When invoicing customers, businesses must apply the correct tax scheme based on their location and the applicable laws. The two main types of taxes commonly seen on invoices are Value-Added Tax (VAT) and Sales Tax.

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How does VAT work

VAT is a consumption tax applied at every stage of the supply chain where value is added, from production to the point of sale. The final consumer ultimately bears the tax. VAT is common in most countries worldwide, particularly in Europe and some parts of Asia and Africa. VAT rates vary by country and are often categorized into standard, reduced, and zero rates for different goods and services.

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In the EU

First and foremost, ensure that you’re registered with your country’s tax authority and hold a valid VAT registration number, also known as an EU VAT Identification number. This number will be essential for conducting VAT-related activities. Next, it’s crucial to determine whether your customers are businesses or consumers. Hyperline will verify VAT numbers for you so you can make sure to only manage legally registered businesses. Here’s a flow chart representing how VAT should be applied (and how Hyperline works under the hood).
When issuing invoices, it is mandatory to include VAT, even if it is zero-rated. VAT returns must also be submitted on a regular basis, typically monthly, quarterly, or annually, depending on the specific requirements of each country. Be diligent in fulfilling these obligations to remain compliant. Once you are registered for VAT in another EU country, it’s important to note that you should not charge VAT for both your own country and the customer’s country. VAT should only be applied once, in accordance with the rules and regulations of the customer’s location. Lastly, keep in mind that obtaining VAT registration in a new country can be a time-consuming process, typically taking around 6 weeks. This timeline can vary depending on the country where you are seeking registration. Patience and adherence to the necessary procedures will be key during this period.

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Outside the EU

If you’re a business registered within a EU-based country, you don’t charge VAT for customers that are based outside of the EU. Please take a look at this page to learn more about the different VAT rates globally.

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How does Sales Tax work

Sales tax is a tax imposed on the sale of goods and services, collected only at the point of sale from the end consumer. It is primarily used in the United States and some parts of Canada, and rates are usually set by states or local governments and vary significantly across jurisdictions.

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Taxes in Hyperline

In Hyperline, tax settings are managed per invoicing entities, allowing you flexibility in defining specific tax behavior depending on the legal entity responsible for issuing customer invoices. Hyperline automatically resolves the right tax scheme and applies tax standard rate, the default rate of taxation applied to most goods and services. This is the general rate set by the government, which applies unless a specific good or service qualifies for a reduced rate, zero rate, or exemption. Two options are available regarding VAT collection:
  1. Automated tax collection: Hyperline will automatically collect taxes based on your origin country and customer information (country, VAT number, etc). The correct VAT amount and rate will be applied on the issued invoices.
  2. Manual tax handling: Hyperline allows manual tax handling where you are responsible for filling taxes by country.
To opt for this mode, you need to navigate to the ‘Settings’ section, then ’% Taxes’ and deselect the ‘Enable Automated Tax Collection’ toggle, which is enabled by default.

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Tax on invoices

The taxes (rates and amounts) will appear on all invoices under the billed subtotal.
When creating, editing or duplicating invoices, you can manually set custom rates for each individual lines.

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Tax per customer

You can customize the tax rate per customer if necessary, but be careful, a manual tax rate set on a customer will not allow Hyperline to display any legal information associated to that rate in the invoice. You can add a custom invoice note for the customer to fix this.

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Customize tax rate per customer

1

Click on 'Edit' in the information section of the customer page

2

Navigate to the 'Advanced' section and locate the 'Custom tax rate' field

3

Enter the desired rate and save

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VAT in the EU

Hyperline automatically manages VAT in the EU - but a customer will only get a reverse charge rate (so a 0% rate) if the tax number is filled on their profile. You can do it yourself or have them do it from their portal / checkout flow.

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Checking for invalid VAT numbers

While we are verifying the VAT number’s validity and displaying it in your interface, we’re trusting your customer as long as the format of the VAT number is valid. VAT databases are not always up-to-date and Hyperline cannot always confirm a specific number belongs to a specific customer.
Make sure to check our interface regularly to see if some customers have invalid VAT numbers (in the Customer page → VAT number).An invalid VAT number does not impact the ability to send invoices with Hyperline, but it can have negative consequences on your business if your invoices are not VAT compliant in your country (subject to fines).

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Default tax rates

When using the Hyperline’s automatic tax collection feature, you can define codes for the default tax rates, so that they match the codes in your accounting software.

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Assign code to default tax rates

1

Navigate to Settings > Taxes of your desire invoicing entity

2

Click 'Set tax code'

3

Fill details

Select the country and the tax rate, assign the code from your accounting software, and click on ‘Set tax code’.
If you have an accounting software connected to Hyperline, the tax codes will be automatically linked to the item lines, before pushing the invoice to your accounting software.

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Custom tax rates

While country’s standard tax rates are used by default in Hyperline’s tax rate logic, you can also customize specific tax rates to suit your needs, which don’t have to match the general standard rates.

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Create reusable custom tax rate

1

Navigate to Settings > Taxes of your desire invoicing entity

2

Click 'Add rax rate'

3

Fill details

The tax code is used to help you match tax in your accounting software.
The custom tax rates can later be assigned to products in your catalog, allowing for precise control over which rate applies to each product, depending on the invoicing entity.