Finance Where I'm From: Collecting VAT in Egypt with Microsoft Dynamics 365 for Finance and Operations

When it comes to compliance, taxes paid to the government are one of the most important topics to discuss in context of Microsoft Dynamics 365 for Finance and Operations (D365FO).

In implementation workshops taxes on sales come up often, because they are tightly integrated with all company business activities like purchases and sales. For D365FO implementations, Value Added Tax (VAT) and withholding tax are particularly significant. Currently, there is no specific localization for Egyptian tax in D365FO. As a result, companies in the Egyptian market are adopting the standard out of the box tax functionalities with customizations to handle the gaps and fulfill reporting requirements set out by tax authorities in specific templates.

The VAT treatment may vary according the industry, but the framework is essentially the same. The main VAT sources are the company's purchases and sales. From the accounts payable (vendor) purchase invoices, service invoices are subject to VAT. The rates may vary based on the items or services provided. This is the same as accounts receivables (customer) sales invoices and free text invoices are subject to VAT according to the product and service the company is providing.

Utilizing D365FO's sales tax and item sales tax groups, it's possible to create combinations that handle the variation between the purchase and sales sides. As shown in the following diagram published in my book, Microsoft Dynamics Enterprise edition – Financial management, the sales tax (VAT) receivable is generated from vendor transactions, whether from a purchase order invoice or service invoice. Then the net of tax receivables and tax payables is settled to be paid to the tax authority.