It is important to understand NetSuite tax concepts as you are implementing the ERP system:
NetSuite provides tax functionality using the NetSuite edition and advanced taxes feature, which needs to be enabled:
· NetSuite edition support localized handling of taxes
1. The country of business determines the edition.
2. In a single-instance account, the edition manages the taxes for the account.
3. In a OneWorld account the subsidiaries may use different NetSuite editions.
· Advances Tax feature:
1. Manage and calculate taxes for different nexuses (tax jurisdictions) within the same NetSuite account.
2. Utilize tax schedule to define the tax treatment of items, in each nexus, meeting local business and statutory requirements.
3. OneWorld accounts, by default, utilize Advanced Taxes.
Most of the following terms are part of tax setup, across editions
· Tax Period: A tax period defines a period of time over which your company tracks tax. Expressly for the tax reporting in all non-US and non-Canada editions and setup is similar to the setup of accounting periods
· Nexus: Defines jurisdiction(s) in which you collect and pay the sales and/or purchase taxes; required component of Advanced Tax Functionality
· Tax Control Account: Tax control accounts are accounts in your general ledger or chart of accounts. These are the accounts to which the amounts computed for indirect taxes such as sales tax and VAT are posted.
· Tax Type: Defines where the paid or collected tac is tracked on the balance sheet and used to define tax codes
· Tax Code: Determine the amount if tax applied to each line item on your transaction
· Tax Group: Combines several tax codes that can then be applied to a transaction. The tax group rate is the sum of these separate tax codes.
· Tax Schedule: Determine how NetSuite calculates taxes for items (or item types) within each nexus
· Tax Agency: Define a vendor record as the taxing authority to which taxes are paid on behalf of customers
Tax Periods for reporting
Track Tax Reporting & Submission periods separately from accounting periods
· Available in all editions, defaulted in all except for US & Canada
· Tax periods apply across all subsidiaries; close at subsidiary level
· Setup is very similar to the setup of accounting periods; including the ability to tie a specific fiscal calendar to the tax period
· If forward -posting transactions are required, future periods will be required
Tax Nexus
Nexus defines geographies in which you collect and pay the sales and/or purchase tax
NetSuite automatically create 1 nexus per subsidiary
· In other countries, new nexus is create based on the country
· In the US or Canada, 1 nexus is created for the state/province during creation of the subsidiary
· You can independently associate each subsidiary with additional tax nexuses
· Nexuses may also be manually setup:
o e.g. US company running the US edition of NetSuite, needing to pay GST & HST Canadian taxes
o Turn on advanced taxes & set up a nexus for each Canadian Province that is required for tac calculation
Tax Schedules
A Tax Schedule determines tax calculations for items (or group of items) in each nexus
· Many countries charge goods and services at the same tax rate across the country
· However for US and Canada or for items sold across subsidiaries, taxation is specific to the state, province or country, so a tax schedule is required & included on the item record
· The schedule related to the appropriate tax treatment for each nexus on an item:
– e.g. Graphic design services = taxable in New York, not taxable in Florida
– VAT-rate in UK = 20%, in Germany = 19%
Notes:
– There are no tax periods in US edition and Canada edition accounts that are not OneWorld, so those editions use only accounting periods.
– In a OneWorld account, you can have only one tax period setup across all subsidiaries, unless the Multiple Calendars feature is enabled.
– If you are creating an invoice and there is no open tax period in which the transaction can be reported, NetSuite prevents you from saving the transaction. This is true for all posting transactions that are taxable.
– If you create a transaction and the tax period is already closed, the tax for the transaction is reported in the next open tax period.
The tax period to which a transaction is posted is determined by the transaction date
