New EU tax rates for your Magento shop
On January 1st 2015, a new EU regulation takes effect that changes the way that tax is calculated for transactions within the EU. Here's a breakdown of this new regulation plus a free CSV to get your Magento shop updated quickly.
Whom does it concern?
If you have a webshop serving only customers in your own country, you don't need to worry about this - even if your own country is part of the EU: You are already charging your customers the correct amount of tax. This will not change. If you are selling to customers who live or are located in other EU countries, there is another exception: The tax regulation only deals with services of telecommunication, broadcasting and/or other electronical services (like selling Magento and Joomla extensions).
Because our business is effected, we became interested in the first place. However, the regulation also deals with services you might offer: Building and/or maintaining a websites; writing software in general; hosting; downloadable offerings (including MP3s, documents, e-books); e-learning. We expect that if you are a site builder or webdeveloper yourself, the new regulation most likely effects you too.
When tax needs to be charged, currently (this blog post is written before the new rule takes effect) the tax rate of the originating country is used - in other words, the tax rate of the seller, you, the webshop owner. On January 1st 2015, the tax rate will be based upon the country of the buyer, so the customer. Instead of having to deal with a single tax rate (the one of your home country), you suddenly need to deal with the tax rate of each EU country.
There is one exception: Tax rules do not change in respect to B2B (business to business) transactions. When a transaction takes place between two EU businesses and the tax IDs of both businesses is logged in the transaction details, the buyer is allowed to buy with tax exemption: No tax will be applied. There is still the requirement here to notify your local tax agency of this B2B transaction. In The Netherlands, we do this through a ICP filing. Each EU country has something similar to this.
GitHub repository with CSV file
Making the changes to your Magento backend to allow for this new regulation is not that hard. You only need to import a new CSV file with the right rules. We have added a small GitHub repository available to you all for free, which includes a file tax_rates.csv with the correct rules.
Usage in the Magento backend
To use the tax_rates.csv file, you can simply login to your Magento backend and navigate to Sales > Tax and then Import / Export Tax Rates. On that page, you can import the new rules by uploading the CSV file.
We definitely recommend you testing this beforehand. Make sure to setup a testing copy of your Magento production shop. Export the old CSV rules and back them up to a safe location. Next, check whether uploading the new rules works fine, and make sure to create a couple of test orders in the frontend.
Updating your Magento shop with these rules actually takes only a few minutes. We will do this ourselves on January 1st early on the morning, regardless of any hangover we might have. But you'll definitely want to make sure it works for you as well.
If you spot any mistakes in the file, make sure to notify us through GitHub so we can fix this as soon as possible. The original CSV we took already contained numerous mistakes, like taking in all Schengen countries instead of just taking in the EU countries only. This really is something we feel that should be shared with the community, so here you are: Share it ;)