delivery countries are not specified
If you do not set up the delivery countries in the Settings, you will only see the tax collection from the country that you have entered in your company address (company settings). As a result you will not be able to set up tax rules in the Products tab for countries that have different tax percentages and where you want to offer shipping.
Setting up the tax rules in the Products tab
Navigate to the Products Tab. In the Products Tab you’ll find a section called “Taxes”.
Explanation of what you see in the Taxes section
Default and delivery country
In the Taxes section your default (organisation) country and your delivery country are displayed. The view changes if you change your default and delivery country in the Settings. The tax rules for your organisation country cannot be deleted but can be changed by checking a different checkbox. By default the checkbox with the highest tax percentage is checked for your default or organisation country.
This is also the status quo before you set up this feature.
Product Collection
There’s also the PRODUCT COLLECTIONS column. By default all products are mapped to the default collection. When you add more collections (for example for low tax percentage or no tax percentage) all the new collections will be displayed under this column and you’ll be able to set up tax rules for the default and delivery countries for the newly setup product collection.
Set up
- Step 1: Start with defining the different product collections - By default all products are mapped to the default collection. If you have more categories then the first step is to set up the product collections. To set up the product collection click on the + PRODUCT COLLECTION button > In the Create product collection window give a title and a description to your collection so that you can differentiate it from other collections > Once you’ve given your collection a title and a description click on the CREATE button.
You’ll see a new collection category and with it another row of tax percentages for your default and delivery country.
- Step 2: Assign the tax percentages based on the product collection - The next step is to check the boxes for the tax percentages. Under the default category, the highest tax percentage is applicable for your default country. If you earn more than 10,000 euros in revenue from your shipping country, then the tax rates of the shipping country are applicable. If you do not earn more than 10.000 euros from your default country, then the tax rates of your default country are applicable for that shipping country.
Here’s an example.
Scenario: Your default country is Germany and you’re shipping to Austria and Norway. In Austria you earn a revenue of over 10.000 euros and in Norway, you’re under the threshold amount.
How should the tax percentage boxes be checked for the above scenario?
- For Germany, the highest tax percentage will be applicable for the default category.
- For Austria (since it is over the minimum threshold) check the box for the tax percentage that is applicable for the default category.
- For Norway (since it is below the threshold) you do not have to check any checkbox. Since the threshold amount has not been reached, the tax rates will be automatically calculated as per the default country.
- Step 3: Map the product to the product categories - By default all products are mapped to the default collection and therefore the tax rules for the default collection are applicable. You can change that by going to the products section under the Products tab:
Check the box for products you want to map to a different collection.
Click on the MAP TO PRODUCT COLLECTION.
In the Map to product collection window > Select the right collection from the dropdown menu > Click on MAP TO COLLECTION button.
Application of the tax rules on the checkout page
Once you’ve set up everything, here’s how the tax rates will be calculated on the checkout page and applied to the products.
On the left side of the checkout page the tax calculation is done under Sales tax and is influenced by the (1) the product(s) in the cart and (2) the country of selection for the delivery country.
- When the delivery country has not been selected: the Sales tax is calculated as per your default country with an info note that the tax calculation may change as per the selected delivery country.
When the customer selects a country for delivery, the tax calculation changes accordingly.
If the selected delivery country is a country where you earn revenue below the minimum threshold then the default country tax rates are used.
Important: The tax rates are taken over from the circuly database. The tax rates that are displayed for every country are fixed and cannot be changed. If you have special tax programs currently active in your country kindly let us know via the service desk and we’ll change that on an individual basis for your company.