Overview of tax handling

Tax handling in LN consists of the following processes:

• Tax registration

  Tax registration consists of the calculation and posting of the tax amounts for taxable transactions.

  The tax registration setup defines the way LN calculates and posts tax amounts. The LN tax handling setup is very flexible and detailed so that for most situations and types of transactions, the default tax rates and the calculated tax amounts are correct. For details, refer to Setting up tax registration.

• Tax declarations

  Processing a tax declaration consists of preparing and submitting the tax declaration to the tax authorities, and paying the due amounts to the collection office. For each type of tax declaration, you must define a tax declaration master.

  For details, refer to Composing a tax declaration and Processing tax declarations.

  In some countries, you must submit the tax declaration through electronic transfer of the declaration file to the collection office. For details, refer to Automatic transfer of tax declarations.

Tax systems

LN distinguishes the following types of tax systems:

• Sales tax, which is also called Destination Sales Tax or Sales and Use Tax.
• Value added tax (VAT).

Value added tax can be combined with withholding tax.

For all types of tax, you can define exceptions and exemptions.

For all types of tax, you must define tax codes. For details, refer to Using tax codes.

To determine the tax rates for transactions and invoice lines to which tax applies, LN uses the tax code and the tax country. Among other details, LN compares the financial company's home country with the buy-from or the sold-to country of the order to determine whether domestic tax, or import or export tax applies to a transaction.

Sales tax

Sales tax is a kind of tax to be paid on goods and services when they are delivered to the consumer. The party that delivers the end product to the customer is liable for paying the tax. The destination location determines to which authorities the tax must be paid.

In North America and Canada, sales tax usually must be paid to the tax jurisdictions with authority over the location where the goods or services are received or consumed. If the point of origin and the destination location reside in different jurisdictions, sales tax applies. In many cases, multiple jurisdictions have authority over the same location. You can use a tax provider to calculate the various tax amounts. For details, see Sales tax.

1099-MISC income tax

In the United States, the Internal Revenue Service (IRS) is the government agency responsible for enforcing the tax regulations. 1099-MISC is one of the types of revenue included, and certain supplier payments are subject to reporting under these regulations.

You can set up 1099-MISC payment reporting. For details, refer to 1099-MISC reporting.

Value added tax

Value added tax is an indirect percentage tax to be paid on all goods an services supplied either to the consumer or to other businesses, for example, on final products delivered to a distributor or dealer, and on intermediary products delivered to a manufacturer. The place of supply determines to which authorities the tax must be paid.

Organizations that use value added tax must usually apply two sets of tax rates:

• Domestic tax rates for sales and purchase transactions within the home country.
• Tax rates for import and export transactions.

Organizations that are based in EU countries must also report their transactions with other EU member countries. For details, refer to EU transaction reporting.

You can set up value added tax as described in Setting up tax registration.

LN also supports the following special types of value added tax:

• Consumption tax

  Consumption tax is a form of value added tax to which specific rules apply. This type of tax is levied in Japan. For details, refer to Consumption tax.

• Stamp tax

  If you use trade notes, in some countries you must pay stamp tax on trade notes. Stamp tax is a type of tax that is imposed on trade notes. Stamp tax consists of a fixed amount instead of a percentage. Depending on the country of your company, if you issue trade notes you can be obliged to pay stamp tax on the trade note.
• To minimize the amount of stamp tax to be paid, you can divide the amount payable of a trade note. Instead of issuing one trade note for the entire amount, LN generates multiple trade notes that together cover the amount. For details, refer to Stamp tax.

• Tax on freight orders

  For freight order lines and for freight invoices, LN supplies the default tax country and tax code. In all cases, you can manually change the tax country and the tax code if this is required. For details, refer to Tax codes for freight orders.

Withholding income tax and social contributions

In many countries, in specific situations, companies are legally required to retain payable income tax and/or social contributions from the payments of purchase invoices, and pay the amount directly to the tax collector’s office. For example, withholding income tax and social contributions can apply to services provided by subcontracting companies, employment agencies, and self employed workers.

For details, refer to Withholding tax and social contributions.

If you must pay stamp tax on trade notes, you can set up stamp tax as described in Stamp tax.