SAP VAT: Input Tax, Output Tax and Accounting Entries

VAT becomes easier when you stop treating it as a percentage and follow the business transaction.

Input tax starts with a purchase

Assume a supplier invoice has a net value of 1,000 and VAT of 100. A simplified posting is:

• Debit expense or inventory: 1,000
• Debit input VAT: 100
• Credit supplier: 1,100

The input VAT is normally a recoverable amount, subject to local rules. SAP derives it from the tax code used in the purchasing or invoice process.

Output tax starts with a sale

For a customer invoice of 1,000 plus 100 VAT, the simplified posting is:

• Debit customer: 1,100
• Credit revenue: 1,000
• Credit output VAT: 100

The company collected the VAT from the customer and owes it to the tax authority.

The settlement position

At period end, compare output VAT collected with recoverable input VAT. The difference is normally payable to, or recoverable from, the tax authority. Your statutory return and SAP reports must reconcile to the G/L accounts.

What to check when VAT is wrong

Start with the document: net value, tax code, tax base and jurisdiction. Then inspect the tax procedure, account key and assigned G/L account. Do not begin by changing the account if SAP calculated the wrong base.

The process determines the accounting: purchasing creates input tax; sales creates output tax. Once that distinction is clear, tax-code configuration becomes a controlled way to produce the expected entry.