Finance Reverse Charge and Import VAT for assets purchased from EU and 3rd countries

PURPOSE

Assets for leasing are often purchased outside the local market, and the way purchase VAT is handled depends on where the asset comes from and how the leasing company settles the VAT. For financial products that finance the asset price including VAT, SOFT4Leasing can now include this VAT in the amount to finance in all of the following scenarios:

Scenario 1 – Purchase from an EU supplier (Reverse Charge VAT). The supplier issues one invoice without VAT. The leasing company self-assesses the VAT (reverse charge). The VAT amount is added to the amount to finance and re-invoiced to the customer.

Scenario 2 – Purchase from a 3rd country outside the EU with postponed VAT accounting (PVA). The leasing company uses PVA, so no VAT is paid at the border. The supplier invoice is handled exactly like scenario 1 (reverse charge), and the VAT amount is added to the amount to finance.

Scenario 3 – Purchase from a 3rd country outside the EU, VAT paid upfront at import. There are two purchase invoices: the supplier invoice for the goods has 0% VAT, and a separate Full VAT invoice for the import VAT comes from customs or the freight forwarder (the VAT is later reclaimed through the VAT return). Although the supplier invoice itself carries no VAT, the import VAT rate is added to the amount to finance, and on contract activation the customer is invoiced with VAT, so the customer finances the same VAT-inclusive amount as in scenarios 1 and 2.

In all three scenarios, the leasing company can finance the full VAT-inclusive cost of the asset, regardless of how the VAT is settled for the purchase. Example used below: asset price 80,000.00, VAT 10% → amount to finance 88,000.00.

SETUP

The two VAT Posting Setup settings described below are SOFT4Leasing-only settings. They affect only the leasing process (the amount to finance calculation and the contract activation postings) and do not change standard purchase or VAT posting in Business Central.

Common setup (all scenarios)

1. Open Financial Products and, on the financial product that should finance the asset price including VAT:
   • turn on Amounts Including VAT;
   • turn on Full Asset Value Invoice, so that on contract activation the customer is invoiced for the full asset value (the examples below use this setup);
   • fill in Purchase VAT Group (default) with the VAT product posting group of the standard VAT rate (e.g. VAT). It is required for scenario 3 – see below.
2. Make sure the supplier (vendor) has the correct VAT Bus. Posting Group and the asset / option has the correct VAT Group (VAT product posting group). The combination of these two selects the VAT Posting Setup line used for the calculation.
3. Open VAT Posting Setup and configure the line for each scenario as described below. Two SOFT4Leasing fields are available on the line:
   • Allow Reverse Charge or Import VAT Financing – turn on when the VAT must be included in the amount to finance. If VAT must not be financed (e.g. specific local goods purchases), leave it off.
   • Import VAT % – the VAT rate paid at import; used only in scenario 3.

Scenario 1 – Purchase from an EU supplier

Create or open the VAT Posting Setup line for the EU supplier's VAT business posting group and the asset's VAT product posting group, and set:

Scenario 2 – Purchase from a 3rd country with PVA

Set up the line in the same way as scenario 1, but for the non-EU supplier's VAT business posting group:

Scenario 3 – Purchase from a 3rd country, VAT paid at import

Two VAT Posting Setup lines and the financial product default VAT group are needed.

a) The line used on the supplier invoice for the goods (0% VAT) – this is the line that drives the leasing calculation:

b) The line used on the Full VAT invoice from customs / freight forwarder – standard Business Central setup, no SOFT4Leasing settings:

c) Purchase VAT Group (default) on the financial product – e.g. VAT. The asset itself has a 0% VAT group (NOVAT), so it cannot be used to charge VAT to the customer. When Import VAT % is filled in, the customer invoice created on contract activation uses this default VAT group instead of the asset's VAT group. Make sure a VAT Posting Setup line exists for the customer's VAT business posting group and this VAT group with the standard sales VAT rate (e.g. 10%). If Purchase VAT Group (default) is empty, contract activation stops with an error.

Validation rules

• Allow Reverse Charge or Import VAT Financing can be turned on only when VAT Calculation Type is Reverse Charge VAT, or when it is Normal VAT and VAT % is 0. Otherwise an error is shown.
• Import VAT % can be entered only when Allow Reverse Charge or Import VAT Financing is on, VAT Calculation Type is Normal VAT and VAT % is 0.
• Turning off Allow Reverse Charge or Import VAT Financing clears Import VAT %.

HOW TO USE

Scenario 1 – Purchase from an EU supplier

1. Create a quote or application with a financial product that has Amounts Including VAT turned on.
2. Add the asset, select the EU supplier and the asset's VAT group (e.g. EU / VAT).
3. Enter the Purchase Price, e.g. 80,000.00. The supplier invoice has no VAT, so the price including VAT and excluding VAT are the same.
4. The system adds the VAT % from VAT Posting Setup to the amount to finance: 80,000.00 + 10% = 88,000.00. The same applies to Residual Value, if used.
5. Purchase Price and Residual Value on the asset line, and Asset Price on the schedule card, are shown in bold, which tells the user that VAT has been added to the financed amount.
6. Convert the quote to a contract and post the supplier invoice. The supplier invoice (80,000.00) is posted with reverse charge VAT: VAT credit 8,000.00 and reverse charge VAT liability 8,000.00; amount payable to the supplier 80,000.00.
7. Activate the contract. The customer invoice is created for 88,000.00 (80,000.00 net + 8,000.00 VAT) using the asset's VAT group, and the contract receivable / Net Amount Financed is 88,000.00.

Scenario 2 – Purchase from a 3rd country with PVA

1. Create a quote or application with a financial product that has Amounts Including VAT turned on.
2. Add the asset, select the non-EU supplier and the asset's VAT group (e.g. NON-EU / VAT).
3. Enter the Purchase Price, e.g. 80,000.00.
4. The system adds the VAT % to the amount to finance: 88,000.00. The price fields are shown in bold, as in scenario 1.
5. Post the supplier invoice. It is posted with reverse charge VAT (postponed VAT accounting), exactly like scenario 1: VAT credit 8,000.00, reverse charge VAT liability 8,000.00, payable to the supplier 80,000.00.
6. Activate the contract. The customer invoice is created for 88,000.00 (80,000.00 net + 8,000.00 VAT) using the asset's VAT group, and the contract receivable is 88,000.00.

Scenario 3 – Purchase from a 3rd country, VAT paid at import

1. Create a quote or application with a financial product that has Amounts Including VAT and Full Asset Value Invoice turned on and Purchase VAT Group (default) filled in.
2. Add the asset, select the non-EU supplier and the 0% VAT group (e.g. NON-EU / NOVAT).
3. Enter the Purchase Price, e.g. 80,000.00. The supplier invoice has 0% VAT, so the price including VAT and excluding VAT are the same.
4. The system adds the Import VAT % from VAT Posting Setup to the amount to finance: 80,000.00 + 10% = 88,000.00. The price fields are shown in bold.
5. Post the two purchase invoices:
   • the Full VAT invoice from customs / freight forwarder for the import VAT (e.g. 8,000.00), posted with the Full VAT line (e.g. VAT / FULLVAT) – the full amount is posted as VAT credit and later reclaimed through the VAT return;
   • the supplier invoice for the goods (80,000.00) with 0% VAT (e.g. NON-EU / NOVAT).
6. Activate the contract. Because Import VAT % is set for the asset's VAT Posting Setup line, the customer invoice line for the asset is created with the financial product's Purchase VAT Group (default) (e.g. VAT) instead of the asset's own VAT group (NOVAT). The asset card keeps its VAT group – only the customer invoice line is switched. As a result, the customer invoice is created for 88,000.00 (80,000.00 net + 8,000.00 VAT), and the contract receivable / Net Amount Financed is 88,000.00 – the same as in scenarios 1 and 2.

Notes

• The VAT amount is added only when Allow Reverse Charge or Import VAT Financing is turned on for the VAT Posting Setup line. For a reverse charge line without this setting, VAT is not added to the amount to finance and the price fields are not shown in bold.
• Options (accessories and bolt-ons, + Options on the schedule card) are handled the same way as the asset, based on their own supplier and VAT group – including the VAT group switch on the customer invoice in scenario 3.
• Contract variations that add an asset use the same amount to finance calculation.
• If the financial product does not have Amounts Including VAT turned on, the amount to finance is always based on prices excluding VAT and these settings have no effect.