Recording Nondeductible Input Tax for Reverse Charge Transactions

The Supplementary Tax Calculation SuiteApp (STC) enables you to calculate and record partial and 100% nondeductible input tax for reverse charge purchase transactions. The calculation of the nondeductible input tax is derived from the notional rate of the reverse charge tax code.

Prerequisites

To use this feature, make sure the following prerequisites are either installed or enabled on your account:

• International Tax Reports SuiteApp (Bundle ID: 43003)

• Supplementary Tax Calculation SuiteApp (Bundle ID: 123426)

  For more information on how to install a SuiteApp or bundle, see Installing a Bundle.

• Go to Setup > Company > Enable Features and check the box for the following features on the SuiteCloud subtab:

  • Custom Records

  • Client SuiteScript

  • Server SuiteScript

  • Custom GL Lines

Before you can use the nondeductible input tax feature in NetSuite, you must do the following:

• Make sure that the Supplementary Tax Calculation plug-in is properly configured. See Configuring the Supplementary Tax Calculation Plug-in.

• Make sure that your role has the appropriate permissions. See Permissions to Use International Tax Reports.

• If you do not have OneWorld account, make sure to enter an address on the vendor record. In particular, make sure that the Country field is not blank. The saved search used for nondeductible tax codes checks the Country defined in the vendor record to properly subtract the nondeductible amount from the reclaimed VAT.

Nondeductible Input Tax for Reverse Charge Transactions

Before you can use this feature, you must do the following:

• Create the tax control account.

• Create the tax type.

• Create the tax code for nondeductible tax.

• Create the tax code for reverse charge transactions of partially deductible VAT.

To create a tax control account:

1. Go to Setup > Accounting > Taxes > Tax Control Accounts > New.

2. If you are using OneWorld, click the nexus that you are creating a tax control account for.

3. Enter a name for the tax control account, for example Nondeductible VAT on Purchases.

4. Enter a description for this tax control account.

5. In the Tax Account Type field, select Purchase.

6. Click Save.

7. If you are using OneWorld, you must assign this account to subsidiaries:

   1. Click the Edit link of the account, for example Nondeductible VAT on Purchases.

   2. Select the parent company.

   3. Make sure the Include Children box is checked.

   4. Click Save.

To create a tax type for nondeductible tax:

1. Go to Setup > Accounting > Taxes > Tax Types > New.

2. If you are using OneWorld, click the nexus that you are creating a tax control account for.

3. Enter a name for the tax type, for example Nondeductible VAT.

4. Enter a description for this tax type.

5. In the Asset/Purchase Tax Account column, select the tax control account that you created.

6. Click Save.

To create a nondeductible portion of the VAT:

1. Go to Setup > Accounting > Taxes > Tax Codes > New.

2. Enter a name for the tax code, for example Nondeductible Tax Code

3. Enter a description for the tax code, for example 60% nondeductible.

4. Enter a rate that represents the nondeductible portion, for example 60%.

5. Select the subsidiaries that you want this tax code to be available to.

6. In the Tax Agency field, make sure the correct tax agency is selected.

7. In the Tax Type field, select Nondeductible VAT.

8. In the Purchase Tax Account field, select Nondeductible VAT on Purchases.

9. In the Available on field, select Purchase Transactions.

10. Check the Non-deductible box.

11. Click Save.

To create a tax code for the reclaimable portion of the VAT in reverse charge transactions:

1. Enter a name for the tax code, for example 40% Reclaimable VAT.

2. In the Rate field, enter 0%.

3. Check the Reverse Charge Code box.

4. In the Notional Rate Derived from list, select the appropriate tax rate. This will be the basis for the calculation of your nondeductible input tax.

5. In the Tax Agency field, make sure the correct tax agency is selected.

6. In the Tax Type field, select VAT.

7. In the Available On field, select Purchase Transactions.

8. In the Notional Tax Debit Account list, select VAT on Purchase.

9. Check the Post to Notional Tax Amount box.

10. In the Notional Tax Credit Account list, select VAT on Sales.

11. In the Non-deductible Rate Derived From field, select the tax code that represents the nondeductible portion.

    For example, in the previous procedure, the tax code for the nondeductible portion of the VAT is called Nondeductible Tax Code (60%).

12. In the Nondeductible Expense Account field, select the expense account that the nondeductible tax should be posted to, for example Miscellaneous Expense.

13. Click Save.

100% Nondeductible Input Tax for Reverse Charge Transactions

This feature can be enabled for purchase transactions that have reverse charge tax codes.

To create 100% nondeductible input tax codes for reverse charge transactions:

1. Select the Tax Code where the 100% nondeductible input tax should be applied to. For Tax Codes to be used with this feature, you can:

   1. Manually create a tax code you can apply this feature to. For more information, see Creating Tax Codes.

   2. Select a Tax Code that has been automatically provisioned for your account. For more information, see Automatic Tax Code Provisioning.

2. Click Edit.

3. Check the 100% Non-deductible box.

   When the 100% non-deductible box is checked, the Reverse Charge Code box is automatically checked and cannot be modified.

4. In the Notional Rate Derived from list, select the tax code with the correct rate. This will be the basis for the calculation of your 100% nondeductible input tax.

5. In the Nondeductible Expense Account field, select the expense account that the nondeductible tax should be posted to, for example Miscellaneous Expense.

6. Click Save.

Related Topics

Recording Nondeductible Input Tax

Setting Up Nondeductible Input Tax

Applying Nondeductible Input Tax on Transactions

International Tax Reports

General Notices