Design details: Non-deductible VAT
Non-deductible value-added tax (VAT) is the VAT that's payable by a purchaser, but that isn't deductible from the purchaser's own VAT liability. Because it can be difficult to know where and how an item is used, you must contact the local tax authorities in your country or region to determine whether a specified percentage of the VAT is deductible. Even when you know that a specific percentage of the VAT isn't deductible, there are different models for handling non-deductible amounts as they are related to items and fixed assets.
Prerequisites for using non-deductible VAT
To use and post non-deductible VAT, follow these steps.
- On the VAT Setup page, select Enable Non-Deductible VAT to enable the feature.
- On the VAT Posting Setup page, select which VAT posting groups can use non-deductible VAT.
Examples
For the following examples, non-deductible VAT is enabled, and the following setup is completed:
The VAT Product Posting Group field is set to NDVAT.
On the VAT Posting Setup page:
- NDVAT is set as the VAT product posting group, and DOMESTIC is set as the VAT business posting group.
- The VAT Identifier value must be unique.
- The VAT % field is set to 25.
- The Allow Non-deductible VAT field is set to Allow.
- The Non-deductible VAT % field is set to 100.
- The VAT Calculation Type field is set to Normal VAT.
- Only the sales VAT account and purchase VAT account are configured.
All the examples use items and fixed assets where the VAT product posting group is NDVAT.
Items
A new item has NDVAT set as the VAT product posting group. In the purchase document, Quantity = 1 and Direct Unit Cost Excl. VAT = 1,000.00.
Regardless of the option that's used, the results in the VAT entry are the same.
| Document Type | Type | Base | Amount | Non-Deductible VAT Base | Non-deductible VAT Amount |
|---|---|---|---|---|---|
| Invoice | Purchase | 0.00 | 0.00 | 1,000.00 | 250.00 |
The details are shown in the Value Entries.
Note
You can enable the Use for Item Cost field on the VAT Setup page.
Use for Item Cost isn't enabled
| Item Ledger Entry Type | Entry Type | Cost Amount (Actual) | Item Ledger Entry Quantity |
|---|---|---|---|
| Purchase | Direct Cost | 1,000.00 | 1 |
Use for Item Cost is enabled
| Item Ledger Entry Type | Entry Type | Cost Amount (Actual) | Item Ledger Entry Quantity |
|---|---|---|---|
| Purchase | Direct Cost | 1,250.00 | 1 |
Fixed assets
A new fixed asset has the acquisition cost account set to use NDVAT as the VAT product posting group. In the purchase document, Quantity = 1 and Direct Unit Cost Excl. VAT = 1,000.00.
Regardless of the option that's used, the results in the VAT entry are the same.
| Document Type | Type | Base | Amount | Non-Deductible VAT Base | Non-deductible VAT Amount |
|---|---|---|---|---|---|
| Invoice | Purchase | 0.00 | 0.00 | 1,000.00 | 250.00 |
The details are shown in the Fixed Asset Ledger Entries.
Note
You can enable the Use for Fixed Asset Cost field on the VAT Setup page.
Use for Fixed Asset Cost isn't enabled
| Document Type | FA Posting Type | Amount | VAT Amount |
|---|---|---|---|
| Invoice | Acquisition Cost | 1,000.00 | 250.00 |
Use for Fixed Asset Cost is enabled
| Document Type | FA Posting Type | Amount | VAT Amount |
|---|---|---|---|
| Invoice | Acquisition Cost | 1,000.00 | 250.00 |
| Invoice | Acquisition Cost | 250.00 | 0.00 |
See also
Set up non-deductible VAT
Finance
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