How NetSuite Determines the Notional Tax Code to Use for a Transaction
The notional tax rate is based on the tax code set for the item. For example, if an item has a standard tax rate of 20% for sales within the same country, then the notional rate would also be 20% for a B2B sale to a customer in a different EU country. Because it is a notional rate, the actual rate charged is 0% (zero rated tax).
In NetSuite, the item record must have a tax code or tax schedule set for the particular nexus so that the system can find the appropriate tax code to use for a transaction.
Example:
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You are a seller based in Germany.
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Your buyer is VAT-registered in Romania (customer record has a VAT number).
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The invoice has one item (item record has S-DE tax code set in the Tax Schedule field).
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The system looks at the buyer’s shipping address (Romania) and determines that an EU notional tax code should be used on the invoice.
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The system gets the appropriate tax code (tax code record has the EC Code box checked and the Notional Rate Derived From field is set to S-DE). Therefore, a notional tax amount is applied on the transaction, and the actual rate charged is zero.
NetSuite does not validate your tax registration number. Therefore, it is your responsibility to provide a correct tax registration number.
If no tax code is set in the Tax Schedule field of the item record, the system gets the tax code from the Default Tax Code field on the Set Up Taxes page. The absence of a tax schedule on the item can result in an incorrect tax amount charged on the transaction.