A Step-by-Step Process to Handle VAT on Import Purchases

  • by Yogesh Lohiya, Senior Consultant, Infosys Ltd.
  • June 24, 2011
Walk through the steps one company took in SAP logistics to properly apply value-added tax on import purchases, thus avoiding complex configuration.
Key Concept
Value-added tax (VAT) is form of consumption tax that is applicable on the purchase price of a material. In some countries, when a company procures goods from a foreign vendor, you need to apply VAT to the total price, which includes the costs of materials, freight, insurance, import duty, surcharge, and excise. You pay VAT to the custom department at the time of receiving the material at a port, and it is a nondeductible component.

I recently helped a company in Thailand with a successful application of value-added tax (VAT) to its import purchases. In Thailand you need to apply a 7 percent VAT to import purchases. The steps I used avoid the need for configuration of a new tax procedure to handle VAT on import purchases. They apply to any business and country in which VAT is mandatory for import purchases.

To achieve this goal, I use a direct posting to the general ledger (G/L) account via invoice posting transaction MIRO. At the time of creating the import purchase order (PO) for Thailand, I entered 0 percent for tax, not 7 percent, because otherwise the system applies this 7 percent on the net price, not the total price as needed. Also, I needed to ensure that VAT did not post to an inventory account.

When materials arrive at a Thai port, companies pay customs duties and VAT to the customs department as per the invoice provided. Then in the SAP system, the VAT paid to the customs department is captured against the G/L account created for VAT. Below I provide the step-by-step process to achieve this:

Yogesh Lohiya

Yogesh Lohiya is a senior SAP MM consultant with Infosys. He is currently working on a large data migration project for a Fortune 500 client. He has more than nine years of consulting experience. He also has worked on various SAP global rollouts and data migration projects in the materials management area.

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