Calculating Value-Added Tax Information

After VAT information is set up in the system, VAT is recognized at the time of payment for service invoices, and at the time of invoicing for merchandise invoices. For PO vouchers, VAT is recognized when the voucher is submitted for payment. VAT for manual journal entries is also recognized.

VAT amounts paid are placed into the appropriate A/P or A/R tax account at the rate specified by the assigned tax code. Upon bank reconciliation of the payment or deposit, the system determines the VAT amount to transfer after bank reconciliation. The VAT amount is then transferred to either the VAT A/R Received Account or VAT A/P Paid Account. The VAT is paid to the taxing authority from this account.

Setup

See Setting Up Tax Information for the VAT Report.

Processing VAT

For A/R, after you reconcile a deposit on the Bank Reconciliations form, the system:

  • Calculates the VAT amount to be transferred.
  • Creates journal entries by debiting the A/R tax account with the calculated VAT amount and crediting the VAT A/R Received Account.
  • Transfers the VAT amount from the A/R tax account to the VAT A/R Received Account.

For A/P, after you reconcile a payment on the Bank Reconciliations form, the system:

  • Calculates the VAT amount to be transferred.
  • Creates journal entries by crediting A/P  tax account with the VAT amount and debiting the VAT A/P Paid Account.
  • Transfers the VAT amount from the A/P tax account to the VAT A/P Paid Account.

The system automatically updates A/P payments during bank reconciliation. However, the system does not automatically update A/R deposits during bank reconciliation. Customer A/R deposits must be manually entered on the Bank Reconciliations form.

Organizing VAT Information for Reporting to Tax Authorities

EU VAT reporting information is generated through these forms:

  • VAT Report, which is used to sort and display accounts, categories, and VAT amount information that must be included on EU VAT tax return documents
  • EU VAT Report, which is an alternative to the VAT Report
  • EU Sales List Report, also known as the EC Sales List Report
  • EU Supplementary Statistical Declaration (SSD) Report, also known as the Intrastat Report

These reports detail intra-EU trade only.

Verifying Customer and Vendor VAT Numbers

For customers or vendors in European Union countries, you can enter the customer or vendor VAT number in the [Tax ID Label 1] field on the Customers, Customer Ship-Tos, or Vendors form. The EU mandates that all VAT numbers must be verified yearly.

Click the validation button next to the [Tax ID Label 1] field to pass the specified VAT number to the VAT Information Exchange System, which verifies that the number is valid for each EU member. A success or failure message is returned, and the date when the verification expires is stored in the customer table. When the validation is successful and you save the record, all customer ship-to records with the same VAT number, EU code and tax code are also updated with the new date.

The icon next to the button indicates whether the VAT number has been verified within the last year (green check mark) or needs to be verified (red X).

These forms determine if a customer's VAT number is valid at the time of an order due date or shipment date:

  • Customer Order Lines
  • Customer Order Blanket Releases
  • Customer Orders Quick Entry
  • EDI Customer Order Lines
  • EDI Customer Order Blanket Releases
  • Order Shipping
  • Shipment Master

If the number is not valid at the ship date/due date, a warning message is displayed. However, you are still allowed to ship the order.

Purging VAT Transactions

Run the Bank Reconciliation - Compression utility occasionally to purge transactions related to deposits.

Related topics