VAT

In this help document, you’ll learn how you can manage VAT for vendors and transactions in Zoho Procurement.

VAT in Vendors

You can configure the tax treatment for your vendors in Zoho Procurement. While adding vendors, you need to select the appropriate VAT treatment for each of them. Learn more about adding vendors.

• Go to Vendors in the left sidebar.
• Click + New in the top right corner.
• Go to the Other Details section.
• Enter the Tax Treatment of the vendor.

In Zoho Procurement, you can store the following tax treatments of your vendors:

Tax Treatment:

Tax Registration Number (TRN): The TRN is a unique 15-digit number assigned to a VAT registered person in the UAE. It will be displayed on all the transactions once you enter it here.

Source of Supply: The Source of supply is where a transaction is considered to have occurred for VAT purposes. Source of supply is determined differently for goods and for services.

For a vendor in the UAE, the source of supply can be any one of the following emirates of the UAE:

• Abu Dhabi
• Ajman
• Dubai
• Fujairah
• Ras al- Khaimah
• Sharjah
• Umm al-Quwain

For a vendor in the GCC, the source of supply can be any one of the following member states:

• Bahrain
• Kuwait
• Oman
• Qatar
• Saudi Arabia
• United Arab Emirates

Currency: If the vendor is dealing with a currency other than AED, you can select their currency as well. The tax treatment of your vendors will affect your transactions in Zoho Procurement.

Profit Margin Scheme

The Profit Margin Scheme is a VAT calculation method for second-hand goods that prevents double taxation. Under this scheme, when you buy second-hand goods from an unregistered seller (vendor), you only pay VAT on the profit made from the resale.

Zoho Procurement helps you record transactions under the Profit Margin Scheme by applying VAT correctly on second-hand goods. It automatically calculates the VAT, helping you to manage transactions easily and stay compliant with the tax regulations.

Eligibility: Under the Profit Margin Scheme, you can calculate VAT only on specific goods that meet certain conditions.

Enable Profit Margin Scheme

To record transactions under the Profit Margin Scheme, you must first enable it in your Zoho Procurement organization. To do this:

• Go to Settings in the top right corner of the page.
• Click Taxes under Taxes & Compliance.
• In the Taxes pane, click Tax Preferences.
• Check the Enable Profit Margin Scheme scheme.
• Click Save. Now, you can create transactions under this scheme in your Zoho Procurement organization.

Record Transactions Under Profit Margin Scheme

You can record transactions under the Profit Margin Scheme in two ways:

• If your vendor is not registered for VAT: Create a self-billed invoice for the items you want to sell under the Profit Margin Scheme and include it in your invoice.
• If your vendor is registered for VAT: Create a bill for the items you want to sell under the Profit Margin Scheme and include the same line item in an invoice.

To create a self-billed invoice:

• Go to Payables in the left sidebar and select Bills.
• Click the + New dropdown in the top right corner and select Create Self-billed Invoice.
• Enter the required details.
• In the Item Table, check the Eligible for Profit Margin Scheme option in the Tax column. Note that the tax for the line item will be Exempt.

• Click Save as Draft or Save as Open. The bill is now created under the Profit Margin Scheme. Similarly, you can also create Bills and Vendor Credits under the Profit Margin Scheme.

VAT in Transactions

Once you have set up the taxes, vendors and items in your Zoho Procurement organization, you can start creating transactions. Transactions in Zoho Procurement are affected by the:

• Location from where your business is operating (mainland or designated zone)
• Source of supply
• Vendor’s tax treatment

If you are a VAT registered person in the mainland, here’s how your transactions will incur VAT:

Transactions in Mainland

Case 1

Let’s say you buy goods or services from a VAT-registered vendor in the UAE. The supply takes place within the UAE. In this case, the supply of goods or services can have any one of the following taxes:

• 5%
• 0%
• Exempt
• Out of the scope of VAT

Whereas, the domestic reverse charge will be applicable only for the following taxes:

• 5%
• 0%

Case 2

Let’s say you buy goods or services from a vendor who is in the UAE and is not registered for VAT. The supply takes place within the UAE. In this case, the supply of goods or services is out of the scope of VAT. Whereas, the domestic reverse charge will be applicable only for the following taxes:

• 5%
• 0%

Case 3

Let’s say you buy goods or services from a vendor who is registered for VAT in any one of the GCC member countries other than the UAE. The supply takes place within the UAE. In this case, the supply of goods, goods associated with services / services associated with goods are out of the scope of VAT.

Whereas, the reverse charge will be applicable for the following taxes:

• 5%
• 0%

For services, the supply can have any one of the following taxes:

• Exempt
• Reverse charge along with 5% or 0%

Case 4

Let’s say you buy goods or services from a vendor who is registered for VAT in any one of the GCC member countries other than the UAE. The supply takes place within the GCC.

In this case, the supply of goods or services is exempted from tax. However, if you want to apply tax on the supply, you would need to create a new tax in Zoho Procurement for the relevant GCC member country and apply it in the appropriate transaction. The transaction could also be out of the scope of VAT.

Case 5

Let’s say you buy goods or services from a vendor who is in any one of the GCC member countries other than the UAE and is not registered for VAT in that particular country. The supply takes place within the UAE. In this case, the supply of goods, goods associated with services / services associated with goods are out of the scope of VAT.

Whereas, the reverse charge will be applicable for the following taxes:

• 5%
• 0%

For services, the supply can have any one of the following taxes:

• Exempt
• Reverse charge along with 5% or 0%

Case 6

Let’s say you buy goods or services from a vendor who is in any one of the GCC member countries other than the UAE and is not registered for VAT in that particular country. The supply takes place within the GCC.

In this case, the supply of goods or services is out of the scope of VAT.

Case 7

Let’s say you buy goods or services from a vendor who is outside any of the GCC member countries.

In this case, the supply of goods, goods associated with services / services associated with goods are out of the scope of VAT.

Whereas, the reverse charge will be applicable for the following taxes:

• 5%
• 0%

For services, the supply can have any one of the following taxes:

• Exempt
• Reverse charge along with 5% or 0%

Case 8

Let’s say you buy goods or services from a VAT-registered vendor in a designated zone in the UAE. The supply takes place within the UAE.

In this case, the supply of goods is out of the scope of VAT. For services, the supply can have any one of the following taxes:

• 5%
• 0%
• Exempt
• Out of the scope of VAT

Case 9

Let’s say you buy goods or services from a vendor who is in a designated zone in the UAE and is not registered for VAT. The supply takes place within the UAE. In this case, the supply of goods or services is out of the scope of VAT.

Whereas, the reverse charge will be applicable for the following taxes:

• 5%
• 0%

Designated Zones

What is a Designated Zone?

A designated zone is a place which is considered to be outside the UAE for tax purposes. VAT will not be levied on goods which are imported directly to a designated zone. Tax is applied on these goods only when they are out of the designated zones.

What is a Free Zone?

Free Zones in VAT have been designated primarily to boost international business. In a free zone, firms can be completely owned by expatriates without the need for local partnership. Businesses in the free zones (which are not classified as designated zones) will be taxed at the usual VAT rates.

Transactions in Designated Zones

Here’s how the tax treatment of your vendors will affect your supply in designated zones.

Case 1:

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a VAT-registered vendor in the UAE. The supply takes place within the UAE.

In this case, the supply of goods and services can have any one of the following taxes:

• 5%
• 0%
• Exempt
• Out of the scope of VAT

Case 2:

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a vendor in the UAE who is not registered for VAT. The supply takes place within the UAE.

In this case, the supply of goods or services is out of the scope of VAT.

Case 3:

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a vendor who is in any one of the GCC member countries and is registered for VAT in that particular country. The supply takes place within the UAE.

Let’s say you buy goods or services from a vendor who is registered for VAT in any one of the GCC member countries other than the UAE. The supply takes place within the UAE.

In this case, the supply of goods, goods associated with services / services associated with goods are out of the scope of VAT. Whereas, the reverse charge will be applicable for the following taxes:

• 5%
• 0%

For services, the supply can have any one of the following taxes:

• Exempt
• Reverse charge along with 5% or 0%

Case 4:

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a vendor who is in any one of the GCC member countries and is registered for VAT. The supply takes place within the GCC.

In this case, the supply of goods or services is exempted from tax. However, if you want to apply tax on the supply, you would need to create a new tax in Zoho Procurement for the relevant GCC member country and apply it in the appropriate transaction. The transaction could also be out of the scope of VAT.

Case 5:

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a vendor who is in any one of the GCC member countries and is not registered for VAT. The supply takes place within the UAE.

In this case, the supply of goods, goods associated with services / services associated with goods are out of the scope of VAT.

For services, the supply can have any one of the following taxes:

• Exempt
• Reverse charge along with 5% or 0%

Case 6:

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a vendor who is in any one of the GCC member countries other than the UAE and is not registered for VAT. The supply takes place within the GCC.

In this case, the supply of goods or services is out of the scope of VAT.

Case 7:

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a vendor who is outside any of the GCC member countries.

In this case, the supply of goods, goods associated with services / services associated with goods are out of the scope of VAT.

For services, the supply can have any one of the following taxes:

• Exempt
• Reverse charge along with 5% or 0%

Case 8:

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a VAT-registered vendor in a designated zone in the UAE. The supply takes place within the UAE.

In this case, the supply of goods is out of the scope of VAT. For services, the supply can have any one of the following taxes:

• 5%
• 0%
• Exempt
• Out of the scope of VAT

Case 9:

Let’s say you are registered for VAT in a designated zone in the UAE and buy goods or services from a vendor who is in a designated zone in the UAE and is not registered for VAT. The supply takes place within the UAE.

In this case, the supply of goods or services is out of the scope of VAT.