Microsoft Dynamics AX 2012 R3 Sales tax functionality for Saudi Arabia: Overview and setup This document provides an overview of the sales tax functionality that is available for Saudi Arabia in Microsoft Dynamics AX 2012 R3. It also explains how to set up this functionality for the VAT Law that becomes effective on January 1, 2018. White paper January 2018 Send feedback. www.microsoft.com/dynamics/ax
Contents VAT localization for Saudi Arabia 3 Modification of the Sales tax code form 3 Reverse charge mechanism 3 Output invoice form 5 VAT report 6 Return legislation requirements 6 Example of the setup for a Sales tax payment by code report in Microsoft Dynamics AX 7 Sales tax authorities 8 Sales tax reporting codes 8 Sales tax codes 9 Run the Sales tax payment by code report 9 Sales tax functionality setup 10 Sales tax authorities 10 Sales tax settlement periods 11 Sales tax exempt codes and ledger posting groups 11 Sales tax codes, sales tax groups, and item sales tax groups 11 Set up conditional sales tax (Cash accounting basis) 15 Set up customer/vendor registration 15 Sales tax payments 16 Sales tax functionality for Saudi Arabia: Overview and setup 2
Sales tax functionality for Saudi Arabia: Overview and setup The General Authority of Zakat and Tax (GAZT) of the Kingdom of Saudi Arabia has published the Value Added Tax (VAT) Law in H1438/11/4 (July 27, 2017). VAT becomes effective in Saudi Arabia on January 1, 2018. The law outlines all key areas that will be implemented in the Saudi Arabian VAT system. The operational mechanism is provided in the implementing regulations. Standard and localized sales tax functionality in Microsoft Dynamics AX 2012 covers most parts of the legislation s requirements, as described in the regulations of the VAT Law. VAT localization for Saudi Arabia In addition to standard sales tax functionality, the following functionality was implemented: Modification of the Sales tax code form: A new Tax type field that has values for VAT type: Standard VAT, Reduced VAT, and VAT 0% A new value in the Country/Region field: GCC Translation of the sales tax description (Tax directive button) Reverse charge mechanism (Gulf Cooperation Council [GCC] territory and domestic) Output invoice form in both the customer s language and the Arabic language Modification of the Sales tax code form See the illustration of the Sales tax codes form in the Reverse charge mechanism section, later in this document. Tax of the Standard VAT, Reduced VAT, and VAT 0% types have a VAT type that can be used in the forms for reports (for example, see the illustration of the Sales tax report form in the Sales tax payments section, later in this document). Reverse charge mechanism The reverse charge mechanism works when all the following conditions are met: In the Accounts payable parameters form, on the Ledger and sales tax tab, the Reverse charge check box is selected. The Country/Region field is set to GCC or Domestic for a sales tax code. In the Sales tax group form, the Reverse charge check box is selected for a sales tax code that has a negative rate. Sales tax functionality for Saudi Arabia: Overview and setup 3
The following illustration shows the setup in the Accounts payable parameters form (Accounts payable > Setup > Accounts payable parameters). You must set up two sales tax codes for reverse charge operations (for purchase operations). One of these sales tax codes has a positive rate, and the other has a negative rate. You can enter a negative rate (by using the Values button) if the Negative sales tax percentage check box is selected in the Sales tax codes form (General ledger > Setup > Sales tax > Sales tax codes). Sales tax functionality for Saudi Arabia: Overview and setup 4
These two sales tax codes should be added to a sales tax group and an item sales tax group on the Setup FastTab of the Sales tax groups form (General ledger > Setup > Sales tax > Sales tax groups). For information about how sales tax functionality works, see the Sales tax codes, sales tax groups, and item sales tax groups section later in this document. Based on these settings, the system creates sales tax transactions. When an invoice is posted, one of these sales tax transactions has the Sales tax receivable sales tax direction in the Posted sales tax form (General ledger > Inquiries > Tax > Posted sales tax), and the other has the Sales tax payable direction (if the Reverse charge check box is selected for the sales tax group). Output invoice form According to the regulations of the VAT Law, all invoices must be generated in the Arabic language, in addition to any other language. If the customer s language differs from the language that is set up in the Legal entity form, the system generates the invoice in two languages. Otherwise, the invoice is generated only in the language that is set up in the Legal entity form. If the system determines that an invoice should be generated in two languages, such as English and Arabic, it generates two invoices for printing. One report is generated in English, and the other is generated in Arabic. Sales tax functionality for Saudi Arabia: Overview and setup 5
The following illustration shows an example of the reports that are generated for one invoice in two languages. VAT report Return legislation requirements If monthly returns are required, the VAT return for the tax period from January 1, 2018, through January 31, 2018, must be filed by February 28, 2018. If quarterly returns are required instead, the VAT return for the tax period from January 1, 2018, through March 31, 2018, must be filed by April 30, 2018. The VAT return form requires that a company provide various details about company business during the tax period: Standard rated domestic sales Sales to registered customers in other GCC states Zero-rated domestic sales Zero-rated exports Exempt sales Standard-rated domestic purchases Imports that are subject to VAT that is paid at customs Imports that are subject to VAT that is accounted for through the reverse charge mechanism Zero-rated purchases Exempt purchases Corrections from the previous period (up to 5,000 Saudi riyals [SAR]) Sales tax functionality for Saudi Arabia: Overview and setup 6
The following illustration shows the VAT return form that a company must submit to the tax authorities. The company can use the Sales tax payment by code report to gather data for the legislation return. The next section provides information about this report Example of the setup for a Sales tax payment by code report in Microsoft Dynamics AX The following illustration shows how data can be gathered on the Sales tax payment by code report. Note that data is gathered on the basis of sales tax transactions. Therefore, if an invoice is created that doesn t have tax transactions, it won t be included on the report. The same report code can be selected in multiple sales tax codes, and multiple report codes can be selected in different fields in the same sales tax code. Sales tax transaction 1 Report codes 1,2. Sales tax code 1 Sales tax code 2 Sales tax transaction 2 Sales tax transaction 3 Report code 1 Report code 2 Report codes 11,12.. Sales tax code 3 Sales tax transaction 4 Report codes 21,22.. Sales tax code 4 Sales tax code 5 Sales tax transaction 6 Sales tax transaction 7 Report code 21 Sales tax transaction 8 Report code 22 Sales tax functionality for Saudi Arabia: Overview and setup 7
To gather data for this report, you should set up the following forms. Sales tax authorities When you set up sales tax authorities, pay attention to the Report layout field in the Sales tax authorities form (General ledger > Setup > Sales tax > Sales tax authorities). When you create a new sales tax code and select a settlement period, the system fills in the corresponding field with the value from the sales tax authorities. This value is associated with the sales tax settlement period that is selected in Settlement period field. Sales tax reporting codes In the Sales tax reporting codes form (General ledger > Setup > Sales tax > External > Sales tax reporting codes), you can create report codes that include details which are required for analysis (for example, details of the legislation return and/or data disclosure). The following illustration is just an example. For detailed information, see Sales tax reporting codes. Sales tax functionality for Saudi Arabia: Overview and setup 8
Sales tax codes To include sales tax transactions on the Sales tax payment by code report, you must select report codes in the corresponding fields on the Report setup and Report setup credit note FastTabs of the Sales tax codes form (General ledger > Setup > Sales tax > Sales tax codes). Run the Sales tax payment by code report To run the Sales tax payment by code report, click General ledger > Reports > External > Transactions > Groupings > Sales tax payment by code. The system gathers data from sales tax transactions by using the report layout that is specified in the Sales tax payment by code form. Sales tax functionality for Saudi Arabia: Overview and setup 9
The following illustration shows an example of the report. Sales tax functionality setup You can find the settings that are required for sales tax functionality in the Microsoft Dynamics AX 2012 Technical Library. All the illustrations in the following sections are just examples. The company must decide how it will fill in the forms. Sales tax authorities If you fill in the Vendor account field in the Sales tax authorities form (General ledger > Setup > Sales tax > Sales tax authorities), when the Sales tax payments periodic job is run to generate sales tax payments for the sales tax authority, the system transfers the amount that the company owes the sales tax authority for the period to the sales tax authority s vendor account. When an employee performs the company s usual payment process, the payment to the sales tax authority is created together with payments to other vendors. The value of the Report layout field is transferred to the corresponding field when you create a sales tax code. Sales tax functionality for Saudi Arabia: Overview and setup 10
For a detailed description, see Set up sales tax authorities. Sales tax settlement periods In Saudi Arabia, taxable persons who make an annual taxable supply of goods and services that exceeds SAR 40,000,000 must file monthly VAT returns. All other taxable persons must file quarterly VAT returns. However, they can choose to file monthly returns instead, provided that they obtain approval from GAZT. In the Sales tax settlement periods form (General ledger > Setup > Sales tax > Sales tax settlement period), the Period field should be filled in according to the company registration in the tax authorities. For a detailed description, see Set up a sales tax settlement period. Sales tax exempt codes and ledger posting groups To set up sales tax exempt codes, click General ledger > Setup > Sales tax > Sales tax exempt codes. To set up ledger posting groups, click General ledger > Setup > Ledger posting groups. For detailed descriptions, see Sales tax exempt codes and Ledger posting groups. Sales tax codes, sales tax groups, and item sales tax groups For detailed descriptions of sales tax codes, sales tax groups, and item sales tax groups, see the following resources: Set up sales tax codes Set up sales tax groups and item sales tax groups The following illustration shows just one way that you can set up sales tax groups, and how the system defines sales tax transactions and sales tax calculations. Sales tax functionality for Saudi Arabia: Overview and setup 11
For example, you can set up one group that is named Domestic and include two sales tax codes in it: one that has a rate of 5 percent and another that has a rate of 0 percent. You can also set up two item sales tax groups. Each group includes only one sales tax code. You can set up a default sales tax group for customers or vendors, and a default item sales tax group for items. Then, when a user creates a sales order or purchase order, the system transfers the default sales tax group from the customer or vendor to the header and lines, and the default item sales tax group from the item to the lines. However, the user can change the groups on both the header and the lines. If a sales tax code is included in two groups (sales tax group and item sales tax group) on the line, when the invoice is posted, the system creates a sales tax transaction using this sales tax code and calculates sales tax. If there is no intersection of sales tax codes in groups of lines, a sales tax transaction isn t created. Sales tax group Item sales tax group Customer Sales order Domestic Sales Item 1 Sales order lines Sales tax Codes 5% Sales tax Codes 5% 0% Item sales tax group Sales Item 2 Item 1 Domestic+Sales-5% Item 2 Domestic+Sales- 0% Sales tax Codes 0% In the Sales tax codes form (General ledger > Setup > Sales tax > Sales tax codes), you should fill in the following information (main sales tax settings) for every sales tax code: 1 Type of tax (Standard VAT or VAT 0%) 2 Settlement period 3 Ledger posting codes 4 Calculation (At first, you can use the default settings.) 5 Report setup/report setup Credit note Sales tax functionality for Saudi Arabia: Overview and setup 12
When you select a settlement period, the system automatically fills in the report layout on the Report setup and Report setup Credit note tabs. To set up sales tax groups, click General ledger > Setup > Sales tax > Sales tax groups. To set up item sales tax groups, click General ledger > Setup > Sales tax > Item sales tax groups. The company must decide how it will include sales tax codes in sales tax groups and item sales tax groups. Different sales tax group settings can be specified for different operations. For example, for export operations, you can select the Exempt check box and then select an exempt code. In this case, the system creates a sales tax transaction where the VAT amount equals 0 (zero), even though the rate that is specified in the Value field for the sales tax transaction is 5 percent. You might find this approach useful when you must analyze export operations by VAT rates. Sales tax functionality for Saudi Arabia: Overview and setup 13
Similar settings can be specified for other exempt operations. For example, the following illustration shows the settings for operations that involve religious institutions. For import operations from other countries or regions, where VAT is paid at customs, you can specify the settings in the following illustration. When you post an invoice, and settings of this type are specified, the system creates a sales tax transaction that has the Use tax direction, but sales tax isn t included in vendor liability. Sales tax transactions that have the Use tax direction aren t considered in sales tax payments (see the Sales tax payments section later in this document). Additionally, depending on the ledger posting settings (see Ledger posting groups), the system creates ledger transactions for this sales tax (see the that follows). Sales tax functionality for Saudi Arabia: Overview and setup 14
This setting lets you analyze purchases from other countries or regions by VAT rates. The following illustration shows an example of sales tax transactions that have different values for the sales tax direction. Set up conditional sales tax (Cash accounting basis) For detailed information, see Set up conditional sales taxes. Set up customer/vendor registration For detailed information, see Set up a tax registration type. Sales tax functionality for Saudi Arabia: Overview and setup 15
Sales tax payments If you don t select the Update check box in the Sales tax payment form (General ledger > Periodic > Sales tax payments > Sales tax payments), the system just creates the report (see the illustration that follows). Otherwise, the system settles receivable and payable sales tax transactions, which are reflected in the Sales tax payments report (General ledger > Reports > External > Sales tax payments). Sales tax functionality for Saudi Arabia: Overview and setup 16
Send feedback. Microsoft Dynamics is a line of integrated, adaptable business management solutions that enables you and your people to make business decisions with greater confidence. Microsoft Dynamics works like and with familiar Microsoft software, automating and streamlining financial, customer relationship, and supply chain processes in a way that helps you drive business success. United States and Canada toll-free: (888) 477-7989 Worldwide: (1) (701) 281-6500 www.microsoft.com/dynamics 2018 Microsoft Corporation. All rights reserved. This document is provided as-is. Information and views expressed in this document, including URL and other Internet Web site references, may change without notice. You bear the risk of using it. Some examples are for illustration only and are fictitious. No real association is intended or inferred. This document does not provide you with any legal rights to any intellectual property in any Microsoft product. You may copy and use this document for your internal, reference purposes.