Compensating VAT Invoice

VAT payers must calculate compensating VAT liabilities when goods, services, or fixed assets purchased or produced with VAT are intended for use or begin to be used in operations that:

• are not subject to taxation under Article 196 of the Tax Code of Ukraine or whose place of supply is outside the customs territory of Ukraine;
• are exempt from taxation under Article 197 of the Tax Code of Ukraine, Section 2 of Chapter XX of the Tax Code, or international treaties;
• are transferred for non-production use, or production fixed assets are reclassified as non-production fixed assets;
• are not the VAT payer's business activity.

Requirements:

• If a consolidated VAT invoice is issued under subparagraph 198.5 of the Tax Code of Ukraine, compensating liabilities are calculated on the full amount of input VAT. Under Order No. 1307, such invoices must have the consolidated VAT invoice indicator code 1.
• If a consolidated VAT invoice is issued under subparagraph 199.1 of the Tax Code of Ukraine, compensating liabilities are calculated on the share of use of purchased goods/services/fixed assets in non-taxable operations. Under Order No. 1307, such invoices must have the consolidated VAT invoice indicator code 2.

For consolidated VAT invoices with indicator code 1 or 2:

• in the "Recipient (Buyer)" field, enter the actual name;
• in the "Taxpayer Identification Number of recipient (buyer)" field, enter the conditional VAT Registration No. 600000000000;
• the buyer tax ID and the tax ID source code are not filled in.

In the "Not provided to the recipient (buyer) because" field, mark × and specify the reason type:

• 04 – issued for supply within the balance for non-production use;
• 08 – issued for supply for operations that are not subject to VAT;
• 09 – issued for supply for operations that are exempt from VAT;
• 13 – issued in connection with the use of production or non-production means, other goods/services not in business activity.

Section B of the table part of a consolidated compensating VAT invoice issued with reason type 04, 08, or 09 is filled out as follows:

• column 2 contains the dates and serial numbers of purchase VAT invoices used to determine compensating liabilities;
• columns 3.1, 3.2.1, 3.2.2, 3.3, and 5–9 are not filled in (no zeros or dashes);
• column 4 contains "UAH";
• column 10 contains the value (or part of the value) of the goods/services/fixed assets subject to VAT calculation under subparagraph 198.5 or 199.1 of the Tax Code of Ukraine at the main rates of 20%, 14%, or 7%; column 11 contains the VAT amount.

For reason type 13, column 2 must include, along with the date and serial number of the purchase VAT invoice used to determine compensating liabilities, a description of the supplier's goods/services.

Required settings

1. On the VAT Business Groups page, create groups with the following settings:

Field	Description
VAT Registration No.	Enter the conditional value 600000000000.
VAT to Unit Cost	Set 100% VAT to prime cost for groups whose VAT invoices must contain consolidated invoice indicator code 1 for compensating liabilities under subparagraph 198.5 of the Tax Code of Ukraine.
VAT to Unit Cost	Set VAT allocation % for groups whose VAT invoices must contain consolidated invoice indicator code 2 for compensating liabilities under subparagraph 199.1 of the Tax Code of Ukraine.

2. On the VAT Posting Setup page, for the intersection of the VAT business group created for compensating liabilities and the VAT item group, specify a value in the Reason for non-issuance of VAT invoice field.
3. On the VAT Invoice Keeping Reasons page, set the following options for each code:

• For reason types 04, 08, 09: enable Unit of Measure from setup. In this case, the line of the compensating VAT invoice (one line corresponds to one purchase VAT invoice used to determine compensating liabilities) will have the Unit of Measure Code and Unit of Measure values filled in from the setting on the Tax Setup page configured as Unit of Measure Code for Services.
• For reason type 13: enable Fill fields from the vendor's VAT invoice. The lines of the compensating VAT invoice will correspond to the lines of the purchase VAT invoice used to determine compensating liabilities, and the fields Description, Description 2, Extended Description, Quantity, Customs Category Code / UKTZED code, Imported item, Agricultural item, Price Excl. VAT, and Price Incl. VAT will be filled based on the purchase VAT invoice.

4. Specify the share of use for goods/services and fixed assets on the Tax Periods page in the Annual VAT Allocation Ratio field (entered as a coefficient). The period for determining the share of use corresponds to the posting date of the purchase VAT invoice for which the VAT business group is specified in the VAT Group for Compensating Liabilities field (for a group where VAT to Unit Cost = VAT allocation %).

5. To increase the initial cost of goods/services/fixed assets by the amount of compensating liabilities, specify a general business group on the Tax Setup page in the Gen. Bus. Group for VAT revaluation field and add a general posting setup for that group. Cost adjustment entries will be created in purchase document accounting if the purchase document specifies the corresponding VAT Group for Compensating Liabilities.

6. To specify what share of the tax credit for the purchase of “dual-use” items will be included in TC, the Share of Use is determined in the tax periods for each period. To do this, specify the required value in the Annual VAT Allocation Ratio field of the Tax Periods page.

Creating a consolidated compensating VAT invoice

At the end of a reporting period, create a VAT invoice using the Create Compensating VAT Invoice task, which processes posted purchase VAT invoices:

1. Select the icon, enter Create Compensating VAT Invoice, and then choose the related link.
2. On the Create Compensating VAT Invoice page, fill in the fields listed below:

Field	Description
Start Date	Enter the start date of the period for which the VAT invoice must be generated.
End Date	Enter the end date of the period for which the VAT invoice must be generated.
Filter Purch. VAT Inv. by	Specify the type of document date that will be processed by the batch job.
VAT Business Posting Group Filter	Select the group used to generate the VAT invoice for ourselves. This can be the group for compensating liabilities caused by the use of items/services/non-inventory items in non-economic activities, the group for items/services/non-inventory items and fixed assets of “dual use”, or the group for items/services/non-inventory items and fixed assets used in non-taxable operations.
VAT Inv.Keeping Reason	Select the reason for non-issuance of VAT invoice for which compensating VAT liabilities will be calculated.

3. Click OK.

Compensating VAT Invoice with the reason type “13”

To generate a VAT Invoice with reason type 13, enable the “Fill fields from the vendor's VAT invoice” option in the “VAT Invoice Keeping Reasons” directory. When this option is enabled, the Description, Description 2, Extended Description, Unit of Measure Code, Customs Category Code, Quantity and Price Incl. VAT fields of the VAT Invoice are filled out with data from the Posted purchase VAT invoice.

Note

The amount of VAT tax liabilities in a VAT invoice for items/services/non-inventory items and fixed assets of “dual use” equals the sum of Non Tax Credit Base VAT Amount and Non Tax Credit VAT Amount fields of the Purchase VAT Invoice.

Creating a VAT invoice from an Inventory Shipment

According to subparagraph 198.5 of the Tax Code of Ukraine, a VAT payer must calculate VAT liabilities based on the tax base determined under subparagraph 189.1 of the Tax Code of Ukraine and prepare, no later than the last day of the reporting (tax) period, a consolidated VAT invoice for goods/services/fixed assets purchased or produced with VAT when these goods/services/fixed assets are intended for use or begin to be used in operations that are not the VAT payer's business activity.

Therefore, when inventory is written off, a consolidated VAT invoice must be created with reason type 13 – issued in connection with the use of production or non-production means, other goods/services not in business activity.

Sequence of actions

1. Create and post an Inventory Shipment document, specifying the configured VAT business group for compensating liabilities in the VAT Business Group field and using the Split lines by application function to populate the purchase VAT invoice information in the Inventory Shipment lines. For details, see Inventory Shipment (Write-off). As a result, the purchase VAT invoice data is filled in the Inventory Shipment lines: Vendor No., Purchase VAT Invoice No., Purchase VAT Invoice Line No., and, for imported goods, the customs declaration dates and numbers. If an item was purchased without VAT, the line is automatically marked Exclude from VAT Invoice and will not be included in the created VAT invoice.
2. Select the icon, enter Posted Inventory Shipments, and choose the corresponding link.
3. Open the required posted Inventory Shipment and choose the Create VAT Invoice action.
4. The created VAT invoice may vary depending on the value of the VAT Inv.Keeping Reason field. In particular, if reason 13 is set and the Fill fields from the vendor's VAT invoice option is enabled for that reason, the invoice lines are generated based on the purchase VAT invoice data associated with the corresponding Inventory Shipment line. The line description additionally includes the purchase VAT invoice number and date, or, for imported goods, the customs declaration number and date. If the UOM from Setup flag is enabled, the unit of measure in the tax invoice is automatically taken from the Service Unit of measure Code field in VAT Setup (Ukraine).
5. To view the created VAT invoice, open the Created Sales VAT Invoices list.

When creating a corrective Inventory Shipment, the Correction flag must be set. This prevents compensating VAT invoices from being generated, even if the Automatic VAT invoices option is enabled in the VAT Business Posting Groups.

See Also

VAT Posting Setup
Creating Purchase VAT Invoices