sales tax functionality for saudi arabia: overview and setup · microsoft dynamics ax 2012 r3 sales...

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.

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mailto:[email protected]

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Sales tax functionality for Saudi Arabia: Overview and setup 2

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

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.


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).


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.


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])


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 code 1

Sales tax code 2

Sales tax code 3

Sales tax code 4

Sales tax code 5

Report codes 1,2.

Report codes 11,12..

Report codes 21,22..

Sales tax transaction 1







Report code 1

Report code 21

Report code 2

Report code 22


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.

https://technet.microsoft.com/en-us/library/aa588316.aspx


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.


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.

https://technet.microsoft.com/en-us/library/gg852966.aspx



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.


https://technet.microsoft.com/EN-US/library/aa548925.aspx






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.

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 group

Domestic

Item sales tax group

Sales–

Sales tax Codes

5%

Sales tax Codes

5%

0% Item sales tax group

Sales–

Sales tax Codes

0%

Customer

Item 1

Item 2

Sales order

Sales order lines

Item 1 Domestic+Sales-5%

Item 2Domestic+Sales- 0%


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.


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).



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.

https://technet.microsoft.com/EN-US/library/aa496600.aspx

https://technet.microsoft.com/en-us/library/jj677335.aspx


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).

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sales tax functionality for saudi arabia: overview and setup · microsoft dynamics ax 2012 r3 sales...

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