International Purchases: Accounting and Tax Treatment
Accounting and Tax Treatment of International Purchases
The accounting and tax treatment of purchases of goods made abroad differs from domestic purchases primarily due to:
- Administrative, commercial, and tax regulations, including specific procedures.
- Customs duties on imports.
- Value Added Tax (VAT) application and treatment.
- Currency exchange operations for payments and euro recording.
- Specific payment arrangements in international trade.
Two types of operations are considered, based on the goods’ country of origin:
Imports
Purchases from non-EU countries are considered imports. These goods are subject to customs duties and VAT upon entry. VAT is levied when the importing company requests merchandise clearance. The company handles the settlement declaration for customs duties and VAT.
Intra-Community Acquisitions
These are purchases made from other EU countries.
A. Imports
Purchases from non-EU countries require customs duties (Customs Tax) and VAT (if not exempt). VAT is levied when the importing company requests merchandise clearance. The company will conduct the settlement declaration of customs duties and VAT.
Documents Supporting the Operation
The purchase transaction is documented by the foreign supplier’s purchase invoice. A customs agent or freight forwarder issues an invoice for their services. This invoice includes:
- Customs duties on imports.
- VAT for imported goods (applied to the goods’ value plus duty).
- Agent’s fees for services.
- VAT on the fees.
Identification of Accounts
Within account 400, a sub-account for foreign currency debt is used:
- For recording purchases: Buying Accounts subgroup 60 or sub-accounts the company establishes, similar to domestic purchases.
- For recording debts to suppliers:
- Account 400: Suppliers to reflect outstanding debt.
- Account 401: Providers, commercial paper to pay.
- For recording exchange differences:
- Exchange gains are recorded as financial income in subgroup 76, account 768.
- Exchange losses are considered financial costs, recorded in sub 66, account 668.
- To register VAT fees for the operation: Accounts 472 (HP VAT) and 477 (HP VAT payable).
Valuation Rules
Rule 11 addresses foreign currency transactions, where the amount is known or requires settlement in a currency other than the functional currency.
- Initial Assessment: Transactions in foreign currencies are translated into the functional currency using the exchange rate on the transaction date.
- Subsequent Valuation: Update the values of existing debts at the end of each year. Outstanding receivables and payables must be updated.