How tax is decided

No VAT rate is ever chosen by hand. Record who is selling, who is buying and where the goods go, and the rest follows: which country’s VAT applies, at what rate, and whether any tax is due at all.

Orders and invoices use the same rules, so everything here reads the same on either.

Place of supply decides everything

EU VAT turns on one idea: the place of supply, the country a sale is deemed to happen in. It is derived from three facts — the selling company’s country, where the goods go, and whether the customer holds a VAT registration in that destination.

From those, the document gets one tax handling:

Tax handling	When	VAT
Domestic	the destination is the seller’s own country	the normal rate for the line’s category
Intra-Community	another EU country, customer has a VAT ID there	0% — the buyer accounts for it
OSS	another EU country, no customer VAT ID	the destination country’s rate
Export	anywhere else	0%

Where the goods go is the Ship-To Address when the order carries one, and the customer’s own address otherwise. Ship-To is never filled in automatically.

The document works from its own copy of the addresses, so correcting a customer record does not re-tax documents already made. See What a document freezes.

From a handling to a number

Tax handling says whether and where to tax. Turning that into an amount happens per line, in three steps.

1. Category. The line’s tax category comes from the product’s tax classification — a mapping of category per country, with a default. One product can be standard-rated in Germany and reduced-rated in France off one classification.
2. Rate. The category names a rate the destination country publishes. Zero-rated and exempt categories are 0% by definition. For the rest the lookup is deliberately loud: a country that does not publish the rate the category asks for is an error, never a silent zero.
3. Tax line. The result is one tax line per document line, carrying the rate, the taxable amount and the tax amount. Always exactly one — no single line is ever split across two rates.

Line tax rolls up into the document’s tax total, and into the per-rate breakdown in the VAT section. That breakdown is what prints on the document, and what the e-invoice carries.

Why no tax

A zero-rated document has to say why, so the reason — reverse charge, or export — is written onto it and printed. A reverse-charge document also prints the recipient’s VAT id, which the law requires as a notice rather than as the reason.

A €1,000 German sale

Ten units at €100, German company, German customer. The destination matches the seller, so the handling is Domestic and the country is Germany. The product’s classification resolves the line to the standard category; standard in Germany is 19%. The line gets one tax line of €1,000 taxable and €190 tax, the document totals €190 tax and €1,190, and the breakdown has one row.

What blocks a release

The tax rules are checked when a document is released, not when it is saved. A draft with unresolved tax saves fine and is refused at release:

• The handling could not be determined. The message names the missing input — usually a customer with no country.
• An OSS sale from a company that is not OSS registered. There is no lawful way to charge destination VAT on a cross-border EU consumer sale without that registration. Tick OSS Registered on the selling company.

A tax classification naming a rate the country does not publish is caught when the classification is saved, not when a line is priced.

When the tax looks wrong

Check, in this order:

1. The customer’s country — it is the destination unless a Ship-To Address overrides it.
2. The customer’s VAT ID, and the country it is registered in. A VAT ID in the wrong country does not make a sale intra-Community.
3. The selling company’s country — the one on the document’s own copy of the company address, taken from the profile’s company when the document was written.
4. The product’s tax classification, and whether it has an entry for that country.

Worth knowing

• A sale from a country with no seeded rates comes out untaxed. A same-country sale is still domestic, but with no rate table to read. Every country you sell from needs its rates present.
• The handling, the country and the category are editable. They are filled in for you and can be corrected, and a corrected value survives until one of its inputs changes.
• The special territories — the Azores, the Canary Islands, Réunion — carry codes no address resolves to. Reach them by setting the document’s jurisdiction by hand.
• A cancellation invoice carries positive tax, like the invoice it reverses. See Cancellations and corrections.

Setting classifications up is Tax.