You can flexibly configure tax rates with multiple components to respond to the requirements of companies operating in multiple countries. For example, in some countries, taxes may be divided into multiple levels, such as federal, state, or local. Each of these levels may have distinct tax rates or rules, requiring companies to account for and apply different tax components based on the jurisdiction.
The advanced tax rate configuration allows you to manage these various components within a single tax rate, ensuring accurate calculations that comply with each jurisdiction’s specific tax regulations.
The standard tax rate setup used for expenses doesn’t cover these complex scenarios.
With advanced tax rate configuration, businesses can handle specialized tax situations such as self-assessed taxes. In some countries or scenarios, businesses may need to self-assess taxes instead of being charged directly by a supplier. Invoice processing can configure this tax type to ensure compliance with such requirements.
You can mark certain taxes as non-deductible, meaning the business cannot reclaim them as input tax credits. This is particularly useful in situations where certain goods or services are subject to non-reclaimable taxes, which need to be recorded accurately in the accounting system.
Overall, this advanced tax configuration option helps businesses ensure that their VAT and tax calculations are accurate, compliant with local regulations, and tailored to their specific operational needs.
Enabling tax rate components for invoices
To enable advanced tax rate configuration for invoices:
- Go to Settings > Supplier invoices > Invoice settings.
- Turn on the Enable tax rate components toggle.
Once the toggle is enabled, the advanced tax rates configuration section, Configure tax rate components, appears for new and existing tax rates (Settings > Cost management > Tax rates).
If you do not enable the Configure tax rate components for invoices option, then the standard tax rate setup is used.
The standard tax rate setup contains the Tax category field, which will be used in the future to determine tax, enhancing the automatic assignment of tax rates to invoices during invoice upload. However, currently this field is for information purposes only.
If advanced tax rate components are not enabled for a tax rate, the line item totals displays the name of the tax rate.
Calculating invoice line item amounts with advanced tax components
When advanced tax configuration is enabled for the legal entity, there are two additional columns: self-assessed tax amount and non-recoverable tax amount. For more information, see Calculating invoice line item amounts.
Self-assessed and non-recoverable taxes (if set for that tax rate) are calculated automatically for each line item where that tax rate is applied.
You can click on the line tax amount to display a pop-up window with more information about the calculated tax components.
Setting up tax rate components
If Configure tax rate components for invoices is enabled, you see an additional Tax rate components section where you can set up advanced tax rate configuration.
Depending on the requirements of the tax jurisdiction, you can set up one or multiple tax components. For example, in Europe a single tax component is usually used, whereas in countries such as Canada (with GST and provincial taxes), India (with CGST, SGST, IGST), USA (state, county, city taxes), and others, multiple tax components can be part of a single tax rate.
You must enter at least one tax component for the tax rate to save.
Warning: Currently, tax rate components included in invoices can only be retrieved through the Yokoy API only. Other integrations do not support these tax components.
Tax rates with components can be created via Yokoy API, CSV import file, and manually.
To set up an advanced tax rate configuration, in addition to the standard tax rate fields, you need to fill out these fields:
| Field | Required | Description |
|---|---|---|
| Name | Required | This field specifies the type of tax applied (for example, VAT, GST, PST, QST, sales tax, or use tax). It is used in the Totals section of the invoice line items to show the total amount for each tax type on the invoice. This helps ensure transparency by clearly displaying how much of each tax type (such as VAT or GST) has been applied. It is especially useful in regions where multiple tax types may apply to a single invoice. |
| Assessment type | Required |
This field identifies who is responsible for calculating, reporting, and remitting the tax. In invoices, there are typically two types of tax assessment:
Depending on the assessment type selected, the tax amount for a line item is shown either in the Tax field or the Self-assessed tax field. The Self-assessed tax field is only available when the Enable tax rate components option is turned on. This column is hidden by default. |
| Rate (%) | Required |
This field specifies the percentage rate applied to the tax rate component. You can enter rates up to four decimal places. It is a required field for both supplier-assessed and self-assessed tax components:
The Total Tax Rate field is automatically calculated as the combined value of all supplier-assessed tax rate components. Negative rates can be entered for individual tax rate components; however, the total of all supplier-assessed tax rate components cannot be less than zero. |
| Recoverability (%) | Required |
This field represents the portion of the tax amount that a business can reclaim from the tax authority. The default value is 100%, and it accepts values between 0 and 100%. It is used to determine the amount of non-recoverable tax for each invoice line item. The Non-recoverable tax field is only available as a column when the Enable tax rate components option is turned on in the Invoice settings. This column is hidden by default. |
| Input tax account | Optional |
This field is used for integration purposes when posting invoices. You should enter the GL account that records the tax paid on purchases and business expenses. This account allows businesses to reclaim these taxes from the tax authorities, helping to reduce their overall tax liability. When tax rate components are enabled, you do not need to enter a value in the Account (ERP) field, as it is replaced by the Input tax account field within the tax rate component. However, if the same tax rate is used for both expenses and invoices, you must enter a value in the Account (ERP) field, since it is required for expense transactions. |
| Output tax account | Optional | This field is used for integration purposes when posting invoices. You should enter the GL account used to record the output tax that the business must calculate and remit to the tax authorities when it receives invoices without tax — for example, in cross-border transactions or reverse charge situations. |
| Tax expense account | Optional | This field is used for integration purposes when posting invoices. You should enter the GL account that records non-recoverable tax expenses — that is, taxes paid on purchases or expenses that the business cannot reclaim as input tax from the tax authorities. |