Create Tax Regime

A tax regime associates a common set of default information, regulations, fiscal classifications, and registrations to one or more taxes with the same tax requirement. Some tax regime values default to the taxes that belong to the regime in order to help minimize tax setup.

The tax regime groups similar taxes together, designates the geography within which taxes apply and defaults the settings and values you define to each tax in the regime. It also optionally optionally provides a single registration for all taxes associated with the regime.

The common tax regime setup is one tax regime per country per tax type. You can also set up a tax regime as a parent tax regime to group related tax regimes together for reporting purposes.

You must associate a tax regime with all of the first party legal entities and operating units that are subject to the tax regulations of the regime. 

Creating a New Tax Regime

1. Navigate to the Create Tax Regime page.

Responsibility: Tax Manager 

Navigation: Tax Managers -> Tax Configuration -> Tax Regime -> Create 

Main Information Region

• Enter a unique tax regime code and tax regime name. 

• Select the regime level to define the geographic area of the tax treatment. You can only use Group of Countries for parent tax regimes.

• If the regime level is:

• Country, enter the Country Name.

• Group of Countries or Tax Zone, enter the tax geography type and tax geography name associated with the group of countries or the tax zone that you want. The tax geography type and tax geography name correspond to the tax zone type and tax zone respectively.

• If applicable, enter parent regime information:

• If this tax regime is a parent regime, check the Used to Group Regimes box.

• If this tax regime belongs to a parent regime, enter a parent regime code.

• Enter the effective period for this regime. The dates you enter default to all related tax setup within the regime.

Note: If you enter an Effective To date, you cannot update this date after you save the record.

Note: Consider your tax planning carefully before entering the tax regime Effective From date. This date must accommodate the oldest transaction that you want to process within this tax regime. After you create the tax regime, you can only update this date with an earlier date.

Controls Region

Set tax-level Controls for this tax regime:

• Allow Tax Recovery: Lets you set up tax recovery for the taxes in this tax regime. Tax recovery is a tax that is paid by a registered establishment can claim back all or part of taxes due from the tax authority. 

• Allow Override and Entry of Inclusive Tax Lines: Lets you change the setting for tax inclusive handling at the tax level. You should only set this option if the taxes in this tax regime vary in their treatment of tax inclusive handling. 

• Allow Tax Exemptions: Lets you set up customer tax exemptions for this tax. A tax exemption is a full or partial exclusion from taxes within a given time period.

• Allow Tax Exceptions: Lets you designate special tax rates for specific products as determined by the tax authorities. A tax exception is a condition or combination of conditions that result in a change from the standard values for a particular product.

Defaults Region

• Enter a Tax Currency. The tax currency is the currency required by the tax authority. You use the tax currency to pay the tax authority and to report on all tax transactions. 

• If necessary, enter the exchange rate type to use to convert the transaction currency to the tax currency.

• Enter the tax rounding parameters to use for all taxes in this regime:

• Minimum accountable unit is the smallest unit a tax amount currency can have. For example, the minimum accountable unit for the USD is 0.01 for a Cent.

• Rounding rule is the method to use to round off taxes to the minimum accountable unit. 

• Tax precision is a one-digit number that indicates the number of decimal places to which to calculate tax. Enter a precision of 0 to round to a whole currency unit. For example, to round off a calculated tax amount of 1.466 to 1.47, define a tax precision of 2, a rounding rule of Up or Nearest, and a minimum accountable unit of .01.

• If you want to apply different tax rounding parameters to an individual tax, then set the Allow Tax Rounding Override option.

• Enter the default Tax Authority to use on your tax reports, for the submission of tax reports (Reporting) and the submission of tax remittances (Collecting).

• Use the Allow Tax Inclusion field to define the nature of tax inclusive handling. Tax inclusive handling defines the relationship, as designated by the tax authority, between the line amount and the tax amount:

• Standard Inclusive Handling: The price on the transaction line is inclusive of tax.

• Standard Non-Inclusive Handling: The price on the transaction line is exclusive of tax. The tax amount is added to the price.

• Special Inclusive Handling: Use this option for special tax handling, such as a taxable base amount based upon the line amount rather than the adjusted line amount, or based on the line amount plus another tax amount.

• If you set the Allow Tax Recovery option, select the default recovery settlement:

• Immediate - Tax recovery is available at invoicing.

• Deferred - Tax recovery is available only after the invoice is paid.

• Check the Allow Multiple Jurisdictions box if one or more of the taxes in this tax regime apply to multiple tax jurisdictions.

• Check the Allow Tax Rounding Override box to let you update the rounding parameters for individual taxes in this regime.

• Check the Use Legal Registration Number box if the tax authority requires that you use the same registration number for this tax for both legal and transaction tax purposes.

• Check the Allow Cross Regime Compounding box and enter the compounding precedence, if taxes in this regime are involved in any compounding operation with taxes in another regime of the same configuration owner. The compounding precedence indicates the order in which to consider the taxes in each regime. You must set this option in each of the participating tax regimes if any of these cases apply:

• a tax in this regime impacts the taxable base of a tax in another regime.

• a tax in another regime impacts the taxable base of a tax in this regime.

• a tax in this regime impacts the taxable base of a tax in another regime on the same transaction line.

• You must also complete these setup steps for cross-regime compounding:

• Define the compounding precedence for the taxes in this regime according to the cross-regime compounding requirements. 

• Set up a taxable basis tax formula or tax calculation tax formula for each tax involved in the compounding. 

• Set up a Taxable Basis tax rule or Calculate Tax tax rule for each tax regime and tax, and assign the tax formulas to these rules.

• Click Continue to enter configuration options. for more information.

Note: If you do not set standard inclusive handling for the taxes in this tax regime, you can still set this option for individual parties involved in transactions. 

Note: You must ensure that you set this option correctly for each tax regime. You cannot update this setting after you save the tax regime record.

Note: You must set up the applicable first party legal entities before you can enter configuration options for a tax regime.