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Proportional VAT in Norway

Business Central allows you to calculate VAT when there's both deductible and non-deductible VAT. Because it's difficult to know where and how an item is used, you must contact the Norwegian tax authorities to determine whether a specified percentage of the VAT is deductible based on historical data.

Example

A bus company owns both buses and trucks. When gasoline is purchased, the gasoline is stored in one holding tank. When the gasoline is used in a bus for transporting children, it isn't deductible. When the gasoline is used in a truck, the gasoline may be deductible. The agreement between the bus company and the Norwegian tax authorities might be that 60 percent of the VAT is deductible.

If you have a purchase invoice of $12,500 based on 25 percent VAT with the Calc. Prop. Deduction VAT field on the VAT Posting Setup page set to Yes and the Proportional Deduction VAT % field set to 60 percent, only 60 percent of the VAT is deductible in a journal. When the invoice is posted, the postings are as follows:

  • To vendor general ledger account - $12,500 (credit)
  • To cost account 4010 - $11,000 (debit)
  • To VAT account 2720 - $1,500 (debit)

Generally, based on 25 percent VAT, the VAT amount would be $2,500. However, only 60 percent is deductible; therefore the VAT amount is $2,500 x 60% = $1,500. The non-deductible amount of $1,000 is added to the cost account. The VAT base has corresponding values. This amount should have been $10,000, but because only 60 percent is deductible, the base is $6,000.

This also works if the transaction with this VAT combination is posted through a purchase order.

Note

If this functionality is used on a purchase order that is used for buying items for inventory, the functionality doesn't influence the cost of the item. The cost of the item is added by using the non-deductible VAT. This works on the general ledger level only.

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