Managing Tax Rate Changes in NetSuite

Note:

This topic is not applicable to US and Canada edition accounts.

Changes to the tax rates do get announced by the tax authorities, and rules vary too. Administrators of accounts that have installed the NetSuite International Tax Reports are usually informed of rate changes coming up but it is your responsibility to ensure that the latest rates are being used. We recommend you study the rates carefully before making any changes to your NetSuite account.

Important:

Do not edit and change the rate on the current tax codes. Doing so may affect historical records and audit accountability.

To update tax rates:

1. Rename the current tax codes if we would like to use our own naming convention.
2. Create a new tax code by indicating the effectivity date in the Effective Date field. Because step 1 is renaming, step 2 requires the new tax code name to be the same name as the original.
3. Inactivate the old tax code or indicate the validity date in the Valid Until field.
4. If the Advanced Taxes feature is enabled in our account, update the tax schedules.
5. Update default tax codes on customer, vendor, and item records.

When should we make these changes?

The decision on when to make these changes will depend on several factors, such as the following:

• the effective date of the new rate
• whether you trade over the weekend
• whether you have a web store
• the rules pertaining to that country

Item prices in NetSuite are VAT-inclusive, what do we have to do?

No action is necessary because NetSuite stores prices on a net basis. When we change the tax code, our item record will be updated automatically.

Example

The following example shows the detailed steps to manage a standard VAT rate change from 20% to 21%, with effect from January 1, 2013, in the Czech Republic (CZ).

1. Rename the current tax codes if we would like to use our own naming convention.
   1. Go to Setup> Accounting > Taxes > Tax Codes.
   2. Click the Edit link of the current Standard rate tax code.
   3. On the Edit Tax Code page, rename the tax code (for example, rename our current standard tax code S-CZ to S2012-CZ)
   4. For a European Union (EU) member state, we must also rename the tax codes we use for EU zero-rated sales, reverse charge sales, etc (for example, rename ES-CZ to ES2012-CZ).
2. Create the new Tax Code effective January 1, 2013
   1. Go to Setup> Accounting > Taxes > Tax Codes.
   2. Click New.
   3. If Advanced Taxes is enabled, select the nexus.
   4. Create the standard rate tax code with the new rate and the same name as the original (S-CZ with a rate of 21%).
   5. For an EU member state, create additional tax codes for:
      • EU goods and related services
      • Reverse charge services
      • Purchase of services where the reverse charge rules apply for each of the above tax codes set the notional rate to the new rate and also select the right properties for each tax code. The properties have to be the same as the old tax codes.
   6. Select a date in the Effective From field. In this example, January 1, 2013.
3. Inactivate the old standard rate and other tax codes that are no longer required. Depending on the rules in that particular country, consider the following questions:
   • Are you likely to issue credit notes for invoices raised before January 1, 2013?
   • Are you likely to have stock adjustments or sales orders that have been fulfilled but not yet invoiced? If the answer is no to both of these, then we recommend that you make the old tax code inactive. If the answer is yes to either of these, then we recommend that we do nothing for now, but return to it later on and make it inactive.
   1. Go to Setup> Accounting > Taxes > Tax Codes.
   2. Click the Edit link of the old Standard rate tax code.
   3. On the Edit Tax Code page, check the Inactive box.
4. If the Advanced Taxes feature is enabled in our account, update the tax schedules.
   1. Go to Setup> Accounting> Taxes > Tax Schedules.
   2. Select the tax schedule (for example, Standard).
   3. On the Non-US Nexuses subtab, make sure that the new tax codes are shown.
5. Update the customer, vendor, and item records, to reflect the new tax codes, if applicable. If Advanced Taxes is enabled, select the updated tax schedule on item records.