Value-added tax (VAT) is a consumption tax levied on the value added to a product or service at each stage of its production or distribution. It is a common indirect tax system used by many countries around the world. VAT is applied as a percentage of the final sales price, and businesses are responsible for collecting the tax from their customers and remitting it to the government. Unlike sales tax, which is applied only at the point of sale to the end consumer, VAT is imposed at various points in the supply chain. It encourages transparency in taxation and minimizes the cascading effect of taxes by allowing businesses to offset the VAT they've paid on their inputs against the VAT they've collected on their outputs, thereby taxing only the value they have added to a product or service. VAT is an important source of government revenue and is used to fund public services and infrastructure.
The following is meant to provide generic assistance with calculating taxes for wholesale orders processed through Wholesale Gorilla, and does not purport to be a complete solution for tax compliance. Tax rules are complex and change frequently, you are responsible for proper compliance with all tax laws as they relate to the operation of your business. Please read the following carefully.
Most stores in the EU do not charge VAT on orders sent outside their home country, while domestic orders are required to have VAT added to the order subtotal. Follow these steps to add VAT as an additional line item to orders shipping to addresses inside your home country. Your home country can be set in your Shopify admin under Settings.
Only follow these steps if theretail price of your products includes VAT
Setting up VAT for wholesale customers
Exclude VAT from your wholesale discounts
Mark all wholesale customers as tax exempt This guide will explain the process for doing so.
Ensure that your products are set as taxable, via the 'Charge tax on this product' box being ticked on the appropriate listings.
Add your domestic VAT rate in Wholesale Gorilla. Open Wholesale Gorilla and click the Settings tab. Enter the VAT rate for domestic wholesale orders in the 'Tax Rate' field, and click 'Save' at the bottom of the settings page.
- Optional: You may set a custom VAT label, which will give the custom name to any VAT tax line items added to your customer's orders. If this field is left blank, the line item will read 'VAT' by default.
Now, any wholesale orders shipping to your home country will have the VAT added as a line item to the order. Here is a screenshot of the tax line added to a Net Terms order:
Note: The VAT tax setting will only be applied to front-end checkout orders; any manually made orders via the backend of your site will need to have VAT taxes manually calculated & added on.
Why does the Taxes line say $0.00?
Shopify does not allow apps to add a custom tax line with the API we use. Unfortunately they don’t seem to have any intention of changing this, so for now we have to add VAT as a line item to the order. You can use the custom label to rename this to whatever works best for your business, via the 'Custom VAT label' setting.
Customizing taxes for wholesale customers
VAT Tax setting can be used as a workaround to facilitate different tax rates between your wholesale & retail customer groups. Below are the steps for this process.
- Set all products that you wish to charge taxes on for either customer group to 'Charge taxes on this product'.
- In Shopify, establish the retail tax rate that you wish to charge.
- Mark all retail customer accounts as 'Charge taxes', this way the Shopify tax rate is charged on their orders.
- Mark all wholesale customers as 'tax exempt'.
- In the 'Settings' section of our app, establish a wholesale tax rate via the 'VAT' tax setting. Save the page so that this setting is locked in.
Your wholesale customers will now be charged whichever tax rate you've applied to the 'VAT' setting for their front-end checkouts, while retail customers will be charged whichever rate you established within Shopify.
The one downside to this workaround is that your wholesale customer's tax rate will only ever be labelled 'VAT Tax', as Shopify does not allow us to adjust this title. You can use any of our custom messaging areas to warn your wholesale customers of this up front, which should cut down on confusion. You can set a custom message above the wholesale login, signup and customer account pages via the 'Customers' settings area, as well as above the Quick Order Form via it's settings section.
The Wholesale VAT rate will only be applied to front end orders
any manually created orders will need to have a tax rate manually added on, either via the 'Tax' custom line or the 'Custom line item' setting.
Note: If you need to charge multiple tax rates to either customer group, you're going to need to fold the multiple rates into a single, stacked charge. For example, if you need to charge two rates of 10% and 3% respectively, then you would want to set the rate up as 13% via adding those two together.
You can customize a handful of settings on the wholesale cart, including whether or not international customers submit their orders as drafts, if the 'Notes' section of the cart is mandatory, and if a P.O. number field is added to the page.
Note Input Settings
You can customize the description text within your cart's 'Notes' field, require that your customers input a note in order to reach the checkout, and display a P.O. number field on the cart page.
If you want to improve the chances of collecting such info, you can toggle the 'Require Note Input' setting on:
Your customer will be warned that a note input is required:
You can also choose whether a P.O. input is added to the cart field by toggling it's setting on, which includes a sub-setting to require your customer to add something to this field before they can reach the checkout.
Customizing the wholesale discount label
You can adjust the label that your discounted pricing appears under via this setting. The wording that you select here will appear on the wholesale checkout page and on invoices that are emailed to your customer.
By default (if a custom label is not entered into the field), this will read "Wholesale Discount".
Our app allows you to choose whether your international customers submit their orders as normal, paid in advance versions, or as editable, unpaid drafts that you can further edit as needed.
You can toggle this setting via the 'Submit as draft order' option under the 'International Checkout' subheading. To have your customers submit their orders as unpaid, editable drafts, just tick the box. Leaving the box unticked will result in customers placing orders with shipping addresses from outside of your home country submitting their orders as finalized, paid in full orders that you can no longer edit.
Customizing the international checkout confirmation message
If you opt to use our international checkout, you're also able to set a custom confirmation message which will be displayed when your customer submits their draft order. This is a great place to let them know of the next steps in your international order process, or if you need anything else from them. Your customer will see this message whenever they submit an order with a shipping address outside of your home country.
Reserving inventory on international orders
You're also able to reserve inventory on international draft orders, by ticking the 'Reserve Inventory on International Orders' option. Toggling this on will see all of the inventory reserved on the draft order for the number of days you specify via the 'Custom Reservation Time' option. Remember, draft orders do *not* reserve inventory by default -- so you'll want to use this setting if you want to ensure the items don't oversell. To learn more about inventory reservation settings in our app, you can check out this guide.
Submitting international orders as drafts
If you choose to tick the box that says 'Submit as draft order', this setting will be turned on, and any orders from outside your shop’s country will be processed as draft orders. As for what your customer will see, after clicking ‘Checkout’ in their cart, their orders will be automatically redirected to a separate order confirmation page, which you can adjust the message for via that 'Confirmation Message' setting.
A couple of things to keep in mind:
- Your customer will not receive a copy of their order until you manually email one their way.
- Because this is a draft order, no inventory will be subtracted from the products until you manually update the order's status either by paying it out, or marking it as paid/payment pending.
- You can do anything with this draft order that you're able to do with a retail-based Shopify draft.