European Single Market and VAT Processing: Overview 

With the advent of the European Single Market, the tax frontiers between the individual states of the European Union have been abolished. Border controls have been replaced by more extensive reporting for deliveries made to companies in other countries of the EU. Vendors have to report these deliveries/goods movements to their own tax authorities in an EC sales list. Delivery itself is tax-exempt with tax being levied in the country of destination. Import tax has been replaced by acquisition tax.

To enable the authorities to check that the new law is applied correctly, every company that has to pay tax on an acquisition within the Union is assigned a VAT registration number (VAT This number must be specified on invoices, and vendors must enter both their own VAT registration number and their customers’ registration number in the sales lists for the tax authorities.

For financial accounting purposes, the above legislation means companies need to produce an extended advance return for tax on sales/purchases and an additional report. For reporting purposes, new fields have been included in the line items. New tax codes are required for posting the tax and for documenting the tax-exempt deliveries.

The changes that affect financial accounting are explained in the following topics. If you are affected by this new legislation, you should check that you have made the necessary system settings described in the following topics.

The settings you make when configuring your system must be in line with the laws passed in your country concerning VAT processing within the European Single Market.