1. Select Properties => Taxes from the menu
2. Follow the steps in the diagram below from 1 through 5
3. On the next window it shows the tax and the countries it applies to. It will show Prices include tax which applies to the European union (however there are exceptions)
4. Click the Finish button
5. Now make sure the checkbox "apply tax on products to shipping and handling charges" unless you specifically do not want tax to apply on shipping (always check with your tax office or accountant if you are unsure)
6. Now Tax will apply to the EU and no Tax will apply to any regions outside the EU. So for for example, Tax will apply to Germany but will not apply to Australia. ShopFactory does this automatically at checkout for you.