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Pricing strategy – consider the factor of VAT

By / In Uncategorised / 3 Min read

The difference in VAT rates between nations is one of the most significant things you should consider when you expand your business overseas. When you provide your goods or services to the domestic market, the VAT rate is fixed. On the other hand, when you provide your goods or services to buyers from other countries, the VAT rate varied countries by countries. And it depends on where your customers are located.

What is Inclusive Price? The price of your product is the same no matter where your buyers are, and the VAT is included with the fixed price. There are many advantages of applying an inclusive approach, you don’t have to modify the cart flow with VAT features, it is easier and more clear to do the monthly calculation. And you can apply thresholds together when you have multiple incomes. But it’s difficult to predict your net income which differs from the VAT you will have to pay to the authorities.

What is Exclusive Price?  The VAT is not included in the price if you take the exclusive strategy, it will only be calculated and added after the price of your goods. It is easier for the company to do the calculation since you will collect the exact amount of tax money that you are obligated to the tax authorities. You will have to ​install a real-time VAT calculating tool. The company has to absorb the cost of inaccurate calculation or determination of VAT.

Sometimes it is not easy to determine where your customers are located and which VAT rate has to be added before the payment has been made. The solid evidence in this situation is the buyer’s bank account. If the bank’s location is not match to the the VAT rate was applied, the company may need to recalculate the VAT.

To concludes, Exclusive Pricing is a less money-consuming and less time-consuming approach. Some might say the VAT calculation prior to the transaction is tax-risky for e-commerce. To solve this problem, you can install a VAT rate API to calculate VAT and update the latest VAT-related information.