Articles on: Settings

Ad Spend Tax Settings

Ad spend tax settings separate the VAT or sales tax portion from your advertising costs. The tax moves out of Ad Spend into your Tax breakdown, so your reports show what advertising costs you net of tax. If you reclaim that VAT, the Ad Spend Tax line becomes a credit that lowers your Tax value, and your profit is no longer reduced by it.

What Is Ad Spend Tax?

Ad platforms like Meta, Google, or TikTok often charge VAT or sales tax on your advertising, depending on your billing country and tax registration. Without this setting, that tax is buried inside your ad spend numbers and treated like advertising cost, which lowers your reported margins and ROAS.

With ad spend tax configured, Profitario splits the tax out of your advertising numbers and reports it separately.

If your invoices use the reverse charge mechanism (common for EU businesses that gave the ad platform a VAT ID), the platform does not charge VAT at all and your reported spend contains no tax. In that case leave this feature off, or set a rate of 0 for that ad account.

How to Turn It On

Open Settings > Tax and find the Ad Spend Tax section, then:

Enable ad spend tax. Turn on the main switch.

Choose the calculation method. This tells Profitario whether the spend imported from your ad platform already includes tax:

Method	Your imported spend	How the tax is calculated
Tax-inclusive (gross down)	Already includes tax	`spend × rate ÷ (100 + rate)`
Tax-exclusive (net up)	Does not include tax	`spend × rate ÷ 100`

To find out which one applies to you, compare an invoice from your ad platform with the spend shown in its reporting: if the reported spend equals the invoice total including VAT, choose tax-inclusive; if VAT is added on top of the reported spend, choose tax-exclusive.

Decide whether the tax is reclaimable. Turn on Reclaimable input VAT if your business reclaims this VAT from the tax authority. With the switch on, the Ad Spend Tax line inside the Tax breakdown becomes a credit that lowers your Tax value, and the tax no longer reduces contribution margin or net profit. See the section below for details.

Set the default tax rate. Enter the rate as a percentage, for example 19 for 19%. The default applies to every connected ad account.

Add per-account overrides if needed. Every connected ad account gets its own row with a tax rate, a calculation method, and a reclaimable switch. If your ad accounts are billed differently, for example one Meta account billed with 19% German VAT and one Google account billed with reverse charge, set the rate, method, and reclaimable switch individually per account. A rate of 0 means no tax for that account. Accounts left without a rate are highlighted while other accounts are taxed, so unconfigured accounts stand out and you know exactly which ones still need attention.

If some accounts have a rate and others do not, Profitario shows a notice on the dashboard so you know the configuration is mixed. Set a rate (or an explicit 0) for every account to remove it.

Because Ad Spend becomes net of tax with the tax-inclusive method, ROAS is calculated on the net amount. Expect your ROAS to improve slightly the moment you enable it.

The Six Setups, Side by Side

The same store in every setup: $1,000 revenue (including $50 output VAT), $400 COGS, and advertising that costs $100 net plus $19 VAT at 19%. The top row shows the feature turned off and the incorrect numbers each platform reporting style produces; the bottom row shows the four combinations with the feature on:

Setup	Ad Spend	Tax	Net Profit	ROAS
Off, platform reports gross	$119	$50	$431	8.4
Off, platform reports net	$100	$50	$450	10.0
Tax-inclusive, recl. off	$100	$69	$431	10.0
Tax-exclusive, recl. off	$100	$69	$431	10.0
Tax-inclusive, recl. on	$100	$31	$450	10.0
Tax-exclusive, recl. on	$100	$31	$450	10.0

With the feature off (setups 1 and 2), the numbers depend on how your platform reports spend. A gross-reporting platform buries the VAT inside Ad Spend and understates your ROAS; a net-reporting platform drops the $19 entirely and overstates your profit by that amount. The method (setups 3 and 4) fixes Ad Spend to its net amount and shows the $19 as an Ad Spend Tax line inside the Tax breakdown. Reclaimable (setups 5 and 6) turns that line into a credit: the Tax value drops to $31, your actual VAT bill, and net profit comes out exactly $19 higher.

Net Profit counts the reclaim once. The $19 VAT you paid to the ad platform has no separate row (Ad Spend is already net) and cancels against the reclaim, so profit gains $19, not $38.

The Income Statement report does not include ad spend tax lines. Use the dashboard breakdown or the pivot table to see them.

Reclaimable Input VAT

If your business is VAT-registered, the VAT on your advertising is usually input VAT: you pay it to the ad platform, and it reduces the VAT you have to pay to the tax authority. What you pay on one side comes back on the other, so it should not lower your profit. The Reclaimable input VAT switch makes your reports reflect that.

With the switch off, the ad spend tax appears as an Ad Spend Tax line inside your Tax breakdown, with its per-platform split, and increases your Tax value like any other tax. Use this when you cannot reclaim the VAT, for example when your business is not VAT-registered.

With the switch on, the line stays visible but flips to a credit that reduces your Tax value, because the VAT you paid on advertising comes back from the tax authority. The Tax row then shows your VAT settlement: output VAT minus everything you reclaim. Contribution margin and net profit come out higher by exactly the reclaimed amount, and advertising costs you its net amount.

In the example above, you pay $19 VAT to the ad platform and reclaim it: the Tax row reads $31 instead of $69, and net profit lands $19 higher than with the switch off.

Only turn this on when you actually reclaim the VAT in your tax filings. If you cannot reclaim it, the tax is a real cost and the switch would overstate your profit.

Common Questions

Which combination should I use?

Your situation	Method	Reclaimable
Reported spend includes VAT, you reclaim it	Tax-inclusive	On
Reported spend includes VAT, you cannot reclaim it	Tax-inclusive	Off
VAT is billed on top of reported spend, you reclaim it	Tax-exclusive	On
VAT is billed on top of reported spend, you cannot reclaim	Tax-exclusive	Off
Invoices use reverse charge (no VAT charged)	Off, or rate `0`	n/a

Can one ad account be reclaimable and another not?

Yes. Each ad account has its own rate, calculation method, and reclaimable switch. A common setup is a domestic account with reclaimable VAT and a foreign account with no tax at all. The dashboard combines them: reclaimable tax reduces the Tax row, non-reclaimable tax stays a cost.

Where is the ad spend tax shown? Inside the Tax breakdown: expand the Tax row to see the Ad Spend Tax line with its per-platform split, next to your Output VAT. With Reclaimable input VAT on, the line shows as a credit that reduces the Tax value. It only disappears when ad spend tax is turned off entirely.

Does this change what the ad platform charged me? No. It only changes how Profitario splits and reports those amounts. Your billing with the platform is untouched.

Why did my ROAS change after enabling this? With the tax-inclusive method, Ad Spend becomes net of tax, and ROAS is revenue divided by that smaller net spend.