VAT configuration in Business Central works through a matrix similar to the General Posting Setup. Two types of posting groups, VAT Business Posting Groups and VAT Product Posting Groups, combine in the VAT Posting Setup to define the tax rate, calculation method, and G/L accounts for each combination.
Every transaction that involves VAT reads this matrix to determine how tax is calculated and where it posts. Getting this right is critical before any sales or purchase documents can be processed.
VAT Business Posting Groups
VAT Business Posting Groups classify the trading partner, domestic customers, EU customers, or customers outside the EU (export).
- Search for VAT Business Posting Groups using
Alt + Q. - Select New.
- Enter a Code (e.g.
DOMESTIC,EU,EXPORT) and a Description.
These groups are assigned to customers and vendors. When a document is created, Business Central reads the VAT Business Posting Group from the customer or vendor and uses it to look up the VAT Posting Setup.
VAT Product Posting Groups
VAT Product Posting Groups classify what is being sold or purchased, the VAT rate category of the goods or service.
- Search for VAT Product Posting Groups using
Alt + Q. - Select New.
- Enter a Code (e.g.
VAT25,VAT12,VAT0,EXEMPT) and a Description.
These groups are assigned to items, G/L accounts, and resources. The code represents the VAT rate tier, not a specific country rule, the actual rate is set in the VAT Posting Setup matrix.
Configure the VAT Posting Setup Matrix
The VAT Posting Setup combines the two group types and defines the rules for each combination.
- Search for VAT Posting Setup using
Alt + Q. - Select New to create a combination, or open an existing line to edit.
- Set the VAT Bus. Posting Group and VAT Prod. Posting Group for the line.
- Fill in the key fields:
| Field | Description |
|---|---|
| VAT Calculation Type | How VAT is calculated (see below) |
| VAT % | The applicable VAT rate |
| VAT Identifier | A label grouping lines by rate for reporting |
| Sales VAT Account | G/L account for VAT collected on sales |
| Purchase VAT Account | G/L account for VAT paid on purchases |
| Reverse Chrg. VAT Acc. | Used when VAT Calculation Type is Reverse Charge |
| Tax Category | EU tax category code for electronic reporting |
VAT Calculation Type Options
| Type | When to Use |
|---|---|
| Normal VAT | Standard VAT, calculated as a percentage of the base amount |
| Reverse Charge VAT | Buyer accounts for VAT, used for certain EU B2B transactions |
| Full VAT | The entire line amount is VAT, no net amount |
| Sales Tax | Used in US/Canada tax configurations instead of VAT |
Most European companies use Normal VAT for domestic and non-EU transactions and Reverse Charge VAT for EU B2B purchases.
Example VAT Posting Setup Matrix
| VAT Bus. Posting Group | VAT Prod. Posting Group | VAT % | Calculation Type | Sales VAT Account | Purchase VAT Account |
|---|---|---|---|---|---|
| DOMESTIC | VAT25 | 25 | Normal VAT | 27100 | 27200 |
| DOMESTIC | VAT12 | 12 | Normal VAT | 27110 | 27210 |
| DOMESTIC | EXEMPT | 0 | Normal VAT | , | , |
| EU | VAT25 | 0 | Normal VAT | , | , |
| EU | VAT25 | 25 | Reverse Charge VAT | , | 27300 |
| EXPORT | VAT25 | 0 | Normal VAT | , | , |
In this example, EU purchases use Reverse Charge VAT, the buyer records the VAT liability and the deductible input VAT simultaneously, resulting in a net zero effect for VAT-registered businesses.
Assign VAT Posting Groups to Customers and Vendors
- Open the Customer Card.
- On the Invoicing tab, locate the VAT Bus. Posting Group field.
- Select the appropriate group (e.g.
DOMESTICorEU).
Repeat the same process on the Vendor Card.
Assign VAT Product Posting Groups to Items and G/L Accounts
- Open the Item Card.
- On the Invoicing tab, locate the VAT Prod. Posting Group field.
- Select the applicable group (e.g.
VAT25).
For G/L accounts used directly on document lines, set the VAT Prod. Posting Group field on the Chart of Accounts entry.
Check VAT Setup Without Posting
Before going live, use the VAT Posting Setup page to verify that all combinations you expect to use are present. Any missing combination will cause a posting error the first time that customer/vendor and item combination appears on a document.
A quick way to check is to create a test sales or purchase order and review the VAT tab on the document, it shows which posting group combination was applied and what rate was calculated.
For the broader context of how posting groups work together across sales and purchases, see How to Set Up Posting Groups in Business Central.