Hi UAE folks, 

I know these days, you all are at the edge of your seats if you are in UAE and runnings ERP Microsoft Dynamics AX. As per my experience of VAT implementations, it should not take more than 15 to 20 days to set up, configure and update the current implementation of the VAT. 

For your convenience, I have documented the complete end to end process. This will give you a fair idea for setting up the system and updating the existing master records. Also, I have covered the purchase and sales business process transactions to showcased the insights of system capabilities and capacity to handle VAT for UAE. 

1.VAT Implementation Introduction

Below is the step by step process for VAT implementation in Microsoft Dynamics AX2012

• Prerequisite setups in AX
• Batch job to update Master Data
• VAT for Procurement Process
  • Procurement from registered local vendors
  • Procurement from non-registered local vendors
• VAT for Reverse Charge Mechanism(RCM)
• VAT for Fixed Asset Acquisition
• VAT for Sales process
• VAT for Prepayments
• VAT Reports 

 1.1.            Prerequisite setups in AX2012

We need to perform below-mentioned list of setups and configurations to run in AX2012

• Sales Tax groups

All customers and vendors will be linked with sales tax groups

• Item Sales Tax Group

Item sales tax group will be linked to item master.

• Sales Tax Code

The Item sales tax code specifies the type of VAT to be calculated.  This is specified by the VAT group, indicating that the code is valid for that group of suppliers or customers.

 Create GL accounts

Create GL accounts for the following

1. VAT Tax payable account (212206)
2. VAT Tax receivable account (112305)
3. VAT Settlement account

 1.2.          Batch job to update Master Data

• Item master: Batch job will be developed to update the Item sales tax group for all item master.

Note: The association of item sales tax group code in Purchase and Sell tab is mandatory in order to create the VAT impact at the time of purchase or sales order creation.

• • Purchase - Item sales tax group (STD)

• • Sell - Item sales tax group(STD)

• Vendor master: Associate the default sales tax group with all the vendors (Vendor master>invoice & delivery fast tab)

• Customer master: Associate the default sales tax group with all the customer (invoice & delivery fast tab)

 1.3.          VAT for Procurement Process

• VAT for Registered Vendors

At the time of purchase order creation, system will automatically pick the Sales tax for the following

• Item sales tax group (from item master)
• Sales tax group (from vendor master)

System calculated the sales tax amount once the purchase order is confirmed

Once the purchase order is invoiced, system will post the sales tax amount in VAT receivable account

1.4.          VAT for Fixed Asset Acquisition

• Create Purchase order for the procurement category Fixed Assets
• In PO line details, make sure to select sales tax group for following
  • Item sales tax group
  • Sales tax group
• Confirm the Purchase order and system will calculate the 5% VAT

• Mark the check for new fixed asset and select the fixed group
• Post the product receipt for purchase order and system will generate the fixed asset number in fixed asset master
• The system will generate the fixed asset acquisition once the purchase order invoice has been posted.

1.5.          VAT for Sales Process

Once the sales order is created system will automatically pick the following groups from customer and item master

• Sales tax group from customer master (DXB)
• Item sales tax group from item master (STD)

• Post the invoice for the sales order, system will post the tax amount in VAT payable amount

 1.6.          Run Sales Tax Payments

Run the job for sales tax payments. This job will calculate the sales tax that is due for a given period. The calculations in this form include only the sales tax that has not yet being paid to the sales tax authority.

Path: General ledger > Periodic > Sales tax payments > Sales tax payments.

Sales Tax Payment Versions: There are following four options available for the sales tax payment versions

1. Original – Sales tax transactions of the first posted settlement calculation for the period interval.
2. Corrections – Sales tax transactions that are not included in the first posted settlement calculation for the period interval. The report includes all subsequent payments that are posted for the settlement period.
3. Latest corrections – Sales tax transactions that are included in the most recent settlement calculation made for the period. If you select the Update check box and this option, the settlement calculation of the current job is the most recent settlement calculation.
4. Total list – All sales tax transactions to be settled in the current period.

The VAT payable amount to FTA is 995 AED

1.7.           VAT for Prepayments

• Create the purchase order with 70% prepayments for registered VAT vendor
• Select the line item, system will automatically pick the default value for item sales tax code and sales tax group in purchase order lines
• Confirm the purchase order, system calculated the 5% VAT

• Generate prepayment invoice and system will post the prepayments(with VAT 5%) for vendors.

1.8.         Reports

• Following are the list of reports provided by the system, after the VAT implementation.                                                                                         

1. Purchase order report
2. Sales invoice report
3. Sales order credit note
4. Sales tax return filing report

Cheers!

Ali Danish