Setting up tax exemptions

Transactions with specific business partners, involving specific goods, and/or with their origin or destination in certain countries or areas, can be exempt from tax. Sales invoices for transactions that are exempt from tax must have zero tax amounts.

Some enterprises are exempt from destination sales tax within the jurisdiction of certain tax authorities. Invoices for sales to a customer with a valid tax exemption must have zero tax amounts. If your business is exempt from sales tax, your suppliers must not include the tax amount on their invoices.

To an organization that is exempt from tax, the tax authorities supply a tax exemption certificate. You must register the tax exemption certificate numbers of your sold-to business partners. To supply your tax exemption certificate number to your buy-from business partners, you must print the certificate number on the purchase orders.

If you have one or several direct pay certificates, you can set up the direct pay tax in the same way as tax exemptions.

Tax exemptions if you use a tax provider

The use of a tax provider has the following effect on the tax exemption setup:

  • Sales orders
    If you use a tax provider, do not set up tax exemptions for sales orders. The tax provider takes care of the sales tax exemptions.
  • Purchase orders
    If you use a tax provider, you can set up tax exemptions for purchase orders. LN passes on this information to the tax provider.

In the Tax Exceptions by Country (tctax1100m000) or the Tax Exceptions by Country Set (tctax1101m000) session, you can define exempt tax codes for purchase orders. and specify your company's tax exemption certificates. For every tax exemption certificate, you must specify the effective date, the expiry date, and the exempt reason.

If you use a tax provider, you can define exempt tax codes and specify tax exemption certificates for purchases by country and state/province. If you do not use a tax provider, you can specify tax-exemption certificate numbers by country and tax code.

Tax exemption details

In many countries, one or several of the following details must be printed on orders, invoices, and reports with an exempt tax code:

  • Tax exemption certificate number
    To print tax exemption certificate numbers and direct pay certificate numbers on orders and invoices, select the Print Tax Exemption check box for the tax country in the Countries (tcmcs0110s000) session.
  • Reference to tax law article

    To print the reference to the tax law article on invoices, link the text to the tax code. For details, refer to Printing tax articles on invoices.

    If you are exempt from tax, and the tax code is used on purchase orders, LN prints the text on the purchase order acknowledgements.

  • Tax exempt reason
    The exempt reason indicates why the sold-to business partner is exempt from tax. If you specify an exempt reason in the Tax Exceptions by Country (tctax1100m000) or the Tax Exceptions by Country Set (tctax1101m000) session, LN automatically prints the reason description on the sales invoice.
Tax exemption setup methods

In the Tax Parameters (tctax0100m000) session, you must select a tax exemption setup method. Two methods are available:

  • Limited
    Use the Limited method to specify the exempt tax codes for various order types for a country. For orders for which you select the Tax Exempt check box in the order header, LN uses the exempt tax code.
  • Extended
    Use the Extended method to set up tax exemption for specific business partners or orders with specific order details, and enter the exempt certificate number or direct pay certificate number and the exempt reason. If you use the Extended method, LN determines whether the exempt tax code applies to an order.

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