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.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).
Outside the EU
If you’re a business registered within an 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.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.Configure taxes in Hyperline
In Hyperline, tax settings are managed per invoicing entity, 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 the standard tax 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:- Automated tax collection: Hyperline will automatically collect taxes based on your origin country and customer information (country, VAT number, tax ID, etc.). The correct VAT amount and rate will be applied on the issued invoices.
- Manual tax handling: Hyperline allows manual tax handling where you are responsible for filing taxes by country.
Tax calculation on invoices
The taxes (rates and amounts) will appear on all invoices under the billed subtotal.
Grace period for metered invoices
For metered and usage-based subscriptions, thegrace_period is the number of days an invoice stays open after the billing period ends. During this period, the invoice is not finalized or charged, so you can review usage, adjust line items, or correct taxes before payment collection starts.
When the grace period ends, the invoice is finalized, assigned an invoice number, and moves to payment according to the customer’s payment method and invoice settings.
Customer tax settings
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 with that rate in the invoice. You can add a custom invoice note for the customer to fix this.
Customize tax rate per customer
Taxability per customer
Each customer can be marked as Taxable or Tax exempt from the customer edit form. Use Taxable for the standard case where Hyperline should calculate taxes from your tax settings, customer location, tax ID, and product configuration. Use Tax exempt when a customer should not be charged tax, for example when you have collected and validated a tax exemption certificate outside Hyperline.Customer taxability is separate from a custom tax rate. Use taxability to decide whether tax applies at all, and custom tax rates to override the rate used for a taxable customer.
EU VAT and tax ID validation
Hyperline automatically manages VAT in the EU. For B2B customers in another EU country, the reverse charge rate can apply when the customer has a tax ID on their profile. You can add the tax ID yourself from the customer page, or ask the customer to provide it from a portal, checkout, or quote signature flow.Tax ID validation
When a customer tax ID is added or updated, Hyperline checks its format and, for EU VAT numbers, validates it through the EU VAT Information Exchange System (VIES). EU VAT numbers are then revalidated with VIES regularly, at least once a month, so the status can change if the VAT number is updated in the official registry. The validation status appears next to the customer’s Tax ID on the customer page.| Status | Meaning |
|---|---|
valid | The tax ID has been verified and is valid. |
invalid | The tax ID has been checked and failed validation, for example because it has the wrong format, is not found in VIES, or belongs to an inactive VAT registration. |
mismatch | The tax ID is valid, but it belongs to a different country than the customer’s country. |
unverified | The tax ID has not been verified yet. |
unsupported | Hyperline does not support automated verification for this tax ID type yet. |
Tax enforcement options
Tax enforcement is configured per invoicing entity. This lets each legal entity decide how strictly Hyperline should require and validate tax IDs before applying tax rules. To configure tax enforcement, navigate to Settings > Taxes for the relevant invoicing entity.
Require customer tax ID
Enable Require customer tax ID when all company customers billed by an invoicing entity must have a tax ID. When enabled, the tax ID field is treated as mandatory for company customers. Use it when your billing process requires a tax ID before invoices, quotes, or hosted-page billing details can be completed. This setting checks that a tax ID is present; it does not require the tax ID to be externally validated. To enable it, navigate to Settings > Taxes for your desired invoicing entity and toggle on Require customer tax ID.Enforce a valid tax ID for reverse charge
By default, Hyperline applies the reverse charge rate as soon as a tax ID is provided on the customer’s profile, without waiting for external validation. Enable Require valid tax ID for reverse charge when reverse charge should apply only after the customer’s tax ID has thevalid status. If the tax ID is missing, invalid, mismatch, unverified, or unsupported, Hyperline applies the standard tax rate for the customer’s country instead.
This setting is useful when your tax policy requires VIES validation before applying a 0% reverse charge rate.
This setting is disabled by default. If VIES validation is temporarily unavailable, a tax ID may remain
unverified; with this setting enabled, Hyperline will not apply reverse charge until validation succeeds.Tax rates and codes
Default tax rates
When using 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.
Assign code to default tax rates
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.
Custom tax rates
While a 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.
Create reusable custom tax rate
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.
