Understanding Tax Rate Areas for Intracommunity VAT

Since the creation of the Single Market in 1993, sales and purchases among EU members are not subject to VAT. To record VAT on transactions between EU members, you need to set up a tax rate/area for intracommunity VAT.

(ESP) In Spain, you must report on VAT-exempt transactions.

You set up the tax rate/area for intracommunity VAT as you would any other tax rate/area, except that you must use three tax rates:

1. The first tax rate is the VAT rate that would be used if the transaction were not exempt.

2. The second tax rate is the negative equivalent of the first tax rate.

   For example, if the first tax rate is 10 percent, the second tax rate would be –10 percent. The two tax rates net to zero.

3. The third tax rate is the percentage of nonrecoverable intracommunity VAT.

   Note: You must select the VAT Expense check box for the third tax rate.

For each type of tax rate code, you can set up specific GL offsets. The system uses the GL offset, which is defined in the PTxxxx AAI, to post the journal entries to different VAT accounts in the chart of accounts. For example, you might have a Domestic VAT account and an EU VAT account.

After you set up tax rate areas in the Tax Rates/Area Revisions program, you:

1. Use the Tax Areas - Tag File Maintenance program (P744008) to specify whether a tax rate area is for intracommunity VAT.

   Access the Tax Areas - Tag File Maintenance program by selecting EU Intra-Community VAT from the Row menu in the Tax Rates/Area Revisions program.

2. (ESP) Use the Tax Areas - Tag File Maintenance - ESP program (P74S408) to add additional information required to report VAT in Spain using the Model 340 VAT report.

   When you add additional information, you define which transactions must be included in a separate register for certain, or special, intracommunity operations. Transactions that you identify as intracommunity transactions in the Tax Areas - Tag File Maintenance program (P744008) but not identified as special transactions in the Tax Areas - Tag File Maintenance - ESP program (P74S408) are included in the Emitted Invoices and Received Invoices sections of the Model 340 VAT report.

   You access the Tax Areas - Tag File Maintenance - ESP program by selecting clicking OK on the Tax Area - EMEA - Revisions form in the Tax Areas - Tag File Maintenance program

Note: (ESP) To include reverse charge transactions for invoices for intracommunity services, you must also set up the UDC 74S/RL or UDC 74S/RT tables.