ERP 2.50:Configuration Manual/Setting up taxes

ERP 2.50:Configuration Manual

ERP 2.50:Configuration Manual/Introduction ERP 2.50:Configuration Manual/Getting started ERP 2.50:Configuration Manual/Modeling your enterprise ERP 2.50:Configuration Manual/Setting up accounting ERP 2.50:Configuration Manual/Accounting reports ERP 2.50:Configuration Manual/Setting up taxes ERP 2.50:Configuration Manual/Tax Payment ERP 2.50:Configuration Manual/Tax reporting ERP 2.50:Configuration Manual/Document types ERP 2.50:Configuration Manual/Roles and users ERP 2.50:Configuration Manual/Business partners ERP 2.50:Configuration Manual/Setting up products ERP 2.50:Configuration Manual/Pricing ERP 2.50:Configuration Manual/Importing data ERP 2.50:Configuration Manual/Procurement ERP 2.50:Configuration Manual/Warehouse management ERP 2.50:Configuration Manual/Assets ERP 2.50:Configuration Manual/Production management ERP 2.50:Configuration Manual/Material requirement (MRP) ERP 2.50:Configuration Manual/Project management ERP 2.50:Configuration Manual/Personalizing Openbravo ERP ERP 2.50:Configuration Manual/Modules Management ERP 2.50:Configuration Manual/Configuration changes that affect the Core module ERP 2.50:Configuration Manual/Appendix

Index

Contents 1 Tax Concepts 1.1 Cascading taxes 1.2 Withholding taxes 2 Setting up a tax category 2.1 Allocating a tax category to a product 3 Setting up a business partner tax category 3.1 Organization Setup 4 Setting up a tax rate 4.1 Examples 4.2 Examples II 4.3 Examples III 4.4 Tax Non-Deductible Organization 4.4.1 National Purchase 4.4.2 National Sales 4.4.3 Intracommunity Purchase

Tax Concepts

When you are buying or selling goods, taxes may be applicable depending on the kind of product being bought or sold, the tax status of the buyer or seller, and the local tax regime. You can define the taxes payable on transactions in the Tax Setup section. To define taxes in Openbravo ERP, you need to complete the following steps:

1. Define the tax category. Tax categories group similar tax rates together. For example if a sales tax can be 17.5%, 15% or 0% depending on the type of product, you can create a category called Sales Tax and define the three different rates of tax within the Sales Tax category.
2. Define the tax rate: tax rates are always expressed as a percentage.
3. Define business partner tax categories. Where certain business partners pay a particular rate of tax you can define their rate as a tax category and apply it to particular business partners. For example, if you sell goods to a group of charities who are exempt from sales tax, you can set up a tax category called Exempt and apply it to any business partners who are charities. If a tax category is not linked to a business partner it applies to all business partners.

Cascading taxes

Where a tax is dependent on another tax already having been applied you can set up cascading taxes. For example if an invoice is subject to a regional tax on the gross invoice value, and then a state tax on the value of the invoice net of regional tax, you can set up the regional tax as a summary level tax, and the state tax within the regional tax.

Withholding taxes

A withholding tax is tax on a sum of money that is payed to the government at source by the payer of that sum of money, rather than by the eventual payee. For example, an employer may withhold a portion of an employee's salary and pay it to the government on the employee's behalf as income tax.

Setting up a tax category

To set up a tax category:

1. From the Application menu, select Financial Management > Accounting > Setup > Tax Category.
2. Click New. A new tax category record appears.
3. In the Organization field, specify which organization the tax category applies to. If you select an organization, the taxes will be only payable on transactions in or out of that organization. To make the taxes applicable to all organizations within the client, select *.
4. In the Name field, type the name of the tax category, for example Sales tax.
5. In the Description field, type a description of the tax category if required.
6. To make the tax category visible and available for selection, select the Active tab.
7. To make the tax category the default, select the Default checkbox.
8. Click Save.

Allocating a tax category to a product

1. From the Application menu, select Master Data Management > Product
2. In grid view, select the product you want to work with.
3. From the Tax Category list, select the tax category you want to apply to the product.
4. Click Save.

Setting up a business partner tax category

Business partner tax categories enable you go group business partners together on the basis of their tax requirements. For example, you could create different categories for vendors inside and outside the EU.

To set up a business partner tax category, follow these steps:

1. Log into Openbravo ERP with a client admin role.
2. From the Application menu, select Financial Management > Accounting > Setup > Business Partner Tax Category.
3. Click New.
4. From the Organization list, select the organization to which the business partner tax category will apply. Select * to make the category available across all organizations within your client.
5. In the Name field, type the name of the category.
6. In the Description field, type a brief description of the category.
7. Click Save.

To allocate a business partner tax category to a business partner, follow these steps:

1. From the Application menu select Master Data Managment > Business Partner.
2. In grid view, select the business partner you want to work with.
3. Specify the business partner tax category as follows:
   • If the business partner is a customer, select the Customer tab and select the business partner category from the SO BP Tax Category list.
   • If the business partner is a vendor, select the Vendor / Creditor tab and select the business partner tax category from the Tax Category list.
   • If the business partner is an employee, select the Employee tab and select the business partner tax category from the Tax Category tab.
4. Click Save.

Organization Setup

There are some organizations like Public Sector(Non-Tax deductible organization) for which tax deduction is not allowed, that means:

   * purchase VAT must be posted as an expense
   * and sales invoices are VAT exempt. 

“Tax Posting as Expense” feature will allow the end-user to set up at Organization level, Organizations as “Tax Not Deductible” Organizations and to select the Exempt Sales Tax to be used while posting sales invoices.

A Non-Tax Deductible Organization can be setup. For doing that end-user must be navigate to the application path: General Setup || Enterprise || Organization || Organization >> Information - and for the "Tax Not Deductible" organization below parameters must be setup:

• Tax Not Deductible = yes
• Sales Tax Exempt Rate = Exempt Sales Rate

A Tax Deductible Organization can be setup. For doing that end-user must be navigate to the application path: General Setup || Enterprise || Organization || Organization >> Information - and for the "Tax Deductible" organization below parameters must be setup:

• Tax Not Deductible = no

Setting up a tax rate

Once you have set up a tax category you can populate it with one or more tax rates:

1. From the Application menu, select Financial Management > Accounting > Setup > Tax.
2. Click New. A new tax record appears.
3. From the Organization menu, select the organization to which the tax rate will be applicable (for example if it is a regional tax rate). If the tax rate applies to all organizations within the client, select *.
4. In the Name field, type the name of the tax rate, for example Sales tax - reduced rate.
5. In the Description field, type a description of the tax rate.
6. To make the tax rate immediately visible and available for selection, select the Active checkbox.
7. In the Valid From box, type the date from which the tax rate is valid, or select the date from the calendar.
8. If the tax rate can be exempted in some cases, select the Exempt check box. If the tax rate is then applied to a business partner with Exempt status, the exemption will come into effect.
9. If the tax rate is at summary level, select the Summary Level checkbox.
10. Select the Parent tax rate if required. It is not mandatory to specify a parent tax rate.
11. From the Sales / Purchase menu, specify whether the tax is applicable to sales, to purchases or to both sales and purchases.
12. Select the base amount to be used for the calculation of tax amount in Base Amount. Default value is Line Net Amount, but also Alternate Tax Base Amount and Tax Amount can be selected, as well as any combination (Line Net Amount + Tax Amount or Alternate Tax Base Amount + Tax Amount).
13. Select the Tax Base to be used for the calculation of tax amount, when Base Amount is Tax Amount, Alternate Tax Base Amount + Tax Amount or Line Net Amount + Tax Amount.
14. Decide how to calculate taxes at statement level (order or invoice) selecting an option in Document Tax Amount Calculation. Options are calculating tax amount as sum of the tax amounts of the taxes or calculating tax as total tax base amounts per rate.
15. In the Originalrate box, type the applicable tax as a % off the base price.
16. If the tax is a Withholding tax, select Withholding tax.
17. If the tax belongs to a particular business partner tax category, select it from the Business Partner Tax Category list.
18. If you are setting up a tax rate to apply to non-taxable items, select the non-taxable. Setting up a tax rate as non-taxable means that you can apply it to goods to which tax is not applicable.
19. If the tax is specific to a particular region, select it from the Destination Region list. The tax will then apply to business partners within this region.
20. The end-user select the check box of “Tax Not Deductible” to get that Purchase VAT will be posted as an expense.
21. The end-user to setup deductible purchase VAT for "Tax Not Deductible" Organizations in case it is required. They have to check the "Tax Deductible" flag and be aware that the "Deductible Rate" implies a 100% deductible rate regardless of the value being entered by the end-user.
    Future enhacement could allow the end-user to enter a given "Deductible Rate" rather than 100%, therefore the "deductible" tax amount will be posted in the VAT account and the "non deductible" tax amount will be posted in the Product Expense account.
22. Click Save.

Examples

In the on line demo (http://demo.openbravo.com/) there are some taxes defined which can help you to understand how they work.

A simple tax would be like this:

…where the first line is the Tax Category associated to products and the second line is the tax rate that is applied

An example for a summary tax is:

In this example Standard VAT + Withholding (TC) is a Tax Category and the rest of the lines are Tax Rates. The applicable tax is the first of the rate lines (Standard VAT + Withholding), which is a summary tax that has two children. The rate in this line (1%) will be used to calculate the draft amount to be paid as taxes when it is applied. The other two lines are the first one's children, containing the detailed taxes for the parent. They are inapplicable: they cannot be chosen to be individually applied to a document, they have to be applied as a group. These lines are used when the document is processed, to calculate the actual amount. As they are defined as Cascade=N, both will be applied to the base amount of the document line.

Note that if a tax is checked as summary it should have at least one child, otherwise it would be applicable but when the process is accomplished it wouldn't generate any tax data.

Another example of a summary tax would be, for example, the sales taxes in California. According to wikipedia, the following sales tax exists: a “statewide 7.25% [that] is allocated as:

• 6.25% - State
  • 5.00% - State - General Fund
  • 0.25% - State - Fiscal Recovery Fund
  • 0.50% - State - Local Revenue Fund
  • 0.50% - State - Local Public Safety Fund
• 1.00% - Uniform Local Tax
  • 0.25% - Local County - Transportation funds
  • 0.75% - Local City/County - Operational funds.”

This tax could be implemented in Openbravo this way:

Examples II

Lets take Indian taxes as an additional example:

1. Basic Duty (5% on Invoice Price)
2. CVD = 8 % on 70% of MRP (Maximum retail price)
3. Cess 2% of CVD
4. HR Cess 1 % of CVD
5. Custom Duty (1+2+3+4)
6. Cess 2% on Custom Duty
7. HR Cess 1 % on Custom Duty
8. Excise Duty (5+6+7)
9. Cess 2% on Excise Duty
10. Hr Cess 1% on Excise Duty
11. Total Excise Duty (8+9+10)

Now lets see how to configure this taxes:

Name	(DTA) Total Excise Duty
Description	B + 7 + 8
Default	Y
Valid from Date	01-01-2000
Cascade	N
Line No.	10
Tax Category	India
Summary	Y
Parent Tax Rate
Rate	0,00
Base	Line Net Amount
Tax Base
Document Tax Amount Calculation	Document based amount by rate

Name	(A) Customs Duty
Description	1 + 2 + 3 + 4
Default	N
Valid from Date	01-01-2000
Cascade	N
Line No.	10
Tax Category	India
Summary	Y
Parent Tax Rate	Excise Duty (B)
Rate	0,00
Base	Line Net Amount
Tax Base
Document Tax Amount Calculation	Document based amount by rate

Name	(1) Basic Duty
Description
Default	N
Valid from Date	01-01-2000
Cascade	N
Line No.	10
Tax Category	India
Summary	N
Parent Tax Rate	Customs Duty (A)
Rate	5,00
Base	Line Net Amount
Tax Base
Document Tax Amount Calculation	Document based amount by rate

Name	(2) CVD
Description
Default	N
Valid from Date	01-01-2000
Cascade	N
Line No.	20
Tax Category	India
Summary	N
Parent Tax Rate	Customs Duty (A)
Rate	8,00
Base	Alternate Tax Base Amount
Tax Base
Document Tax Amount Calculation	Document based amount by rate

Name	(3) Cess
Description
Default	N
Valid from Date	01-01-2000
Cascade	N
Line No.	30
Tax Category	India
Summary	N
Parent Tax Rate	Customs Duty (A)
Rate	2,00
Base	Tax Amount
Tax Base	CVD (2)
Document Tax Amount Calculation	Document based amount by rate

Name	(4) Hr Cess
Description
Default	N
Valid from Date	01-01-2000
Cascade	N
Line No.	40
Tax Category	India
Summary	N
Parent Tax Rate	Customs Duty (A)
Rate	1,00
Base	Tax Amount
Tax Base	CVD (2)
Document Tax Amount Calculation	Document based amount by rate

Name	(B) Excise Duty
Description	A + 5 + 6
Default	N
Valid from Date	01-01-2000
Cascade	N
Line No.	10
Tax Category	India
Summary	Y
Parent Tax Rate	DTA
Rate	0,00
Base	Line Net Amount
Tax Base
Document Tax Amount Calculation	Document based amount by rate

Name	(5) Cess on Customs Duty
Description
Default	N
Valid from Date	01-01-2000
Cascade	N
Line No.	20
Tax Category	India
Summary	N
Parent Tax Rate	Excise Duty (B)
Rate	2,00
Base	Tax Amount
Tax Base	Customs Duty (A)
Document Tax Amount Calculation	Document based amount by rate

Name	(6) Hr Cess on Customs Duty
Description
Default	N
Valid from Date	01-01-2000
Cascade	N
Line No.	30
Tax Category	India
Summary	N
Parent Tax Rate	Excise Duty (B)
Rate	1,00
Base	Tax Amount
Tax Base	Customs Duty (A)
Document Tax Amount Calculation	Document based amount by rate

Name	(7) Cess on Excise Duty
Description
Default	N
Valid from Date	01-01-2000
Cascade	N
Line No.	20
Tax Category	India
Summary	N
Parent Tax Rate	DTA
Rate	2,00
Base	Tax Amount
Tax Base	Excise Duty (B)
Document Tax Amount Calculation	Document based amount by rate

Name	(8) HR Cess on Excise Duty
Description
Default	N
Valid from Date	01-01-2000
Cascade	N
Line No.	30
Tax Category	India
Summary	N
Parent Tax Rate	DTA
Rate	1,00
Base	Tax Amount
Tax Base	Excise Duty (B)
Document Tax Amount Calculation	Document based amount by rate

Examples III

Tax Non-Deductible Organization

National Purchase

In order to get a National Purchase transaction properly posted for a Tax Non-Deductible Organization, end-user must follow below steps:

• Go to Procurement Management - Transactions – Purchase Invoice – Header and create a new purchase invoice
• Select the Organization “PublicOrg"
• Select AP Invoice as Transaction document.
• Select the business partner “National Vendor".
• Go to lines tab.
• Create a new record.
• Select the product “Item A”
• Enter the Invoiced Quantity as 1.
• Check that the Tax = National VAT 19%
• Enter as Net Unit Price = 100
• Check that the Line Net Amount = 100
• and the Line Gross Amount = 119
• and the Tax Amount = 19,00

Once the invoice is completed and posted, below posting must be shown which means that a Tax Non-Deductible Organization is not allowed to deduct purchase VAT therefore it will posted as an expense:

Account nº	Name	Debit	Credit
440000	Vendor Liabilities		119,00
689000	Product Expense	119,00 (including VAT=19,00)

National Sales

In order to get a National Sales transaction properly posted for a Tax Non-Deductible Organization, end-user must follow below steps:

• Go to Procurement Management - Transactions – Sales Invoice – Header and create a new sales invoice
• Select the Organization “PublicOrg"
• Select AR Invoice as Transaction document.
• Select the business partner “National Customer".
• Go to lines tab.
• Create a new record.
• Select the product “Item A”
• Enter the Invoiced Quantity as 1.
• Check that the Tax = Exempt Sales VAT (the one setup at Organization level)
• Enter as Net Unit Price = 100
• Check that the Line Net Amount = 100
• and the Line Gross Amount = 100
• and the Tax Amount = 0,00

Once the invoice is completed and posted, below posting must be shown which means that Sales invoices are VAT exempt:

Account nº	Name	Debit	Credit
240000	Account receivable	100,00
531000	Income account		100,00

Intracommunity Purchase

In order to get an Intracommunity Purchase transaction properly posted for a Tax Non-Deductible Organization, end-user must follow below steps:

• Go to Procurement Management - Transactions – Purchase Invoice – Header and create a new purchase invoice
• Select the Organization “PublicOrg"
• Select AP Invoice as Transaction document.
• Select the business partner “Intracommunity Vendor".
• Go to lines tab.
• Create a new record.
• Select the product “Item A”
• Enter the Invoiced Quantity as 1.
• Check that the Tax = Intracommunity VAT 19%
• Enter as Net Unit Price = 100
• Check that the Line Net Amount = 100
• and the Line Gross Amount = 100
• and the Tax Amount = 19,00 and -19,00

Once the invoice is completed and posted, below posting must be shown which means that a Tax Non-Deductible Organization is not allowed to deduct purchase VAT therefore it will posted as an expense:

Account nº	Name	Debit	Credit
440000	Vendor Liabilities		100,00
480000	VAT liabilities (-19%)		19,00
689000	Product Expense (including VAT 19%)	119,00

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