Help Center / Organization Setup

Tax and VAT Configuration

This article explains how to configure tax codes and VAT settings in Light. Proper tax configuration ensures accurate tax calculations and compliance reporting.

Tax configuration overview

Light supports tax configurations for multinational operations, including multiple tax jurisdictions with region-specific tax rates, VAT configurations for each entity, and tax reporting by country.

Navigating the Tax codes page

  1. Go to Settings (gear icon) → Records → Tax codes
  2. The page displays all tax codes with columns for Name, Context, Type, Rate, and Country
  3. By default, the list is filtered to show only Active tax codes
  4. Use the Search bar to find specific tax codes
  5. Click Export to download your tax code list

Creating a tax code

  1. Navigate to Settings (gear icon) → Records → Tax codes
  2. Click + Create tax code
  3. Fill in the General section:
    • Active toggle: Enable or disable the tax code
    • Label: A short identifier for the tax code (e.g., "P-DK-STD-25-DOM")
    • Name: A descriptive name (e.g., "Purchase VAT (input VAT 25%)")
    • Type: Select Sales or Purchase
    • EDIFACT (optional): Select an EDIFACT code if applicable for e-invoicing
    • Rate: The tax rate as a percentage
    • Country: Select the country where this tax code applies
    • Base tax tag: Select the tax tag for tax return classification
    • Entities: Choose which entities this tax code applies to
    • Context (optional): Add a description of this tax code's purpose
  4. Configure Posting rules:
    • Click + Add posting rule to add a rule
    • Set the Percentage of tax, Account, and Tax tag for each rule
    • Posting rules determine which GL accounts receive the tax amounts
    • The Effective rate shown for a tax code is calculated automatically from the rate and the posting rule percentages
  5. Click Create tax code

Tax code structure

Tax codes in Light use a structured naming convention. For example, "P-DK-STD-25-DOM" indicates a Purchase tax code for Denmark at the standard 25% domestic rate. This naming pattern helps organize codes by type, country, rate, and scenario.

Configuring VAT on entities

Each company entity can have VAT details configured:

  1. Go to Settings (gear icon) → Entities
  2. Select the entity to configure
  3. Click Edit
  4. Enter the VAT number for the entity
  5. Click Save

Good to know: Each entity can have different VAT numbers based on its jurisdiction of operation.

Editing tax codes

  1. Go to Settings (gear icon) → Records → Tax codes
  2. Click on the tax code you want to modify
  3. Click Edit to update the tax code fields
  4. Make your changes and save

Deactivating tax codes

To deactivate a tax code that is no longer needed:

  1. Open the tax code
  2. Toggle the Active switch to off
  3. Save the changes

Inactive tax codes are hidden from the default list view but can be found by clearing the Status filter.

Best practices

  • Use consistent naming conventions for tax codes (e.g., type-country-rate-scenario)
  • Create separate tax codes for Sales and Purchase transactions
  • Assign tax codes to the correct entities and countries
  • Configure posting rules to route tax amounts to the appropriate GL accounts
  • Use the Context field to document when and how each tax code should be used
  • Review tax codes regularly to ensure rates match current regulations
  • Test tax codes on sample transactions before going live

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