ProcessPurchases from Foreign Vendors

 

When you buy products or services from foreign vendors that are not registered with the Russian tax authorities, you calculate input VAT on the purchase and withhold this amount from the vendor. At the end of each month, you remit the VAT withheld to the tax authorities, and file a VAT return for each vendor that you have withhold tax from.

The following process offers an example of how you record such purchases in the system. It assumes that a vendor, Mary Allen, charges you RUB 600,000 for service provision, plus RUB 120,000 in VAT. Mary wants you to pay the entire amount before work starts. You pay her RUB 600,000, and you retain the VAT and remit it to the tax authorities yourself.

Prerequisites

See Customizing for Purchases from Foreign Vendors.

Process

  1. The accounts clerk makes the down payment for the services to be provided by Mary Allen.

    He enters it in the system following the standard procedure, using the tax code MF. The system generates the following accounting document to:

    • Record the payment to Mary Allen and deduct this amount from your bank account

    • Record the output VAT due on the down payment, with the offset posting on a clearing account

    Payment Order

    This graphic is explained in the accompanying text.

    In the standard system, the number of the account for output VAT withheld on VAT payments is 68020320, and the corresponding clearing account is 60001299.

  2. Mary Allen provides the services and sends you an invoice, which your accounts clerk enters as follows:

    1. He enters the invoice in Logistics Invoice Verification (MM-IV-LIV) following the standard procedure, and using the tax code P2 (but see “Prerequisites” above). The system generates the following accounting document:

      Invoice

      This graphic is explained in the accompanying text.

      In the standard system, the number of the account for deferred input VAT is 19100000.

    2. He creates a subsequent credit to reduce the amount to be paid to Mary Allen by the VAT amount (see Withholding Output VAT). That results in the following accounting document:

      Subsequent Credit

      This graphic is explained in the accompanying text.

      In the standard system, the number of the account for deferred output VAT withheld is 76701020.

    Alternatively, instead of entering the invoice in MM, you can enter it in Accounts Payable (FI-AP, see Entering Invoices from Foreign Vendors), in which case the system generates only one accounting document.

  3. Your accounts clerk clears the down payment against the invoice and the subsequent credit following the standard procedure (see Clearing).

    The system creates the following document to:

    • Clear the liability, the credit memo, and the down payment

    • Clear the vendor’s output VAT that you withheld when you made the down payment

    Clearing Document

    This graphic is explained in the accompanying text.

Result

At the end of the process, you have paid Mary Allen RUB 600,000 and withheld RUB 120,000 VAT from her, which is on the account for deferred output VAT withheld. In addition, you have debited RUB 120,000 to your own deferred input VAT account.

When the tax accountant runs the tax transfer program, the system transfers the input VAT and the output VAT from the deferred tax accounts to the target tax accounts. The tax code for the input VAT is PC, and it is posted to the account 68020420; the tax code for the output VAT is MC, and it is posted to account 68020220.