VAT/ICP concepts (General)

This section explains some general concepts surrounding VAT and ICP.

VAT

The 'Value Added Tax' (VAT) is a tax on the difference between sales and purchases. The difference between sales and purchases (including costs) is also called 'added value'. Another name is 'Turnover tax’ although this name does not fully cover the meaning.

The VAT is determined as follows:

• You calculate VAT on the goods and/or services you deliver to your sales contacts.
• Your purchase contacts charge you VAT if you purchase goods and/or services.

VAT is a declaration tax. You must pay the VAT you receive from the customer over to the tax authority. The VAT you pay to your suppliers can be deducted from this.

You enter the VAT automatically by using VAT codes in the sales orders, invoices and financial entry layouts. In this way, Profit applies the correct VAT rate and the VAT amounts are entered in the correct ledger accounts. The amounts for the VAT declaration are based on these.

ICP

ICP (Intracommunautaire Prestatie) refers to the situation in which your company supplies goods or services to a buyer in another EU country that is liable for VAT. You already register these ICP transactions in Profit before the VAT declaration, but you must also submit an ICP declaration.

You need not charge any VAT on these goods. This is what is known as the 'zero rate'. You can only use the zero rate if you meet the following conditions:

• The goods supplied by you have actually left the Netherlands.
• The foreign purchaser has a VAT number. This number must be stated on the invoice.

You are obliged to clearly administer all goods that you deliver to other countries within the EU. The total amount must be specified on the VAT declaration. In addition, you must submit an overview of all the delivered goods to the tax authority periodically. You do this using an ICP declaration (Intra-community Transactions).

An IC transaction need not only be based on an invoice. It can also be that you deliver goods or perform services in another EU country in which your company has a branch. These ICP transactions have to be registered as fictitious intra-community deliveries.

There also are some very specific transactions for which no invoice is used and that therefore would not end up in the VAT/ICP declaration. For example, repairs of goods abroad. You record these types of transactions manually in an ICP register.

VAT regulations

The legislative country set in the administration properties determines which regulations apply. This is usually the Netherlands, but it could also be Belgium with the Belgian regulations, if you are based there.

Moment the VAT is taxable

The point in time at which a VAT transaction is taxable is important when regulations change, because in that case you must know whether the old regulations, rates, etc. apply or the new ones. In fact, the VAT is taxable right when the VAT transaction takes place. In practice, invoicing often is the deciding factor, the so-called invoice system. For the calculation of the VAT amount, Profit looks at the order and quotation date, then in invoicing at the invoice date and at the voucher date in the financial entry.

Calculation method

The VAT code includes the calculation method of the VAT. In Profit, the following calculation methods are available:

• Normal calculation

  Profit calculates the VAT on the cost or revenue amount, depending on the journal selected.

• Single out

  You always enter amounts including VAT. Profit automatically calculates the net amount and the VAT amount. These amounts are posted on the entry lines in question.

  Only use this calculation method for special VAT codes. In regular cases, use the Normal calculation method.

  Example: 

  You enter a gross amount of €1,210.00. The calculation of the amount exclusive of 21% VAT to be posted, is as follows:

  100/121 * 1,210 = 1,000.00. The VAT amount is calculated as follows: 21/121 * 1210 = 210.00.

• Add

  You always enter amounts exclusive of VAT. Profit automatically calculates the VAT amount and the gross amount. These amounts are posted on the entry lines in question.

  Example: 

  You enter a net amount of €1,000. The VAT amount is calculated as follows: 21/100 * 1000 = 210.00.

• Split (special calculation) (4)

  Profit always calculates the VAT on the amount inclusive of VAT entered. Then, both the amount exclusive of VAT and the VAT amount are posted on the entry lines in question.

  Example: 

  You enter an amount of €1,000.

  The calculation is as follows: 1000 - (21/100 * 1000) = 790. The VAT amount is calculated as follows: 21/100 * 1000 = 210.00.

• Exempt

  The amount is increased based on the VAT percentage; entries on both the account and the contra account are inclusive of VAT.

• Margin arrangement

  For margin goods, you do not post an entry in Profit for the purchase. When the goods are sold, you split the turnover into a purchase part and the profit margin part. The Margin arrangement calculation method therefore only applies to the purchase part of the sales transaction. This calculation basis is not listed on the declaration and the VAT does not get calculated, counted or printed. For the profit margin part, use the normal VAT code or a separate VAT code for the margin scheme with a VAT percentage of 21% (on the profit margin).

• No calculation

VAT exemption

Not every company needs to submit a VAT declaration. If you are an institution or association, then you are not subject to VAT duty. You can set this via the VAT exemption. After this, you will not need to configure anything else.

Exempted transactions

Transactions for which you do not have to pay VAT on the compensation you receive. For exempt transactions, it is not allowed to deduct the VAT as input tax. Examples are some medical, social or cultural services and banking services.

Transfer arrangement

This is a VAT arrangement according to which it is not the supplier, but instead the buyer that has to calculate and declare the VAT You use this for international trade and for subcontracting in the construction, clothing and metal industries. This arrangement also applies to mobile phones, tablet computers and laptops, provided you reach the threshold amount per type of good and per delivery. For more information, please refer to the website of the tax authority.

In that case, you distinguish between purchase and sales transactions:

• Purchase

  You receive invoices on which no VAT is calculated. You must calculate the VAT on the invoice total and declare it. For this, you use a VAT code with the Postpone calculation method. You typically can deduct the VAT as input tax.

  In the case of ‘Transferred purchases’, the Normal calculation calculation method is always entered. Of course, in the case of 'Transferred purchases' from Order Management, the calculation uses 0% and the VAT amount is only calculated when the declaration is prepared.

• Sales

  You do not pay the transferred VAT yourself, but your debtor pays the VAT to the Tax Authority (for example in the case of subcontracting). On the VAT declaration, the debtor lists the turnover amount on which VAT is due separately.

Profit contains the predefined VAT codes and sections, so the VAT amounts and the calculation bases end up on the declaration correctly.

Margin arrangement

This is a special arrangement for used goods, art, antiques or collectibles. Traders in these goods often buy them from private persons or VAT-exempt companies. No VAT is charged on the purchase. When the goods are resold, the VAT has to be calculated. This means that over a part of the turnover VAT would be paid twice. To prevent this, you can use the margin arrangement.

This means that you do not calculate the VAT on the sales price, but instead on the profit margin, i.e. the difference between the sales price and the purchase price. As a result of this, the VAT due decreases.

For more information on the margin arrangement, please refer to the website of the tax authority.

Points of attention for the margin arrangement:

• You are not entitled to settlement of the input tax on the purchase of the margin goods.
• If you, as the reseller, purchase goods, the seller of the goods does not charge any VAT on the invoice.
• If the profit margin is negative, you do not need to pay VAT.
• For the calculation of the VAT, you use the high rate, except for deliveries of goods to which the low rate applies, such as books.

To use the margin scheme, you can post an entry in both the Purchase journal and the Sales journal in Profit Financial. However, to post the purchase entry you have to configure the VAT code for this.

When you enter the purchase, you post to the VAT code you have configured for this purpose. It is a purchase of a (second-hand) good without VAT for which no VAT code under the margin arrangement applies.

For the sale, you post entries to two VAT codes:

• the usual VAT code or a separate VAT code for the margin arrangement with the high rate (on the profit margin)
• the 0% VAT code for the purchase part of the margin arrangement. This calculation basis does not appear on the declaration, because no VAT was paid for the purchase. Because this VAT code is not included in the declaration, you also cannot include it in a section either.

  Example: 

  You buy a used car from a private person for €1,500.00. You sell this car for €2,000.00 including VAT. The profit is €413.22 and the VAT is €86.78. VAT calculation: (500/121)*21 = €86.78.

  The journal entry for the purchase transaction:

The journal entry for the sales transaction looks as follows:

Only the last two lines of this journal entry are included in the VAT declaration.

In Profit, you cannot invoice on the basis of the margin arrangement, but you can record a purchase and sales invoice in Profit Financieel in the way described here.

Globalisation arrangement

Profit does not support the globalisation arrangement. If you use the globalisation arrangement, all margin purchases are deducted from the margin sales in a declaration time frame. The difference between the two is the profit margin inclusive of VAT.

Export outside the EU

For import and export to countries outside the EU, no VAT is charged on the purchase and sales invoices. However, you do have to include the turnover amount from this type of transaction via the VAT declaration. You do not have to include them in the ICP declaration.

Telesales

In the case of import and export for telesales, you do charge VAT to the buyer (for example in the case of sales to private persons). The VAT and turnover from these types of transactions are listed separately on the VAT declaration.