Setting Up to Calculations and Posting Methods for Value-Added Tax

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

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

You can set up GST calculations manually, but that can be tricky and time consuming. To make it easy, we provide an assisted setup guide named VAT Setup that will help you with the steps. We recommend that you use the assisted setup guide to set up GST.

Note

You can use the guide only if you have created a My Company, and have not posted transactions that include GST. Otherwise, it would be very easy to use different GST rates by mistake, and make GST-related reports inaccurate.

If you want to set up GST calculations yourself, or just want to learn about each step, this topic contains descriptions of each step.

To use the GST Setup assisted setup guide to set up GST (recommended)

We recommend that you use the VAT Setup assisted setup guide to set up VAT in Dynamics NAV.

To start the assisted setup guide, follow these steps:

1. Choose the icon, enter Assisted Setup.
2. Choose VAT Setup.

To set up GST business posting groups

GST business posting groups should represent the markets in which you do business with customers and vendors, and define how to calculate and post GST in each market. Examples of VAT business posting groups are Domestic and European Union (EU).

Use codes that are easy to remember and describe the business posting group, such as EU, Non-EU, or Domestic. The code must be unique. You can set up as many codes as you need, but you cannot have the same code more than once in a table.

To set up a GST business posting group, follow these steps:

1. Choose the icon, enter VAT Business Posting Group, and then choose the related link.
2. Fill in the fields as necessary.

You set up default GST business posting groups by linking them to general business posting groups. Dynamics NAV automatically assigns the VAT business posting group when you assign the business posting group to a customer, vendor, or general ledger account.

To set up GST product posting groups

GST product posting groups represent the items and resources you buy or sell, and determine how to calculate and post GST according to the type of item or resource that is being bought or sold.
It is a good idea to use codes that are easy to remember and describe the rate, such as NO-VAT or Zero, VAT10 or Reduced for 10% VAT, and VAT25 or Standard for 25%.

To set up a GST business posting group, follow these steps:

1. Choose the icon, enter VAT Product Posting Groups, and then choose the related link.
2. Fill in the fields as necessary.

To combine GST posting groups in GST posting setups

Dynamics NAV 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 GST percent, GST calculation type, and general ledger accounts for posting GST for sales, purchases, and reverse charges. You can also specify whether to recalculate GST 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.

To combine GST posting setups, follow these steps:

1. Choose the icon, enter VAT Posting Setup, and then choose the related link.
2. Fill in the fields as necessary.

To assign GST posting groups by default to multiple entities

If you want to apply the same VAT posting groups to multiple entities, you can set up Dynamics NAV to do so by default. There are a couple of ways to do this:

• You can assign GST business posting groups to general business posting groups, or customer or vendor templates
• You can assign GST product posting groups on general product posting groups

The GST business or product posting group is assigned when you choose a business or product posting group for a customer, vendor, item, or resource.

To assign GST posting groups to individual accounts, customers, vendors, items, and resources

The following sections describe how to assign GST posting groups to individual entities.

To assign GST posting groups to individual general ledger accounts

1. Choose the icon, enter Chart of Accounts, and then choose the related link.
2. Open the G/L Account card for the account.
3. On the Posting FastTab, in the Gen. Posting Type field, choose either Sale or Purchase.
4. Choose the GST posting groups to use for the sales or purchase account.

To assign GST business posting groups to customers and vendors

1. Choose the icon, enter Customer or Vendor, and then choose the related link.
2. On the Customer or Vendor card, expand the Invoicing FastTab.
3. Choose the GST business posting group.

To assign GST product posting groups to individual items and resources

1. Choose the icon, enter Item or Resource, and then choose the related link.
2. 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.

3. Choose the GST product posting group.

To set up clauses to explain the use of non-standard GST rates

You set up a GST clause to describe information about the type of GST that is being applied. The information may be required by government regulation. After you set up a GST clause, and associate it with a GST posting setup, the GST clause is displayed on printed sales documents that use the GST posting setup group.

If needed, you can also specify how to translate GST clauses to other languages. Then, when you create and print a sales document that contains a GST identifier, the document will include the translated GST clause. The language code specified on the Customer card determines the language.

You can modify or delete a GST clause, and your modifications will be reflected in a generated report. However, Dynamics NAV does not keep a history of the change. On the report, the GST clause descriptions are printed and displayed for all lines in the report alongside the GST amount and the GST base amount. If a GST clause has not been defined for any lines on the sales document, then the whole section is omitted when the report is printed.

To set up GST clauses

1. Choose the icon, enter VAT Clauses, and then choose the related link.
2. On the VAT Clauses page, create a new line.
3. In the Code field, enter an identifier for the clause. You use this code to assign the clause to GST posting groups.
4. In the Description field, enter the text that you want to display on documents that can include VAT. In the Description 2 field, enter additional text, if needed. The text displays on new lines.
5. Optional: To assign the VAT clause to a VAT posting setup right away, choose Setup, and then choosing the clause. If you want to wait, you can assign the clause later on the GST Posting Setup page.
6. Optional: To specify how to translate the VAT clause, choose the Translations action.

To assign a GST clause to a GST posting setup

1. Choose the icon, enter VAT Posting Setup, and then choose the related link.
2. In the VAT Clause column, choose the clause to use for each VAT posting setup it applies to.

To specify translations for GST clauses

1. Choose the icon, enter VAT Clauses, and then choose the related link.
2. Choose the Translations action.
3. In the Language Code field, choose the language you are translating to.
4. In the Description and Description 2 fields, enter the translations of the descriptions. This text displays in the translated GST report documents.

To create a GST posting setup to handle Import GST

You use the Import GST feature when you need to post a document where the entire amount is GST. You will use this if you receive an invoice from the tax authorities for GST for imported goods.

To set up codes for import GST, follow these steps:

1. Choose the icon, enter VAT Product Posting Groups, and then choose the related link.
2. On the GST Product Posting Groups page, set up a new GST product posting group for import GST.
3. Choose the icon, enter VAT Posting Setup, and then choose the related link.
4. On the GST Posting Setup page, create a new line, or use an existing GST business posting groups in combination with the new GST product posting group for import GST.
5. In the VAT Calculation Type field, choose Full VAT.
6. In the Purchase VAT Account field, enter the general ledger account to use for posting import VAT. All other accounts are optional.

To verify Exemption Certification numbers

It is important that the VAT registration numbers you have for customers, vendors, and contacts are valid. For example, companies sometimes change their tax liability status, and in some countries tax authorities might ask you to provide reports, such as the EC Sales List report, that list the VAT registration numbers you use when you do business.

The European Commission provides the VIES VAT Number Validation service on its website, which is public and free. Dynamics NAV can save you a step and let you use the VIES service to validate and track VAT numbers for customers, vendors, and contacts straight from the customer, vendor, and contact cards. The service in Dynamics NAV is named EU VAT Reg. No. Validation Service. The service is available on the Service Connections page, and you can start using it right away. The service connection is free, and signup is not required.

Note

To enable the EU VAT Reg. No. Validation Service, you must have administrator permissions.

When you use our service connection, we record a history of VAT numbers and verifications for each customer, vendor, or contact, in the VAT Registration Log, so you can easily track them. The log is specific to each customer. For example, the log is useful for proving that you have verified that the current GST number is correct. When you verify a VAT number, the Request Identifier column in the log will reflect that you have taken action.

You can view the GST Registration log on the Customer, Vendor, or Contact cards, on the Invoicing FastTab, by choosing the lookup button in the Exemption Certification No. field.

Our service can also save you time when you create a customer or vendor. If you know the customer's GST number, you can enter it in the Exemption Certification No. field on the Customer or Vendor cards, and we will fill out the customer name for you. Some countries also provide company addresses in a structured format. In those countries, we fill in the address too.

Note

There are a couple of things to note about the VIES VAT Number Validation service:

• The service uses the http protocol, which means that data transferred through the service is not encrypted.
• You may experience downtime for this service for which Microsoft is not responsible. The service is part of a broad EU network of national VAT registers.

Using Reverse Charge GST for Trade between EU Countries or Regions

Some companies must use reverse charge GST when trading with other companies. For example this rule applies to purchases from EU countries/regions and sales to EU countries/regions.

Note

This rule applies when trading with companies that are registered as GST liable in another EU country/region. If you do business directly with consumers in other EU countries/regions, then you should contact your tax authority for applicable GST rules.

Tip

You can verify that a company is registered as VAT liable in another EU country by using the EU VAT Registration Number Validation service. The service is available for free in Dynamics NAV. For more information, see the section titled Verify VAT registration numbers in this topic.

Sales to EU countries or regions

GST is not calculated on sales to GST-liable companies in other EU countries/regions. You must report the value of these sales to EU countries/regions separately on your GST statement.

To correctly calculate GST on sales to EU countries/regions, you should:

• Set up a line for sales with the same information for purchases. If you have already set up lines on the VAT Posting Setup page for purchases from EU countries/regions, then you can also use these lines for sales.
• Assign the GST business posting groups in the GST Bus. Posting Group field on the Invoicing FastTab of the customer card of each EU customer. You should also enter the customer's Exemption Certificate number in the Exemption Certificate No. field on the Foreign Trade FastTab.

When you post a sale to a customer in another EU country/region, the GST amount is calculated, and a GST entry is created by using the information about the reverse charge GST and the GST base, which is the amount that is used to calculate the GST amount. No entries are posted to the GST accounts in the general ledger.

Understanding GST rounding for documents

Amounts in documents that are not yet posted are rounded and displayed to correspond with the final rounding of amounts that are actually posted. GST is calculated for a complete document, which means that GST is calculated based on the sum of all lines with the same GST identifier in the document.

Understanding the GST Rate Conversion Process

The GST rate change tool performs GST rate conversions for master data, journals, and orders in different ways. The selected master data and journals will be updated by the new general product posting group or GST product post group. If an order has been fully or partially shipped, the shipped items will keep the current general product posting group or GST product posting group. A new order line will be created for the unshipped items and updated to align current and new GST or general product posting groups. In addition, item charge assignments, reservations, and item tracking information will be updated accordingly.

There are, however, a few things that the tool does not convert:

• Sales or purchase orders and invoices where shipments have been posted. These documents are posted using the current GST rate.
• Documents that have posted prepayment invoices. For example, you have made or received prepayments on invoices that have not been completed before you use the GST rate change tool. In this case, there will be a difference between the GST that is due and the GST that has been paid in the prepayments when the invoice is completed. The GST rate change tool will skip these documents and you will have to manually update them.
• Drop shipments or special orders.
• Sales or purchase orders with warehouse integration if they are partially shipped or received.
• Service contracts.

To prepare GST rate change conversions

Before you set up the GST rate change tool, you must make the following preparations.

• If you have transactions that use different rates, then they must be separated into different groups either by creating new general ledger accounts for each rate or by using data filters to group transactions according to rate.
• If you create new general ledger accounts, then you must create new general posting groups.
• To reduce the number of documents that get converted, post as many documents as possible and reduce unposted documents to a minimum.
• Back up data.

To set up the GST rate change tool

1. Choose the icon, enter GST Rate Change Setup, and then choose the related link.
2. On the Master Data, Journals, and Documents FastTabs, choose a posting group value from the option list for needed fields.

To set up product posting group conversion

1. Choose the icon, enter GST Rate Change Setup, and then choose the related link.
2. On the GST Rate Change Setup page, on the Home tab, in the Process group, choose either GST Prod. Posting Group Conv. or Gen Prod. Posting Group Conv..
3. In the From Code field, enter the current posting group.
4. In the To Code field, enter the new posting group.

To perform GST rate change conversion

You use the GST rate change tool to manage changes in the standard rate of GST. You perform GST and general posting group conversions to change GST rates and maintain accurate GST reporting. Depending on your setup, the following changes are made:

• GST and general posting groups are converted.
• Changes are implemented in general ledger accounts, customers, vendors, open documents, journal lines, and so on.

Important

Before you perform GST rate change conversion, you can test the conversion. To do so, follow the steps below, but make sure to clear the Perform Conversion and GST Rate Change Tool Completed check boxes. During test conversion, the Converted field in the GST Rate Change Log Entry table is cleared and the Converted Date field in the GST Rate Change Log Entry table is blank. After the conversion is complete, choose GST Rate Change Log Entries to view the results of the test conversion. Verify each entry before you perform the conversion. In particular, verify transactions that use an old GST rate.

1. Choose the icon, enter GST Rate Change, and then choose the GST Rate Change Setup link.
2. Verify that you have already set up the GST product posting group conversion or general product posting group conversion.
3. Choose the Perform Conversion check box.

Important

>  Clear the **GST Rate Change Tool Completed** check box. The check box is automatically selected when the GST rate change conversion is completed.  

4. Choose the Convert action.
5. After the conversion is complete, on the Home tab, in the Process group, choose GST Rate Change Log Entries to view the results of the conversion.

Important

After the conversion, the Converted field in the GST Rate Change Log Entry table is chosen and the Converted Date field in the GST Rate Change Log Entry table displays the conversion date.

See Also

Setting Up Unrealized Value Added Tax
How To: Report GST to a US Tax Authority
How to: Work with GST on Sales and Purchases