VAT (Value-Added Tax) is an indirect tax that is collected by businesses on behalf of the Government. This tax is applied at each stage in the supply chain and is ultimately paid by end consumers. VAT is applicable to most goods and services with some exceptions such as basic food items, some medicines, and other essential goods that are tax-exempt.
The VAT-registered companies must add the VAT as specific percentages to the prices of the goods and services they sell. The VAT amounts the company collects from their customers is called Output VAT, and the VAT amounts the company pays to its suppliers is called Input VAT. The part of input VAT that can be reclaimed from the Tax Authority for the supplies used for business purposes including reselling and manufacturing of new goods is Recoverable VAT. The difference between Output VAT and Recoverable VAT incurred during a tax period is paid to the FTA (Federal Tax Authority).
Each company is required to record its transactions and documents related to VAT and keep them during the time interval that is defined by FTA. Also, the company must comply with the FTA regulations on the import and export transactions. Periodically the company must file VAT Returns to report any details on the Output VAT amounts and on Recoverable VAT Amounts.
With FirstBIT ERP, your company can easily comply with the FTA requirements to calculating VAT on appropriate documents, generating tax invoices, record keeping, filing VAT returns, and preparing VAT audit files (in the FAF format). The VAT functionality is available if the VAT Accounting option is selected on the Administration > Settings > General Settings form.
To be able to use all the extensive VAT functionality of the FirstBIT ERP, make sure that the functionality is correctly configured with the VAT Configuration Checklist.