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.

⚠️ Before you create a tax code

Light provides tax codes and reports for most organisations. Talk to the Light team before you create your own.

On this page

  • Tax configuration overview
  • Navigating the Tax codes page
  • Creating a tax code
  • Tax code structure
  • Configuring VAT on entities
  • Editing tax codes
  • Deactivating tax codes
  • Best practices
  • Related articles

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; bottom left corner) → Records → Tax codes
  2. The page displays tax codes with columns for Name, Context, Type, Rate, Country, and Status. A Code column also exists but is hidden by default
  3. By default, the list is filtered to show only Active tax codes
  4. Use the Search bar to find specific tax codes
  5. Open the ⋯ (more actions) menu for Export. Upload is also in this menu but is restricted to Light's own internal/back-office staff, not visible to a customer's company admin

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
    • Tax category (optional): Select Goods or Services
    • Rate: The tax rate as a percentage. An Effective rate box next to it updates automatically based on your posting rules
    • Country: Select the country where this tax code applies
    • Base report tag: Select the report 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 Report 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 can follow a structured naming convention. For example, "P-DK-STD-25-DOM" suggests a Purchase tax code for Denmark at the standard 25% domestic rate. This is a suggested convention for organizing codes by type, country, rate, and scenario. The Label field is free text, so nothing enforces this format.

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 entity's number in the VAT (optional) field
  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

Disabled 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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