VAT Declaration Points

The VAT declaration point determines when VAT is declared.  For Accounts Payable, VAT can be declared when the vendor invoice is received or when the payment is made.  For Accounts Receivable, it can be declared when the invoice is created or the payment is received. 

The declaration point determines the accounting entries that will be made for the VAT transaction.  Codes for each of the two declaration points (invoice and payment) are defined on Reference File category 022.  In Accounts Payable, the declaration point is specified for each vendor on the Vendor Master File; a default value can be entered on category 206, Vendor Defaults.  In Accounts Receivable, the declaration point is specified on the invoice.  A default for the customer can be specified on the Customer Master File.  In addition, a default value for each company/location can be specified on Reference File category 132, Location Defaults.

If VAT is declared at payment, an intermediate VAT account must be used within Accounts Payable and Accounts Receivable as follows:

1.   When the invoice is created or received, the VAT amount stated on the invoice is entered into the intermediate VAT account.

2.   When the payment is made in Accounts Payable, the VAT amount is credited to the intermediate account (to back out the prior entry) and debited to the final VAT declarable account.  When the payment is received in Accounts Receivable, the VAT amount is debited to the intermediate account and credited to the final VAT declarable amount.

Any necessary adjustments are made against the intermediate or declarable VAT accounts.  These accounts for Accounts Receivable, together with all other AR accounts, are defined on Reference File category 302.  Intermediate and declarable VAT accounts for Accounts Payable are defined on Reference File category 202.

In order to meet Italian fiscal requirements, additional processing can be specified for a payment that is made for a VAT declaration type of 2 (VAT declared at payment time).  Whenever you sell either goods or services to government or public companies, you will be able to isolate invoices and associated payments by use in specific sectors.  Refer to the Payment Time VAT Review Processing section of this key concept for more information.