Tax Setup

From ADempiere
Revision as of 08:28, 9 February 2011 by MJMcKay (Talk) (Setup Taxes)

Jump to: navigation, search
This Wiki is read-only for reference purposes to avoid broken links.

Table of Contents#System Administrator's Guide{{#if: Implementation| | Implementation }}{{#if: | | [[{{{3}}}]] }}{{#if: | | [[{{{4}}}]] }}{{#if: | | [[{{{5}}}]] }} | Tax Setup{{#if: Importing Key Data| | Importing Key Data }} ⇒

Before entering documents that have tax consequences, the taxes must be created.

Taxes can be complex, with different accounting requirements, calculations and reporting requirements. The tax can vary by product and by the geographical location of the seller, or buyer. In the ADempiere tax model, the tax to use on a document is selected based on a tax category. The tax category is assigned to products and charges and contains a number of summary or parent tax definitions. In a particular document, the geographical rules determine which of the summary taxes is applied. The subordinate taxes determine the details and actual accounting consequences. For really difficult and unruly tax situations, a software or script rule can be created to determine what tax to apply.

Note.gif Note:

There is a Tax Setup workflow defined in ADempiere but since you have not setup the products yet, you can skip most of it. Follow the window sequence below instead.

Examples

Before getting into the details, consider a few examples.

Canada

In Canada, the sales tax varies by province. There is typically a provincial sales tax (PST), and a common national goods and services tax (GST). Certain provinces combine these into a harmonized sales tax (HST) but there are still products where only the GST or PST portion of the HST applies. GST/HST is a pass through tax meaning that it is tracked as a liability or receivable based on the sales or purchase transactions. The PST is a end-user tax meaning its a liability on a sale but an expense on a purchase. A good selection of Tax Categories in Canada would be

    • No Tax - no tax applied to the document. Tax is not applicable to the transaction.
    • Exempt - the product or service is exempt from tax. This has special consequences for input tax credits and the accountants will want to track it. The Government determines which products and services are exempt.
    • Zero-Rated - the product of service is considered tax free without the special consequences. Again, the Government determines where this applies.
    • PST Only - the product only has PST applied.
    • GST only - the product only has GST applied.
    • PST/GST - the product can have both PST and GST applied.
    • HST - the product has HST applied.

EU and VAT

The rules in the EU are complex. A primer can be found on the VAT page. The page also contains lots of examples. Many of the countries use a graded tax scheme based on the type of product. For example, in Sweden there are four different VAT categories on sold goods and services. These are:

  • Full Rate - 25%
  • Half Rate - 12%
  • Low Rate - 6%
  • No VAT - 0%

Different products and services belong to these different categories.

Setup Taxes

To setup the tax, use the following windows found in the menu under Performance Analysis{{#if: Accounting Rules |  » Accounting Rules }}{{#if: |  »  }}{{#if: |  »  }}{{#if: |  »  }}:

  • {{#if: Tax Category|Tax Category|TaxCategory }} Window - The Tax Category Window is used to enter and maintain Tax Categories. Each product is associated with a tax category which determines how taxes will be applied to the product. This is where the major differences in taxes applied to various products is determined. Set up the categories to identify the high level differences. Regional differences will be handled in other windows.
  • {{#if: Tax Rate|Tax Rate|TaxRate }} Window - The Tax Rate Window defines the different taxes used for each tax category. For example Sales Tax must be defined for each State in which it applies. If you have multiple taxes falling in a single category, create a summary level tax with the approximate total tax rate. Then create the subordinate tax rates and assign the the summary level tax as their parent.
Note.gif Note:

When entering the order or invoice lines the tax is first estimated using the summary tax rate. The correct tax is calculated when the document is prepared or completed. With many possible rates for a tax category, be aware that estimation can be wrong and that the order total shouldn't be trusted until the document is prepared.

The tax is always calculated from the line net amount. For taxes that include another tax in the base amount, you will have to calculate the net effect and adjust the tax rate accordingly. In formula, Adempiere calculates the tax as TT = LNA*(Tax1 + Tax2) where TT is the Total Tax and LNA is the line net amount. If you need the calculation where Tax2 is based on the Tax1 amount or TT = LNA*Tax1 + (LNA*Tax1)*Tax2, you will have to adjust the Tax2 rate to equal Tax1*Tax2.
The tax rates are defined regionally as that is the major difference. The tax rate can apply only if product are purchased from a country/region or sold to a country/region. The associated business partner's location information determines the match with the region. In other words, if HST only applies to sales to customers located in Canada, the HST tax rate has the To country set to Canada. HST will not be applied to sales shipped to customers with ship-to addresses in the USA. The granularity of the regional definitions can be extended from countries to regions to ZIP codes within regions.
For special cases, a software or script rule can be defined to determine what amount of tax to apply.

There are a few other windows that you can used to define tax related information. The information in these windows is not used by ADempiere but is available for use by any rules or scripts you may need to develop. Find them in the menu under Performance Analysis{{#if: Accounting Rules |  » Accounting Rules }}{{#if: Global Tax Management |  » Global Tax Management }}{{#if: |  »  }}{{#if: |  »  }}:

See Also

Also look into the localization projects for the various countries. A lot of work has been done to define special tax handling procedures around the world.