Operations not subject to VAT

When an operation carries no VAT, the way to say so in B2Brouter is not to leave the line without a tax. It is to apply a 0% tax with the right tax category.

This page explains the two not-subject categories, how to create them, and what reaches the electronic document.

Why “Do not apply” is not the answer

In the Taxes block of the invoice, the drop-down offers the option Do not apply. That option leaves the line with no tax at all, and the electronic formats do not accept it:

• UBL, Peppol, XRechnung and PINT: if no line carries a tax, the invoice cannot be saved. The message is “Must have at least one tax”.
• Facturae, FatturaPA: every line without a tax is refused on save. The message is “A type of VAT must be stated on the invoice (even if it is a VAT-exempt or zero-rate invoice)”.
• Factur-X and ZUGFeRD: the invoice saves, but it fails later, when the XML file is generated.

A zero amount is not the problem either. A 0 € invoice is valid; what blocks it is the line without a tax.

The two categories

For an operation that carries no VAT there are two categories:

• No subject (code NS): the operation falls outside the scope of the tax under the law of your country.
• Services outside scope of tax (code O): the operation falls outside the scope of the tax and is not part of the taxable base of the invoice.

Both appear in the Category drop-down for every country, except Italy, Saudi Arabia, Singapore and Malaysia, which have their own category lists.

B2Brouter does not decide which one applies to you

The right category for your operation is a tax decision. Check it with your tax adviser before you issue the invoice. B2Brouter does not validate which category is the correct one: it only checks that the category you pick is consistent with the percentage and that it carries a reason.

Create the tax

Neither category comes ready-made in most accounts, and the tax drop-down of the invoice only lists your own account catalogue. That is why the option looks missing: what is missing is the tax, not the category.

1. Go to My account, Taxes tab, Taxes by default section.
2. Click Add tax.
3. In Name, type the VAT name of your country: VAT, IVA, TVA, BTW, MwSt, Moms and the other national names. If the account is Spanish, the field offers you the list of official names. Do not invent a name: a name the system does not recognise as VAT makes the electronic document carry a generic tax scheme, and the receiver may reject it.
4. In the Category drop-down, pick No subject or Services outside scope of tax.
5. The Percentage field disappears, because these categories are always 0%, and the Reason field appears in its place.
6. In Reason, write the legal reference for the non-subjection.
7. Click Add tax.

Then, on the invoice, pick the new tax in the drop-down of the Taxes block. If it only affects some lines, turn on Apply by line and pick it only on the lines that need it.

The screen is described in detail in setting up your company.

The Reason is mandatory

In the UBL and Peppol formats, an exempt or not-subject tax with no reason cannot be saved. The message is “It is mandatory to specify the reason why the invoice is exempt from tax”.

Always fill the Reason field when you create the tax. That way the text travels as the exemption reason inside the electronic document, and the receiver sees why the invoice carries no VAT.

What reaches the electronic document

The letters NS and O are not always what reaches the receiver. The conversion depends on the format:

• Peppol BIS 3.0 and UBL EN 16931: NS travels as category E (exempt). O travels as O, and the line carries no percentage.
• Factur-X and CII: the same. NS travels as E and O as O.
• Facturae: the line carries the special taxable event block, with code 02 when the category is NS and code 01 for the other exemptions. The text of the Reason field goes there as the justification.
• Older Peppol profiles (BIS 1 and BIS 2): both NS and O travel as E.

In every case, the text of the Reason field travels as the exemption reason.

Category O cannot be mixed with VAT

An invoice that carries a line in category O cannot carry any other VAT category. This is a rule of the European standard EN 16931 (BR-O-11 and BR-O-12), and the rejection arrives on send, not on save.

In other words, O only works for invoices where every line is O.

If you have to mix a concept with no VAT and lines with VAT, you have two ways out:

• use another category for that line, such as NS, E (exempt) or AE (reverse charge), following your tax adviser;
• or, if the concept is a reimbursable expense (money paid on behalf of the client), flag it as such on a charge. This option is only available in Facturae, in the regulated formats of France, and in any format if your company is Spanish.

If you have Verifactu active

With Verifactu, a not-subject line is declared with the operation qualification, and the value comes from the Reason field of the tax. It must be one of these two codes:

• N1: operation not subject under article 7, 14 and others.
• N2: operation not subject under place-of-supply rules.

If the Reason field holds any other text, the default value you chose when you activated Verifactu applies. If there is none either, N1 is declared.