Partially Deductible and Non-deductible Taxes in SuiteTax

SuiteTax supports deductible and non-deductible taxes, however the corresponding tax types and tax codes are not automatically provisioned. Below, you can find the currently supported use cases and the steps required to implement the solution:

Non-deductible VAT (100%)
Partial Deductible VAT
Non-deductible Reverse Charge (100%)
Partial Deductible Reverse Charge

Use Case	Description	Required Tax Types	Required Tax Codes	Expected GL Impact	Notes
Non-deductible Reverse Charge (100%)	For businesses which are obliged to self-assess their VAT and have no entitlement to reclaim the VAT.	Non-deductible Reverse Charge. Select both the Post to Item Cost and Reverse Charge properties when creating this new Tax Type record.	Tax Type: Non-deductible Reverse Charge Tax Rate Type: Standard Tax Rate: applicable tax rate.	Output VAT is posted to the tax account for sales (liability toward the tax authority). Input VAT is posted as a part of the item cost.	Non-deductible Reverse Charge can be used on purchase transactions only. It cannot be used on journals and expense reports.
Non-deductible VAT (100%)	VAT paid by a business that cannot be reclaimed on purchases because the entitlement to claim VAT does not arise.	Non-deductible VAT. Select the Post to Item Cost preference when creating this new tax type record.	Tax Type: Non-deductible VAT Tax Rate Type: Standard Tax Rate: applicable tax rate.	The full tax amount (100%) is posted as a part of the item cost.	Non-deductible VAT can be used on purchase transactions only. It cannot be used on journals and expense reports.
Partially Deductible Reverse Charge	For businesses which are obliged to self-assess their VAT and have only partial entitlement to claim the VAT.	Non-deductible Reverse Charge. Select both the Post to Item Cost and Reverse Charge properties when creating this new Tax Type record. Deductible Reverse Charge. Select the Reverse Charge property when creating this new tax type record.	Reverse Charge (non-deductible) Tax Type: Non-deductible Reverse Charge Tax Rate Type: Standard Tax Rate: % of the applicable rate that represents the non-deductible part – see the Notes column for further explanation. Reverse Charge (deductible) Tax Type: Deductible Reverse Charge Tax Rate Type: Standard Tax Rate: % of the applicable rate that represents the deductible part – see the Notes column for further explanation.	Output VAT is posted to the tax account for sales (liability toward the tax authority). Input VAT: the non-deductible part is posted as a part of the item cost and the rest is posted to the tax account for purchases (as receivables toward the tax authority).	Partially Deductible Reverse Charge can be used on purchase transactions only. It cannot be used on journals and expense reports. Tax Rate sample calculation: the applicable tax rate is 19% (for which 50% is deductible) Non-deductible Reverse Charge: 19% x 0.5 = 9.5%. Deductible Reverse Charge: 19% x 0.5 = 9.5% Total of both should be 100% of the applicable tax rate. When creating a tax transaction, you need to select both the Deductible Reverse Charge and Non-deductible Reverse Charge tax codes you created. Another option is to create a tax group containing both the tax codes you created and assign the tax group as applicable default: nexus default, entity default or through tax schedule.
Partially Deductible VAT	VAT paid by a business is neither claimable nor fully non-deductible. A business can claim only certain percentage of the VAT charged.	Non-deductible VAT. Select the Post To Item Cost when creating this new tax type record. Deductible VAT. You don't need to select any preferences when creating this new tax type record.	VAT Non-deductible Tax Type: Non-deductible VAT Tax Rate Type: Standard Tax Rate: (% of the VAT rate that is non-deductible – see the Notes column for further explanation.) VAT Deductible Tax Type: Deductible VAT Tax Rate Type: Standard Tax Rate: (% of the VAT rate that is deductible – see the Notes column for further explanation.)	The non-deductible part of the tax amount is posted as a part of the item cost and the rest is posted to the tax account for purchases (as receivables toward the tax authority).	Partially Deductible VAT can be used on purchase transactions only. It cannot be used on journals and expense reports. Tax Rate sample calculation: VAT Rate is 20% (for which 60% is deductible) Non-deductible VAT: 20% x 0.4 = 8%. Deductible VAT: 20% x 0.6 = 12% When creating a tax transaction, you need to select both the Deductible VAT and Non-deductible VAT tax codes you created. Another option is to create a tax group containing both the tax codes you created and assign the tax group as applicable default: nexus default, entity default or through tax schedule.

Use Case

Description

Required Tax Types

Required Tax Codes

Expected GL Impact

Notes

Non-deductible Reverse Charge (100%)

For businesses which are obliged to self-assess their VAT and have no entitlement to reclaim the VAT.

Non-deductible Reverse Charge. Select both the Post to Item Cost and Reverse Charge properties when creating this new Tax Type record.

Tax Type: Non-deductible Reverse Charge
Tax Rate Type: Standard
Tax Rate: applicable tax rate.

Output VAT is posted to the tax account for sales (liability toward the tax authority).

Input VAT is posted as a part of the item cost.

Non-deductible Reverse Charge can be used on purchase transactions only. It cannot be used on journals and expense reports.

Non-deductible VAT (100%)

VAT paid by a business that cannot be reclaimed on purchases because the entitlement to claim VAT does not arise.

Non-deductible VAT. Select the Post to Item Cost preference when creating this new tax type record.

Tax Type: Non-deductible VAT
Tax Rate Type: Standard
Tax Rate: applicable tax rate.

The full tax amount (100%) is posted as a part of the item cost.

Non-deductible VAT can be used on purchase transactions only. It cannot be used on journals and expense reports.

Partially Deductible Reverse Charge

For businesses which are obliged to self-assess their VAT and have only partial entitlement to claim the VAT.

Non-deductible Reverse Charge. Select both the Post to Item Cost and Reverse Charge properties when creating this new Tax Type record.
Deductible Reverse Charge. Select the Reverse Charge property when creating this new tax type record.

Reverse Charge (non-deductible)
- Tax Type: Non-deductible Reverse Charge
- Tax Rate Type: Standard
- Tax Rate: % of the applicable rate that represents the non-deductible part – see the Notes column for further explanation.
Reverse Charge (deductible)
- Tax Type: Deductible Reverse Charge
- Tax Rate Type: Standard
- Tax Rate: % of the applicable rate that represents the deductible part – see the Notes column for further explanation.

Output VAT is posted to the tax account for sales (liability toward the tax authority).

Input VAT: the non-deductible part is posted as a part of the item cost and the rest is posted to the tax account for purchases (as receivables toward the tax authority).

Partially Deductible Reverse Charge can be used on purchase transactions only. It cannot be used on journals and expense reports.
Tax Rate sample calculation: the applicable tax rate is 19% (for which 50% is deductible)
- Non-deductible Reverse Charge: 19% x 0.5 = 9.5%.
- Deductible Reverse Charge: 19% x 0.5 = 9.5%
- Total of both should be 100% of the applicable tax rate.
When creating a tax transaction, you need to select both the Deductible Reverse Charge and Non-deductible Reverse Charge tax codes you created. Another option is to create a tax group containing both the tax codes you created and assign the tax group as applicable default: nexus default, entity default or through tax schedule.

Partially Deductible VAT

VAT paid by a business is neither claimable nor fully non-deductible. A business can claim only certain percentage of the VAT charged.

Non-deductible VAT. Select the Post To Item Cost when creating this new tax type record.
Deductible VAT. You don't need to select any preferences when creating this new tax type record.

VAT Non-deductible
- Tax Type: Non-deductible VAT
- Tax Rate Type: Standard
- Tax Rate: (% of the VAT rate that is non-deductible – see the Notes column for further explanation.)
VAT Deductible
- Tax Type: Deductible VAT
- Tax Rate Type: Standard
- Tax Rate: (% of the VAT rate that is deductible – see the Notes column for further explanation.)

The non-deductible part of the tax amount is posted as a part of the item cost and the rest is posted to the tax account for purchases (as receivables toward the tax authority).

Partially Deductible VAT can be used on purchase transactions only. It cannot be used on journals and expense reports.
Tax Rate sample calculation: VAT Rate is 20% (for which 60% is deductible)
- Non-deductible VAT: 20% x 0.4 = 8%.
- Deductible VAT: 20% x 0.6 = 12%
When creating a tax transaction, you need to select both the Deductible VAT and Non-deductible VAT tax codes you created. Another option is to create a tax group containing both the tax codes you created and assign the tax group as applicable default: nexus default, entity default or through tax schedule.

For sample setup, see SuiteTax_Partially Deductible and Non-deductible Taxes.

General Notices