HOW TO IMPLEMENT VALUE ADDED TAX (VAT) IN MICROSOFT DYNAMICS 365? (Part 1)

Value Added Tax or VAT is a tax on the consumption or use of goods and services levied at each point of sale. VAT is a form of indirect tax

Dynamics 365 supports many types of indirect taxes, such as sales tax, value-added tax (VAT), goods and services tax (GST), unit-based fees, and withholding tax.

you can check overview here 

 This post discusses setup and transaction 

A- Setup 

The following diagram shows the entities of the tax setup and how they are related

1-Create Vendor  tax authority who collect the VAT

go to accounts payable /vendors/all vendors 

and create a new  vendor account 

complete the information like address and contact information, vendor group,,..etc

2- create sales tax authority

go to TAX / Indirect taxes /Sales tax / Sales tax authorities.

create new tax authority

define authority, name and complete the other information like contact information and addresses

also, select the report layout and setup rounding if you need.

Map the vendor account to the tax authority that we created 

3- Create the sales tax settlement period

go to TAX / Indirect taxes /Sales tax / Sales tax settlment periods.

create new sales tax settlement period, assign the settlement period and description 

Select the authority that we created and select the  period interval units (days /months/year)

don't forget to define period intervals 

complete setup based on your business requirements like the term of payments 

you can find here and here more details 

4-Create the ledger posting groups

TAX / setup /Sales tax / ledger posting groups.

click new to assign ledger posting group and description 

 define your main accounts for ledger posting groups that will be  attached to each sales tax code

5-Create the sales tax code

go to TAX / Indirect taxes /Sales tax / Sales tax codes.

click new to assign sales tax code and name 

select the settlement period, ledger posting group , currency...etc 

Click sales tax Code tab to set values for this Code

click Values 

click new and assign the value for this code 

you can setup value from date to date with minimum and maximum limit

you can check more details about sales tax codes form here  

6-Create the sales tax group

go to TAX / Indirect taxes /Sales tax / Sales tax groups.

create new sales tax group and assign a description 

add the sales tax codes for sales tax group

you can click use tax check box to indicate that your legal entity, not the vendor, is responsible for calculating and paying use tax on the purchase.

for more details about sales tax groups form, click here 

7-Create the item sales tax groups

go to TAX / Indirect taxes /Sales tax / Sales tax groups.

and click new to create the item sales tax group and assign the description 

click to select the item sales tax codes 

7-assign default tax groups for master data (vendors / customers /items)

for vendors 

go to accounts payable /vendors/all vendors 

select the sales tax group under invoice and delivery tab

for customers 

go to accounts receivable /customers /all customers 

select the sales tax group under invoice and delivery tab

for items 

go to product information management /products /released products

assign item sales tax group in purchase tab 

and assign item sales tax group in purchase tab 

setup completed, you can make some transactions to check this setup 

B- Transaction 

I will show examples of transaction like 

1- purchase order

go to accounts payable /purchase order /all purchase order  

and create a new purchase order and complete the required data and check totals

2- Sales order

go to accounts receivables /sales order /all sales order  

and create a new sales order and complete the required data and check totals

3- invoice journal

go to accounts payable /invoices /invoice journal

4- free text invoice 

go to accounts receivables /invoices /all free text invoices

Thanks