Easily Identify System and Custom Tax Rates in Wafeq

Managing taxes accurately is crucial for compliance and financial reporting. In Wafeq, organizations automatically get pre-configured tax rates based on the country's tax authority guidelines. These are known as system tax rates, and they ensure accurate VAT reporting. However, users have the flexibility to create their own custom tax rates when needed.

To help users easily differentiate between system and custom tax rates, Wafeq now offers clear visual indicators across various sections of the platform. This enhancement helps prevent mistakes and ensures that VAT reports reflect accurate data.

 What are System and Custom Tax Rates?

• System Tax Rates

These are pre-defined tax rates created by Wafeq based on official tax authority regulations that Wafeq supports (e.g., Purchase VAT, Sales VAT, Exemptions, Zero-rated tax rates). These rates are used in VAT reports and cannot be modified in terms of type or rate. However, some tax authorities may have additional tax types, such as Withholding Tax, which Wafeq may not currently support.

• Custom Tax Rates

These are tax rates created by users to fit specific business needs. Unlike system rates, custom tax rates cannot be included in VAT reports at all.
 

Where Can You Identify System and Custom Tax Rates?

Wafeq provides several ways to differentiate between system and custom tax rates throughout the platform:
 

• Tax Rate Page

A Wafeq logo (W) next to the tax rate name indicates a system tax rate, meaning:

1. You cannot edit the type (sales/purchase) or the rate.
2. You can rename or add a description if needed.

If no icon is present, it means the tax rate is custom, and you have full control to edit it.

A lock icon signifies a custom tax rate that is already in use, restricting modifications to name and description only. If it is no longer used in any document, full edit options are available again.

• Tax Rate Creation & Edit Modal/Page:

1. When creating or editing a tax rate, you will see whether it is marked as " System" or " Custom" at the top.
2. Warnings and restrictions on what you can or cannot change will also be displayed.

• Dropdowns (Edit Forms & Filter Dialogs):

1. In selection dropdowns, a Wafeq logo appears next to system tax rate options.
2. Once selected, the badge next to the tax rate will also display the Wafeq logo.

• Document Sheet views:

  When viewing invoices, credit notes, or bills, system tax rates will show with the Wafeq logo next to their name.

• Tax Report :

In tax reports and tax report detail views, system tax rates will be clearly identified with the Wafeq logo.

Why Is This Helpful?

• Avoid Mistakes: Users can quickly distinguish between system and custom tax rates, ensuring correct application in transactions.
• Accurate Reporting: Only system tax rates are considered in VAT reports, preventing discrepancies.
• Easier Troubleshooting: Wafeq support can identify potential issues more efficiently, helping resolve discrepancies faster.
• Improved User Experience: Clear visual indicators simplify tax management and prevent unintended errors.

With these enhancements in Wafeq, identifying system and custom tax rates has never been easier. This ensures compliance, reduces errors, and makes tax reporting seamless. 

How to Set Tax Exemption Reasons in Wafeq When Integrated with ZATCA

Wafeq allows you to specify tax exemption reasons for tax rates that require clarification, in accordance with the requirements of the Zakat, Tax and Customs Authority (ZATCA) in Saudi Arabia. You can enter a custom reason or select one of the suggested reasons to explain why a transaction is outside the scope of VAT.

First: Accessing Tax Rates

From the main menu, select Settings, then choose Tax Rates.

Next, select the 0% - Out of Scope tax rate and click Edit.

Second: Adding an Out-of-Scope Reason

After opening the tax rate settings, you will see the Tax Exemption Reason field, where you can specify why the transaction is outside the scope of VAT.

You can enter a custom reason or click Suggested Reasons to choose from the available options, such as:

• Supply of services where the place of supply is outside the Kingdom.
• Amounts paid in the name and on behalf of the customer and recharged at cost.
• Supplies between members of the same VAT group.
• Transfer of an economic activity as a going concern.
• Compensation that does not constitute consideration for a supply.
• A grant or donation made without providing goods or services in return.

Select the reason that best describes the transaction, then click Save.

You can also set a default reason for this tax rate so that it is automatically applied to new line items using the same rate. If you do not set a default reason, Wafeq will send a standard statement in both Arabic and English to ZATCA instead of a custom reason.

You can also add a description in the Description field to provide more details about the tax rate, making it easier to identify and distinguish it from other tax rates.

Once you have entered the required information, click Save.

Third: Setting a Default Reason from a Sales Invoice

When creating a sales invoice, for example, and selecting an out-of-scope reason for a line item, you will see an option to set the selected reason as the default.

The option will appear as follows:
Set as default reason for "0% - Out of Scope" on line items

Select the checkbox to set the reason as the default. The selected reason will then be applied automatically to new line items using the same tax rate, so you do not need to select it each time.

If you do not set a default reason, Wafeq will send a standard statement in both Arabic and English to ZATCA when no other reason is specified.

Fourth: Selecting Exemption Reasons for the "Exempt" Tax Rate

When using the Exempt tax rate in a sales invoice, you can select the exemption reason that best describes the transaction from the available options.

As with the 0% - Out of Scope tax rate, you can set the selected reason as the default by selecting the checkbox displayed when choosing the reason. This allows the reason to be applied automatically to new line items using the Exempt tax rate, eliminating the need to select it each time.

Make sure to select the reason that applies to the transaction and complies with the relevant tax regulations.

Fifth: Reasons for the "Zero-Rated Domestic Sales" Tax Rate

The exemption reasons for the Domestic Supplies Subject to the Zero Rate tax rate have been updated, and four new reasons have been added in accordance with ZATCA requirements. These include:

• Royal Decree.
• Diplomatic supplies.
• Duty-free shops.
• Supplies subject to the Customs Suspension Regime.

When selecting this tax rate in a sales invoice, you can choose the reason that best describes the transaction from the available options.

You can also set the selected reason as the default by selecting the Set this option as the default reason checkbox for the same tax rate. The reason will then be applied automatically to new line items using this rate, so you do not need to select it each time.

Make sure to select the reason that applies to the actual transaction in accordance with the relevant tax requirements.

Important Notes

• Supported Documents: This feature is available in sales invoices, credit notes, cash invoices, and contacts.

• Sheets Support: You can manage tax exemption reasons using Sheets, with support for copy and paste and drag-fill.

• Locked After Reporting: Once an invoice has been reported to ZATCA, its associated reasons can no longer be edited. You can review the reasons to verify exactly what was sent to the authority.