Lago EU Taxes

Lago now features an automatic European tax detection integration for your customers.

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Enable Lago’s EU Tax integration

Activate Lago’s automatic EU tax detection in just a few steps:

1. Navigate to your Lago instance Settings;
2. Select the ‘Lago EU Tax Management’ integration;
3. Enter or confirm your organization’s country; and
4. Hit ‘Connect’ to activate this integration.

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Automated EU tax rates detection

When you connect the Lago EU Tax Management integration, it automatically generates a list of standard European tax rates. These rates, labeled as automated in Lago, are synchronized with the latest standard tax rates for European countries, ensuring your tax calculations are always up-to-date and compliant.

Each tax rate begins with the lago_ prefix, ensuring a uniform and easily identifiable format across your tax rate list. This systematic approach simplifies the management and recognition of these automated tax entries within your system.

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Auto-application of taxes: decision tree

Lago’s initial step in the automated tax application involves verifying if a customer has a tax_identification_number. This check occurs whenever a customer’s profile is created or updated, ensuring that the most current tax-related information is used in subsequent processes.

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B2B tax decision process

When a tax_identification_number is identified on a customer profile, Lago conducts a real-time verification using the EU’s VAT Information Exchange System (VIES) to confirm the existence of the company.

In case the VIES check matches a valid company:

1. If the customer’s company is registered in the same country as your organization, Lago applies the customer country’s tax rate;
2. If the customer’s company is registered in the same country as your organization, but there is a tax exception for a particular zipcode, Lago applies the tax exception of this specific zipcode; or
3. If the customer’s company is registered in a different country than your organization, Lago implements a reverse charge mechanism, applying a 0% tax rate.

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B2C tax decision process

If the VIES check does not confirm an active company or if no tax_identification_number is provided, Lago then assesses the country associated with your customer. Based on this:

1. If your customer’s country is unspecified, Lago defaults to applying your organization’s country tax rate; or
2. If your customer’s country is within the European Union, Lago applies the tax rate corresponding your customer’s EU country; or
3. If your customer’s country is outside the European Union, Lago applies a tax exempt rate at 0%.

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Guidelines for VIES checks by Lago

Lago performs VIES verifications under these circumstances:

• The Lago EU Tax Management integration is activated;
• A customer profile is either created or updated. Changes in customer details could influence their applicable tax rates;
• Zipcodes are important to define tax exceptions. Make sure to define them for all your customers; and
• When a new tax rate is identified for a customer, Lago automatically updates the customer’s profile by replacing the old tax rate with the new one.

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Logging VIES verifications

Lago ensures transparency and compliance by logging each VIES check. This occurs whenever you create or update a customer. For each check, Lago dispatches a webhook message. This allows you to record these validations for compliance purposes. You can access and review any of these automated checks as needed.