Value-added tax (VAT)

Many countries have what is referred to as a value-added tax (VAT). When a country uses VAT, tax is included in the price of each item. This means that no additional tax needs to be applied during checkout. However, most tax jurisdictions still require stores to show the amount of VAT that the customer paid.

In the admin, the Settings -> Taxes -> Tax Rates page allows administrators to create any tax rate. They can create VAT-style taxes by using the "Included in price" checkbox.

Solidus's solidus_frontend gem lists all of the VAT and other price adjustments below the item total on the checkout summary page.

Calculating VAT

When you set up products in Solidus, you can set the price to the exactly what you want the customer to pay. Then, you can use your VAT-style tax rates to allocate a percentage of the gross price to taxes.

    
      consumer_price / (1 + tax_rate) = expected_revenue
consumer_price - expected_revenue = vat

    
  

Solidus's Spree::Calculator::DefaultTax handles sales tax and VAT. If a tax rate is VAT and should be included in the price, it calculates all of the line items that share that tax rate on the order:

    
      if rate.included_in_price
  round_to_two_places(line_items_total - ( line_items_total / (1 + rate.amount) ) )
...
end

    
  

VAT amounts are stored in Spree::Adjustments

Note that while VAT does not adjust an order's total, Solidus still creates Spree::Adjustment objects to store tax amount. These objects have an included value of true so that the tax is not added to the price.

Example order with multiple VAT rates

In the following example, we will still refer to VAT as "adjustments", since that is how Solidus stores the tax amounts.

Our United Kingdom-based company is required to follow these tax regulations:

• Items of clothing should be taxed at a 5% rate.
• Consumer electronics should be taxed at a 10% rate.
• We are required to display the VAT paid to the customer.

If a customer orders a single clothing item:

• A customer within the UK adds one £17.99 t-shirt to their order.
• The tax calculator calculates the VAT: 17.99 - (17.99 / (1 + 0.05)) = 0.86.

    
        £17.99 – 1 x T-shirt
  £0.86 – Clothing tax (5%)

  £17.99 – TOTAL

    
  

If a customer adds a second clothing item to the order:

• The customer adds a £19.99 t-shirt to the existing order.
• The total cost for the two items is £37.98.
• Because the order only includes clothing items, the included tax is calculated as a single adjustment (5%).
• The tax calculator calculates the VAT: 37.98 - (37.98 / (1 + 0.05)) = 1.81.

    
        £17.99 – 1 x T-shirt
  £19.99 – 1 x T-shirt
  £1.81 – Clothing tax (5%)

  £37.98 – TOTAL

    
  

If a customer adds a consumer electronics product to the order:

• The customer adds a £16.99 power adapter to the existing order.
• The total cost for the three items is £54.97.
• Because the order includes both clothing items and consumer electronics, the tax must be calculated as two adjustments at two different tax rates.
• The tax calculator calculates the VAT for the clothing items: 37.98 - (37.98 / (1 + 0.05)) = 1.81.
• The tax calculator calculates the VAT for the consumer electronics item: 16.99 - (16.99 / (1 + 0.10)) = 1.54.

We can now show the display the final included VAT in the price when the UK-based customer arrives at the checkout summary page:

    
        £17.99 – 1 x T-shirt
  £19.99 – 1 x T-shirt
  £16.99 – 1 x Power adapter
   £1.81 – Clothing tax (5%)
   £1.54 – Consumer electronics tax (10%)

  £54.97 – TOTAL

    
  

Customize your VAT generation

If the provided model in core does not fit your business needs, you can easily customize the VAT generation logic by defining your own VAT generator class. Let's walk into this with an example:

Let's suppose you need to show the same gross price across different countries, no matter what the VAT is but still keeping the VAT tax to be visible in checkout.

You need to customize the logic used by Solidus to generate the price in countries that use VAT (with a TaxRate that has included_in_price set to true).

Create your own VAT Prices Generator class

You can create your own class that implements this logic. It has to be compliant with the interface of the class provided by default in Solidus core, which is Spree::Variant::VatPriceGenerator .

We suggest to inherit from that class and override only the method that you need to be different, for example:

    
      
# frozen_string_literal: true

module Spree
  class Variant < Spree::Base
    class CustomVatPriceGenerator < VatPriceGenerator
      def run
        # Early return if there is no VAT rates in the current store.
        return if !variant.tax_category || variant_vat_rates.empty?

        country_isos_requiring_price.each do |country_iso|
          # Don't re-create the default price
          next if variant.default_price && variant.default_price.country_iso == country_iso

          foreign_price = find_or_initialize_price_by(country_iso, variant.default_price.currency)
          foreign_price.amount = variant.default_price.amount
        end
      end
    end
  end
end

    
  

Now that you have created your custom class, you can easily ask Solidus to use it, by setting the following configuration in an initializer:

    
      Spree::Config.variant_vat_prices_generator_class = 'Spree::Variant::CustomVatPriceGenerator'