8 Working With VAT Processing

This chapter contains the following topic:

Section 8.1, "Understanding VAT Terminology and Principles"

8.1 Understanding VAT Terminology and Principles

VAT is a noncumulative tax that tax authorities impose at each stage of the production and distribution cycle. If you work with VAT, you should understand these terms and principles:

Term	Description
Output VAT	Suppliers of goods and services must add VAT to their net prices. They must record output VAT for goods on the date that they issue invoices and for services on the date that they receive payment. The amount of VAT is determined by applying specific rates to the net selling prices of certain goods and services. Output VAT is also called: AP VAT Receivable Recoverable VAT Collectable VAT
Input VAT	Input VAT is the VAT paid by the purchaser of goods and services. If the purchaser is subject to output VAT, the purchaser can recover input VAT by offsetting it against output VAT. When input VAT exceeds output VAT, the purchaser can forward the VAT balance as a credit toward the tax authority for the next reporting period; or receive a cash refund, depending on the policies of the tax authority. Input VAT is also called: AR VAT Payable Deductible VAT
Nonrecoverable Input VAT	Input VAT cannot be recovered for: Goods and services that are not necessary for running the business. Expenses that are related to business entertainment. Transport of persons. Oil-based fuels and lubricants that are transformed and then resold. Goods that are provided free of charge or at a substantially reduced price. Purchase of cars. Services related to goods that are normally excluded from the right of recovery.

Term

Description

Output VAT

Suppliers of goods and services must add VAT to their net prices. They must record output VAT for goods on the date that they issue invoices and for services on the date that they receive payment. The amount of VAT is determined by applying specific rates to the net selling prices of certain goods and services.

Output VAT is also called:

AP VAT Receivable
Recoverable VAT
Collectable VAT

Input VAT

Input VAT is the VAT paid by the purchaser of goods and services.

If the purchaser is subject to output VAT, the purchaser can recover input VAT by offsetting it against output VAT. When input VAT exceeds output VAT, the purchaser can forward the VAT balance as a credit toward the tax authority for the next reporting period; or receive a cash refund, depending on the policies of the tax authority.

Input VAT is also called:

AR VAT Payable
Deductible VAT

Nonrecoverable Input VAT

Input VAT cannot be recovered for:

Goods and services that are not necessary for running the business.
Expenses that are related to business entertainment.
Transport of persons.
Oil-based fuels and lubricants that are transformed and then resold.
Goods that are provided free of charge or at a substantially reduced price.
Purchase of cars.
Services related to goods that are normally excluded from the right of recovery.

County-specific information about VAT processing exists for many countries supported by JD Edwards EnterpriseOne applications. Refer to the documentation for each country for information about VAT for the supported countries.