Customizing Xero Global Version for VAT reporting

Customizing Xero Global Version for VAT reporting

VAT compliance can be complex at times. In this post I will show you customizing the Xero Global version for optimal VAT reporting. I will focus on tracking EU transfers allowing reporting them in the EU sales and purchases recapitulative statements.

I will focus on the Spanish scenario, but the same principles can be applied to any other EU company using the Xero Global version.

What is a transfer from a VAT perspective?

We all know what are intra EU sales and purchases. These are sales between taxable payers for VAT (b2b) where the goods are dispatched from one EU country to another. In these cases, the seller must report this transaction as a zero taxed VAT supply and the purchaser must report the transaction as an intra EU purchase, subject to VAT under the reverse charge mechanism. Likewise, both parties must report the transaction in the EU sales / purchases recapitulative report (in Spain tax form 349).

Reporting these transactions in Xero does trigger any particular problem. We recommend that two tax rates codes are created in Xero to track these transactions. For instance, the company can create a tax rate code called VATEU to be assigned to sales to other EU businesses.

However, there are other transactions which follow the same tax treatment than EU sales and purchases, but actually they are not. These are called EU transfers.

A transfer takes place when a company moves goods from a warehouse located in one EU country to another. Note that in this case, no transfer of ownership takes place. The goods have not been sold to any third party. But for VAT purposes, this movement of goods must be treated as if the goods had been sold. Therefore, in the country where the goods are dispatched from this is treated as an EU sale and in the EU country where the goods arrive it is an intra EU purchase. And must be reported either for VAT and for in the EU sales and purchases report.

Some practitioners call these transfers “self-sales” which I find very appropriate.

You can learn more about them in this link: Cross-border VAT rates in Europe – Your Europe (europa.eu)

Tracking EU transfers with the Xero Accounting software

It is clear that accounting wise, no revenue or cost should be registered as a consequence of an EU transfer, as no change of ownership takes place. It only changes the place where the goods are stored but that is all.

However, from a VAT perspective, these transactions are taxable facts, and something must be done with these transactions in Xero. Otherwise, they would remain unreported. When you run the Xero tax report, these transactions must appear somewhere, so that you can report them correctly.

The best way to do this and the procedure that we endorse is to report in Xero these shipments as sales / or purchases using a balance sheet control account. Thus, when the company sends goods from Spain to other EU countries, an invoice should be created using as contact the same company (maybe with an indication of what is going on, like company ABC- EU transfers). The account to be used should be a balance sheet control account (“EU transfers control account”) and the tax rate VAT-EU, which is the same tax rate that you would use for any standard EU sale.

Once these invoices are created, it should be “paid”, as otherwise they would appear in the outstanding invoices. It makes no sense that a company owes money to itself. Then the invoice is paid using as payment account the same (“EU transfers control account”) which will then be balanced to cero. Paying the invoice against this account means posting a credit in the account. Remember that when creating the account EU transfers control account you should enable payments into this account, so that it can be used as a “bank”- like account.

The same procedure would be used for EU transfers from the recipient country point of view, mutatis mutandis (it would be a bill, rather than an invoice)

Thanks for reading and I hope that you find this information useful

In Tax Partners will be happy to assist your company with the accounting and tax compliance using Xero. We are Certified Xero Advisors and Silver Partners. We have been advising Xero clients for about 10 years so far and are one of the main players in Spain in this field.

Please feel free to contact us

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