VAT Entries

Consumers and businesses pay value-added tax (VAT) when they purchase goods or services. The amount of VAT to pay can vary, depending on several factors. In Business Central, you set up VAT to specify the rates used to calculate tax amounts based on the following parameters:

• Who you sell to,
• Who you buy from,
• What you sell.
• What you buy.

General Ledger Setup

You need to set up the following parts in General Ledger Setup under VAT heading:

VAT Posting Setup

Business Central calculates VAT amounts on sales and purchases based on VAT posting setups, which are combinations of VAT business and product posting groups. For each combination, you can specify the VAT percent, VAT calculation type, and general ledger accounts for posting VAT for sales, purchases, and reverse charges. You can also specify whether to recalculate VAT when a payment discount is applied or received.

Set up as many combinations as you need. If you want to group VAT posting setup combinations with similar attributes, you can define a VAT Identifier for each group, and assign the identifier to the group members.

You need to set up VAT Posting for each possible VAT Business Posting Group and VAT Product Posting Group combination. For Domestic VAT operations, minimum following set up is required:

• Sales VAT Account. Specifies the general ledger account number to which to post sales VAT for the particular combination of VAT business posting group and VAT product posting group.
• Sales VAT Unrealized Account. Specifies the number of the general ledger account to post unrealized sales VAT to.
• Purchase VAT Account. Specifies the general ledger account number to which to post purchase VAT for the particular combination of business group and product group.
• Purchase VAT Unrealized Account. Specifies the number of the general ledger account to post unrealized purchase VAT to.
• VAT %. Vendors shall be created with indication of correct VAT registration type via selection of correct VAT Business Posting Group and VAT Product Posting Group.
• VAT Calculation Type. Specifies how VAT will be calculated for purchases or sales of items with this particular combination of VAT business posting group and VAT product posting group.
• Specifies how to handle unrealized VAT, which is VAT that is calculated but not due until the invoice is paid.

For Foreign VAT operations minimum following set up is required:

• Sales VAT Account. Specifies the general ledger account number to which to post sales VAT for the particular combination of VAT business posting group and VAT product posting group.
• Sales VAT Unrealized Account. Specifies the number of the general ledger account to post unrealized sales VAT to.
• Purchase VAT Account. Specifies the general ledger account number to which to post purchase VAT for the particular combination of business group and product group.
• Purchase VAT Unrealized Account. Specifies the number of the general ledger account to post unrealized purchase VAT to.
• Reverse Charge VAT Account. Specifies the general ledger account number to which you want to post reverse charge VAT (purchase VAT) for this combination of VAT business posting group and VAT product posting group, if you have selected the Reverse Charge VAT option in the VAT Calculation Type field.
• Reverse Charge VAT Unrealized Account. Specifies the number of the general ledger account to post amounts for unrealized reverse charge VAT to.
• VAT %. Vendors shall be created with indication of correct VAT registration type via selection of correct VAT Business Posting Group and VAT Product Posting Group.
• VAT Calculation Type. Specifies how VAT will be calculated for purchases or sales of items with this particular combination of VAT business posting group and VAT product posting group.
• Specifies how to handle unrealized VAT, which is VAT that is calculated but not due until the invoice is paid.

VAT Business Posting Groups

VAT business posting groups should represent the markets in which you do business with customers and vendors, and define how to calculate and post VAT in each market. Examples of VAT business posting groups are Domestic and European Union (EU). You can set up default VAT business posting groups by linking them to general business posting groups. Business Central automatically assigns the VAT business posting group when you assign the business posting group to a customer, vendor, or general ledger account.

You need to create VAT Business Posting Groups at least for the following:

• domestic trade operations,
• foreign trade operations,
• government-related trade operations,
• export operations.

It is important to consider setup variations for VAT non-payers and non-residents.

VAT Product Posting Groups

VAT product posting groups represent the items and resources you buy or sell, and determine how to calculate and post VAT according to the type of item or resource.

It is a good idea to use codes that are easy to remember and describe the rate, such as NO-VAT, Zero VAT, 18% VAT or Full VAT.

You need to create VAT Product Posting Groups at least for the following:

• Purchase and Sales of services with VAT,
• VAT exempted operations,
• customs clearence fee related full VAT,
• purchases and sales operations with zero VAT,
• purchases and sales operations with 18% VAT.

It is important to consider setup variations for VAT Product Posting Groups with each VAT Business Posting Group.

To assign VAT business posting groups to customers and vendors:

• Select the Search icon, enter Customer or Vendor, and then choose the related link,
• On the Customer or Vendor card, expand the Invoicing FastTab,
• Choose the VAT business posting group.

To assign VAT product posting groups to individual items and resources:

Select the Search icon, enter Item or Resource, and then choose the related link, Do one of the following:

• On the Item card, expand the Price & Posting FastTab, and then choose Show More to display the VAT Product Posting Group field,
• On the Resource card, expand the Invoicing FastTab,
• Choose the VAT product posting group.

Also, you need to consider the following:

1. Unrealized VAT and Prepayment Unrealized VAT toggles are enabled.

• Unrealized VAT toggle specifies whether to handle Unrealized VAT, which is VAT that is calculated but not due until invoice is paid.
• Prepayment Unrealized VAT toggle specifies whether to handle Unrealized VAT on prepayments.

2. VAT Date Usage shall be enabled. In the VAT Date Usage field, specify the degree to which you want to use the VAT date feature. For Azerbaijan Localization, the "Enabled" product option is acceptable. This will lead to everything related to VAT Date working by default, giving you the maximum VAT Date functionality. You can set up the date, change it in documents, report based on it, and modify the date after posting as long as the period isn't closed or protected with allowed dates for posting.
3. Default VAT date, which specifies the date used to include entries in VAT reports; in the VAT period, Posting date shall be set.
4. Control VAT Period shall be set to "Block posting within closed and warn for released period". This setting will prevent users from posting a document or journal, or changing VAT entries, that have a VAT date within a closed VAT Return Period. Business Central will also show a warning if your VAT Return Period is open, but the status of VAT Return is Released or Submitted.
5. Bill to / Sell to VAT Calc. This setting specifies where the VAT Bus. Posting Group code in an order or invoice is copied from. Bill-to/Pay-to No.: The VAT Bus. Posting Group code in sales invoices and orders is copied from the Bill-to Customer field. The VAT Bus. Posting Group code in purchase invoices and orders is copied from the Pay-to Vendor field.

To view VAT entries in posted purchase and sales documents, go to Find entries and click VAT entry.