If your company is located in an EU country/region and buys items from a vendor in another EU country/region, your company is required to account for purchases that are not subject to sales tax.

If the vendor invoice does not include VAT (sales tax) according to current tax regulations, you must record the sales tax.

1. Click General ledger> Setup> Sales tax> Ledger posting groupsto create a ledger posting group for EU purchases that are not subject to sales tax.

   1. Enter an identifier in the Ledger posting groupfield.

   2. Select a ledger account in the Use tax expensefield for the ledger posting group. You can select the usual ledger account for incoming VAT, which is the account that you usually select for the Sales tax receivablefield in other ledger posting groups, or you can create a separate ledger account for reporting purposes.

   3. Select a Use tax payablefor the ledger posting group.

2. Click General ledger> Setup> Sales tax> Sales tax codes to create a sales tax code, and assign the ledger posting group that you created to the sales tax code.

3. Click General ledger> Setup> Sales tax> Sales tax groups to create a sales tax group.

   1. Add the sales tax code that you created in step 2 to the sales tax group on the Setuptab.

   2. Select the Use taxcheck box for the sales tax code in the Sales tax groups form.

4. Click Accounts payable> Vendors, select the foreign vendor, and assign the sales tax group to the foreign vendor.

5. Click General ledger> Setup> Sales tax> Item sales tax groups to create an item sales tax group and assign the sales tax code that you created in step 2 to the item sale tax group.

6. Click Inventory management> Items, select the item that you are purchasing from the foreign vendor, and attach the item sales tax group that you created in step 5 to the item.

   Note
   If you also purchase the item from domestic vendors and do not want to change the default item sales tax group on the item, change the item sales tax group on the purchase order or invoice line to the foreign vendor.

7. Create and post the purchase order to the foreign vendor for the items. A vendor invoice is created. For more information about purchase orders and invoices, see Invoice journalsand Purchase orders in general.

   When you receive the goods and post the vendor invoice, the sales tax appears to be calculated and posted as if it is being paid to the vendor, but the following occurs:

   • The sales tax is debited to the account that you select for the Ledger posting groupin the Use tax expensefield.

   • An equal transaction is credited to the account that you selected in the Use tax payablefield. You have actually not paid the sales tax amount to the vendor, however, so there is nothing to settle with the tax authorities.

   Note
   If the vendor does charge VAT on the invoice and you accept the invoice, you cannot deduct the VAT amount from the VAT calculation that you prepare for your domestic tax authority. Instead, you must post the VAT amount that you paid to the vendor as part of the purchase cost. To do this, select an appropriate sales tax group and item sales tax group for each line before posting.

8. Click General ledger> Periodic> Sales tax payment> Sales tax payment , and complete the periodic job. The transactions in step 7 offset each other, and sales tax is not paid for the transaction with the foreign vendor.