How does the VAT settings work?

Faktum Invoicing is designed to offer flexible and easy handling of VAT. To achieve this, we have introduced the concept of VAT Zone, VAT Group, VAT Code and the mapping between these.

If you need to do any changes to the VAT settings, please read this explanation to get a good understanding on how things work.

VAT Zone

Each of your customers will belong to one VAT Zone. Normally the zone will represent a physical location like a country or state, but it can also be used to let a group of customers have other VAT settings than the rest.

VAT Group

A VAT group represents the services and goods you are selling. Each product and eventually each line on your invoice will be bound to a VAT Group. So the VAT group basically represents the type of good or service you are selling. As an example, most EU countries will have another VAT rate for food than other goods.

VAT Code

A code is representing the actual type of VAT added to the invoice. It consists of the percentual rate and it has a label so that the information visible on the invoice can be customized to your needs.

VAT Mapping

This is where it is all put together. A mapping specifies which VAT code is going to be used when. As mentioned before, each customer, and thus invoice, will be bound to a VAT zone. Each invoice line is bound to a VAT group. Now the software will look into the mappings and find the mapping that has the VAT zone and VAT group of the invoice line and use the VAT code specified in the mapping. If there are date restrictions on the mapping, the software will look for the one that is active at the date of the document (the invoice date).