Setting Up VAT

Value-added tax (VAT) is a transaction tax. VAT is paid by the end consumer, including businesses. You will need to set up VAT Posting Groups to be able to specify the VAT percentage the program needs to calculate depending on "who we sell to" or "who we buy from" and "what we sell" or "what we buy."

The principles for setting up VAT Posting Groups, both Business and Product, are similar to those used for setting up General Posting Groups.

Setting up VAT Business Posting Groups

VAT Business Posting Group codes define how VAT is calculated and posted according to the type of customer or vendor involved in the transaction. For example, the VAT Business Posting Group might describe where the customer or vendor is located.

Use codes that are easy to remember and that describe the business group, for example, EU, Non-EU, or Domestic. The code must be unique - you cannot have the same code twice in one table. You can set up as many codes as you like.

Setting up VAT Product Posting Groups

VAT Product Posting Group codes determine calculation and posting of VAT according to the type of item being purchased or the type of item or resource being sold.

Use codes that are easy to remember and that describe the product posting group, for example, No-VAT for miscellaneous without VAT, VAT10 for miscellaneous with 10% VAT, VAT25 for miscellaneous with 25% VAT, and so on.

Entering the VAT Posting Setup Combinations

For each combination, you can fill in the VAT percent, VAT calculation type, and G/L account numbers for posting of VAT related to sales, purchases, and reverse charge VAT. It is also possible to specify for each combination, whether VAT will be recalculated when a payment discount is granted or received. For Help about a specific field, click the field and press F1.

You can enter as many combinations as necessary. If you want to group VAT Posting Setups with similar attributes, you can define a VAT Identifier for each group and assign the identifier to the group members.

Copying VAT Setup

To make the setup process easier, you can copy information from existing lines in the VAT Posting Setup window.

For a new VAT combination setup, follow these steps:

Open the VAT Posting Setup window.
Insert (F3) a new line and enter the VAT Bus. Posting Group, VAT Prod. Posting Group, and VAT Identifier.
Click Copy.
In the Copy - VAT Posting Setup batch job, specify the VAT Bus. Posting Group and VAT Prod. Posting Group of the line you wish to copy from.
Click the All Fields button to copy all fields, or Selected Fields button to select any or all of the following fields: VAT% etc., Sales Accounts, and Purchase Accounts.
Click OK. The program copies the information specified.

Assigning VAT Posting Groups

Reverse Charge VAT for Trade between EU Countries/Regions

Companies in the EU must use Reverse Charge VAT when trading with other companies in the EU.

Note

This rule applies when trading with companies that are registered as VAT liable in another EU country/region. If you do business directly with consumers in other EU countries/regions, you should contact your tax authorities for the applicable VAT rules.

When you post a purchase from a vendor in another EU country/region, VAT must be calculated using the rate applicable in your own country/region. On the VAT statement, the VAT amount is added to the domestic sales VAT and to the domestic purchase VAT. This means the calculated VAT does not affect the VAT payable.

You must report the value of purchases from EU countries/regions (base amount used to calculate purchase VAT) separately on your VAT statement.

In order to have VAT on purchases from EU countries/regions treated correctly in the program, you should:

Set up VAT Bus. Posting Group and VAT Prod. Posting Group combinations with Reverse Charge VAT in the VAT Calculation Type field. The G/L account to which reverse charge VAT will be posted must also be entered in the Reverse Chrg. VAT Account field.
Assign the VAT Bus. Posting Groups in the VAT Bus. Posting Group field on the Vendor Card of each EU vendor. You should also enter the vendor's VAT registration number in the VAT Registration No. field on the Foreign Trade tab.

When you post a purchase from a vendor in another EU country/region, the program calculates the VAT amount, debits the purchase VAT account, and credits the reverse charge VAT account. The program also creates a VAT entry containing the VAT base amount (purchase price before VAT) and specifies the amount is a reverse charge VAT amount.

VAT is not calculated on sales to VAT-liable companies in other EU countries/regions. You must report the value of such sales EU countries/regions separately on your VAT statement.

In order to have VAT on sales to EU countries/regions treated correctly in the program, you should:

Set up a line for sales with the same information as described earlier for purchases. If you have already set up lines in the VAT Posting Setup window for purchases from EU countries/regions, you can also use these for sales.
Assign the VAT Bus. Posting Groups in the VAT Bus. Posting Group field on the Invoicing tab of the Customer Card of each EU customer. You should also enter the customer's VAT registration number in the VAT Registration No. field on the Foreign Trade tab.

When you post a sale to a customer in another EU country/region, the program calculates the VAT amount and creates a VAT entry with the information about the reverse charge VAT and the VAT base (the amount used to calculate the VAT amount). No entries are posted to the VAT accounts in the general ledger.

VAT Rounding for Documents

Amounts in documents that are not yet posted are rounded and displayed in a way that corresponds to the final rounding of amounts that are actually posted. VAT is calculated for an entire document. This means that VAT calculated in the document is based on the sum of all the lines in the document with the same VAT identifier.