Setting up a reverse charge for vendors on customer invoices

Prerequisites:

  • Select EU Reporting on the General Parameters form.
  • Create an item-based tax system on the Tax Systems form. Country-appropriate options, including Active for Purchasing, should be selected for the tax system.
  1. On the Tax Codes form, create an exempt tax code to use for Reverse Charge Liability with these settings:
    Tax Code
    For example, specify EE.
    Tax Rate
    Specify 0 (zero).
    Tax Code Type
    Select Exemption.
    Description
    Specify a description such as Reverse Charge Liability.
    Category
    Select EU Sales. The VAT Report is sorted by category.

    See About EU VAT Reporting Categories and Generating the VAT Report.

    Accounts and VAT Accounts
    Set the appropriate tax accounts.
  2. On the Tax Line Numbers form, tie the new tax code to a specific box in the VAT Report. Specify this information, using the example tax code set above:
    Line Number

    Specify the line number (box) from the VAT advance tax return document. These are the numbered lines on the left side of the tax document. Specify only line numbers where an amount must be entered. For example, specify 41.

    Description
    Specify the description for that line from the tax document. For example, specify EU Sales.
    Effect Year
    Specify the effective year for the tax document that uses these line numbers.
    Tax Type
    Specify the tax type for the line number. For example, specify S (Sales).
    Number for Tax Basis
    If this line number includes an amount entry box in the first column on the tax document, specify the box number here. For example, specify 25.
    Number for Tax
    If this line number displays an amount entry box in the second column on the tax document, specify the box number here. For example, specify 26.
    Tax System
    Specify the tax system associated with the line number. If there is only one tax system, this field is disabled
    Tax Code
    Specify the tax code associated with the line number. For example, specify EE. The customer order line level tax code must be set to the same line number; otherwise the VAT Report will not print anything.
    Note: The line numbers in this form refer to the lines in the fiscal department tax formula. If line numbers are assigned, you can sort the VAT Report by line number to more easily fill in the required fiscal authority reports.
  3. On the Customers and Customer Ship-Tos forms, set the customer’s VAT Code to the tax code you created above (for example, EE).
    Then, when the customer is selected on a customer order, the Tax Code defaults to EE.
  4. Some countries such as Sweden require that you do not charge your customers VAT, and you must print Reverse Charge Liability on the invoice.
    You can make this happen by setting up an external-type note attached to the customer or ship-to record that says "Reverse Charge Liability." By default, customer notes are printed on the standard and detail invoice templates. So when you generate a sales invoice that includes reverse charge liability, the note is included.