The Value Added Tax (VAT) in ERPAG

VAT countries


1. Introduction

There are two types of tax systems in the world. Sales Tax used in the USA:

1. Sales Tax - still used in the USA (and a few other countries)

For more information on ERPAG's work with this system, visit our blog:

2. Value Added Tax (VAT) - that is used in the rest of the world

The VAT was initially introduced in the mid-1970s by the European Economic Community (ECC). With the formation of the European Union and the admission of new countries in the late 1990s and 2000s, a large number of countries have changed (or adjusted) the tax system. We, a company that has been in the business software market since 1995, have been through this transition with our customers without any major problems. Because of back-compatibility, ERPAG supports both systems (from MS-DOS version, over Windows Desktop, to the current cloud-based version), so this gave us global access.

In this text, we will focus on setting up and operating with the VAT system.

First, tax settings are divided into three sections.

tax settings

1. Tax category 

Tax category marks the tax category of an item, to which tax category the item belongs to. If our item is a solar panel, it will belong to "Energy-saving materials" tax category.

2. Tax location

This data marks the place where the tax is calculated. In case the buyer of our solar panel is from another EU country, the tax location will be Export (EU). Maybe on the first glance our examples of "Export (EU)" and "Export (non-EU)" give the same result, eg. the tax rate of "0", but that is a common practice in order to obtain more precise reason of tax exemption. This can also be demanded during the integration with other applications (such as QuickBooks Xero, TaxJar, etc.).

3. Tax rates

In this panel you are naming the individual tax rates, in most of the cases it's "Standard rate" and "Reduced rate". But in some countries, there are additional tax rates, for example, in Greece, there is also "Super reduced rate".

The tax rate is calculated as a result of these three parameters.

 By entering the tax category, we already mark to which tax location a specific tax rate belongs to.

tax category settings

We can do the same thing when we are entering the tax location.

tax location settings

2. Tax Category

Each item in ERPAG must belong to a tax category.

The setup is done in the item settings.

item tax settings

In our example, we will have three products and one service.

products and services taxes

Note: All prices entered in ERPAG are without VAT (tax)!

3. Sales order

Upon creating a sales order, the important field is the "tax location".

sales order tax locations

Like we already mentioned, ERPAG calculates the tax rate based on the tax location and tax group of an individual item.

If we change the Tax location, the tax rate will be recalculated automatically based on new parameters.

sales order tax location

Which means that in our case, the tax rate is "0".

4. Tax by origin

This means that the tax location depends on the country from which the items are being sold/shipped (most commonly from a warehouse). So each warehouse you own needs to have a specific Tax Location.

tax location by origin

In customer, we set up the tax location to be "The same as the warehouse".

tax location customer

Now when we choose a customer, the tax location will be the same as our warehouse.

In our case, for "FR Customer" and "Main warehouse" the tax location is "Domestic trade", eg. the tax will be applied even if our customer is foreign.

sales order tax location

 If we select "Bonded warehouse", then the Tax location will be the same as that warehouse (Export) and the tax rate won't be applied.

sales order tax location

5. Tax by destination

This Tax type means that the Tax Location is where the customer is (where the items are shipped). Based on this principle, we are assigning a Tax Location to a customer.

customer tax location

When entering a Sales Order, no matter which warehouse we choose, the proposed and automatically setup tax location is the one assigned to a customer.

sales order customer tax rate

The data about the Tax Location is changeable, since even though the customer is foreign, in some cases it's considered as a "domestic trade" (for example, if they purchase items for local representatives).

6. Combination - By origin/By destination

Depending on national tax regulations, there are cases of a combination of both principles.

An example is that VAT is levied on services rendered and exported to EU countries.

When setting up the Tax Category (or Tax Location), the tax rate for the corresponding Tax location (or tax category) is entered as well.

service tax setup

In our example, we will enter 20% in Tax Location for Export (EU) for Tax category "Services".

Note: Changes in tax rates are effective from that moment. ERPAG does not know from when to when the tax rate applies. So when changing tax rates, you have to do all the documents with the old rates.

Now the result of the calculation in our sales order is a Service tax even though the Tax Location is setup to be "Export (EU)".

sales order service tax

7. Point of sale (POS)

point of sale tax

In our POS section in ERPAG, the proposed tax rate is "By Origin" (by tax location of a warehouse).

point of sale tax

Of course, there is a way to change it (for example, if the items are shipped to the buyer's address).

8. Mobile APP - Point of sale (POS)

taxes in mobile app point of sale

For the POS part, the tax rate in the mobile APP is always according to Tax Location Warehouse, for now. Due to the simplicity of the process and the reduction of errors, we did not include the possibility to change the Tax Location. If necessary, post it as a Sales Order and change the Tax Location from the main application (desktop application).

9. Purchase orders and utility bills

There is a separate Input tax section for the purchase orders (identical to utility bills, landed costs, contractor bills).

input tax purchase order

The amounts entered here are always entered in absolute (total) amounts for the entire document (not as a percentage amount). We opted for this solution because most Sales Orders and Invoices have sub-total + tax = total at the end of the recapitulation. And it would also be quite impractical to enter a specific tax rate or tax amount for each item individually.

When entering, there is a field "Calculation (VAT)", if it is set to "automatic", then ERPAG automatically calculates the input tax based on Tax Location and Tax Category.

input tax calculation

If set to “Manual entry” then the tax rates must be manually entered.

input tax manual entry

We included this because sometimes the amounts of VAT we charge differ from those provided by the supplier. This happens with Imported goods because VAT is charged at customs. It also happens when a supplier calculates VAT at a reduced rate while we sell at a standard rate.

Tax location is always suggested by our warehouse.

One of the significant parameters is "Deductible (VAT)". There are cases in national tax regulations where no matter if the supplier has shown us Input VAT, we do not have the option to deduct it from Output VAT. This would be the case if we are purchasing something that is not directly for business purposes (eg. business entertainment costs).

deductable vat

  • Deductible: "Yes"
Input VAT is possible to be deducted from the output VAT.
  • Deductible: "No - Tax expenses"
The VAT charged by our supplier cannot be deducted from VAT output. The tax amount will be credited to the "Tax expenses" account.

tax expenses

Note: If you have integration with QuickBooks or Xero accounting software, it will be accounted to an appropriate expense in their journal voucher as well.
  • Deductible - "No - Inventory"

In this case, non-deductible VAT will be added to the stock price as the landed cost (Inventory). And it will become a cost when the Cost of goods sold (COGS) is formed.

deductible input tax

Note: In case you have some items for which you can deduct the VAT and for some of them you can't, you need to split that document into 2 (Deductible: Yes, and Deductible: No).

10. Import goods (International trade)

The approach for importing products is slightly different. First, you must set up the Tax Location of the supplier.

supplier tax location

We have two options available: Domestic trade and International trade. When importing, of course we have to select "International trade".

When a Supplier that has an international trade is selected when you create a Purchase Order, new fields will be included.

purchase order import vat

  • Custom note - Document number from the official customs office or freight company;
  • Custom duty - Total duty charged (with all associated costs);
  • Exchange rate - The exchange rate between the currencies if we use foreign exchange;
  • Fx Price - Amount in supplier currency if we use a foreign exchange.

The input tax amount is usually entered manually from the official customs document. The reasons for the deviation are different from the amount of the customs base to the exchange rate differences.

Tax location has been suggested according to our warehouse but it is possible to change. This is done in case of re-exporting.

11. Fulfillment (backorder) and input VAT

VAT in fulfillment

When you form a document through the fulfillment (backorder) window, the generated purchase orders will have automatically calculated input VAT.

purchase order vat

If it's needed, you can manually change the document.

12. Review of accrued tax


ERPAG is primarily intended for internal business management, please contact your accountant or tax advisor to calculate taxes and other obligations.

Tax-related reports are for informational purposes only, and serve to ensure that management has some information about tax liabilities.

We do not recommend or have any obligation, warranty or liability for filing tax returns based on reports from ERPAG.

To receive the Standard / Reduced report, you must enter the "Tax Code" at Tax rates (if you do not enter the tax code, the report will be compiled).

tax code setup

The "Tax preparation" report is in the accounting section:

tax preparation report

Anyone who is familiar with the VAT tax system, he is already aware that the obligation to pay VAT is the difference between Output VAT (paid from customers) and Input VAT (paid to suppliers or during import).


Accountants usually create the statement through a manual journal voucher. The dynamics depend on local tax regulations but are often done quarterly or monthly. This report shows the data necessary to calculate the liabilities.

tax preparation report

The report is initially grouped by warehouse and tax rates, with values in the following columns:
  •  Input VAT - amounts of VAT from Purchase Orders (Supplier Invoices) that are not used in the calculation;
  • Output VAT - amounts of VAT from the Sales Orders (Invoices) which are also not used in the calculation;
  • VAT Liabilities - the amount of payables that have been calculated but not paid.

To facilitate this process, there is a "VAT calculation" option in the report.

VAT calculation

The VAT calculation is done for a specific period of time, and a journal voucher is formed in accounting.

vat calculation

In our example, there is an only liability for VAT-20, with a VAT-5 Input VAT is greater than the Output VAT, so there is no obligation to pay.

NOTE: The internal accounting system in ERPAG is managed according to the accrual basis method of accounting. In most national accounting regulations, cash basis is not allowed in manufacturing.

Due date is the date when the accrued liability should be paid (the setting is in Administration -> Localization).

We use the "payment" option to record the payment of this accrued liability.

recording vat payment

Payment amounts are divided into "overdue" (what we were supposed to pay, the due date has passed or is today) and "Expected" (due date is in the future). The total amount is suggested, however, it's your choice which amount you will record.

Now, in our example, the report looks as follows:

tax report

ERPAG Support

Manufacturing process

manufacturing process

What is the manufacturing process? How to develop and optimize the manufacturing process? What are the most common input factors in the manufacturing process?

How to develop and optimize a manufacturing process is a job that surely the vast majority of companies must face at least once along their business path. But in order to develop it effectively, you must first be very clear about what it is and what it consists of.

A manufacturing process is the set of activities oriented to the transformation of resources i.e. raw materials into goods and/or services. That way you get the finished goods, ready for sale in different markets.

The word is linked to the concept of hand because in the most remote past, manufacturing was produced by manual means, that is, by hands. But today, manufacturing takes a huge portion of the world economy.

Through the action of manufacturing, companies have the ability to transform different raw material inputs into those products or outputs that they wish to offer to the market, thus performing their economic activity. Although generally applied to the terms ‘industrial production’ or ‘production process’, manufacturing encompasses a huge variety of 

Machines and, as of lately, 
High technology. 

In view of the complexity of the product, manufacturing actions may have more or a smaller number of intermediate production processes. Also, the sequences of manufacturing can be done 

Manually, or 
Through the use of machines
When a company begins the production of a new item, it has to choose the manufacturing process to use. The type of process depends on the installation, personnel and information systems available. Each manufacturing process has its advantages and some are better in certain tasks, for example, large batches of finished products or small numbers of custom items. 

One could speak of the existence of three phases in any production process:

1. Gathering / analytical stage: 

Various processes that incorporate and transform raw materials are involved in their manufacturing. But the manufacturing process always begins with the entry of various basic inputs that are working and combining progressively, gradually, until the finished product is reached. 

So, in the first stage of manufacturing, some input factors are needed that, throughout the process, will increase in value thanks to the transformation.

The main objective of a company during this phase of the production process is to get as much raw material as possible at the lowest cost. The minimum stock quantity option in Erpag will help you with this task, by instantly notifying you every time that your stock levels drop below the assigned minimum, so you will be able to manage and plan your purchases ahead of time, and consequently have enough time to evaluate various vendors and choose the best offer: 

If you are, however, building to order so you can minimize all the storage expenses and loss, you can greatly profit from the fulfillment option, that does an automatic comparison to stock every time that you create a sales order or work order, and gives you a list of everything that needs to be purchased so you can continue with the production and fulfill the demand:

2. Production/synthesis stage: 

manufacturing process

During this phase, the raw materials that were previously collected are undergoing the manufacturing processes that will result in their transformation. 

The most common manufacturing input factors in this phase, besides the raw materials, are

Labor, and 
Machine usage 

that applied to manufacturing could be summed up in a combination of 

Raw material, and 

When it is necessary to obtain a greater volume of production, what will be implemented is the division of labor - in this modality, each worker will take special care of only a small part of the task. In this way it is gained in specialization, speed and in economization of resources.

In Erpag, you have the ability to schedule tasks and record time for you employees on job sites by using the timesheets option:

Having an accurate estimated cost for production in every step of the way, proves to be crucial for making decisions on the go, and updating the planned work order flow if necessary. And the MRP will provide you this type of real time information that can be spread out through all the departments momentarily. 

3. Processing / conditioning stage: 

The adaptation to the needs of the client or the adaptation of the product for a new purpose are the goals of this productive phase, which is the most oriented towards the marketing itself. A good MRP will give you the opportunity to integrate with ecommerce platforms and promote your products in various marketplaces – and that’s only one of Erpag strong suits. Once the product / service is already delivered, it cannot be forgotten that a control task must be carried out that allows knowing if what has been delivered meets the objectives set and the quality standards that the client demands. And that’s why Erpag provides notes, attachments and custom fields all throughout the system, so you can keep track and never lose sight of the relevant information that can help you grow your business.

Of course, over time, the manufacturing process was incorporating technological improvements that manifested directly in productivity. Information and technology, which interact with people, are now involved in this process.  This production favor would be accompanied by an improvement in price, that is, more is produced and the cheapest product can be sold. As the supply increased it was possible to cover the demand, which was the ultimate goal - the demand satisfaction. Implementing MRP and ERP softwares is now a trend applicable to any production process!

Industrial manufacturing has nothing new and yet it continues to evolve and adapt to new realities. The application of technology one of the most important examples of the business regeneration capacity! From the most basic and absolutely necessary, like an ERP or MRP, to for example the case of the combining robots with vision systems – mixed reality. This topic is getting more and more attention, since the use of technology applied to the field of industry makes businesses much more operational and, therefore, more effective. 

Implementing and MRP is one of the best and most affordable examples of the optimization of resources and, therefore, the achievement of a higher level of profit for companies.


Fixing wrongly selected accounts for items in Quickbooks Online

1. Introduction

It sometimes happens that, when you are entering an item in ERPAG (in most cases during the initial setup or data import), you mistakenly select the wrong account.
Usually, such oversight is noticed much later, so it may seem that the correction will be complicated.
The best way to explain this is through an example.

2. Correction in QBO

The foundation of QuickBooks Online is a relational database, which means that by changing some of the data, the change also affects most of the account entries connected to that data.
In our example, we had a Purchase Order in ERPAG, as it is shown in the screenshot below.

And we synced that PO with QBO:

We got the Bill with its transactions:

We subsequently noticed that the account was incorrect. It was supposed to be ‘’Inventory Final Products’’. In order to resolve the problem in the QBO item setup, we changed the account to the appropriate one. 

After the change, the results in QBO are appropriate. 

This way, we’ve solved the problem, but this solution is not very practical if we have a lot of similar issues that should be resolved - changing the accounts one by one changing would take forever.
Since our primary goal is practical implementation, the best solution is to make changes through ERPAG.

3. Correction through ERPAG 

There are two ways to make adjustments to an item in ERPAG. 
  • Individually, in the item setup:

  • Through the bulk action, for multiple items at once:

After setting up the account in product and services, all you need to do is to activate "Accounts (Update)" in the sync section.

And that’s it!

ERPAG will check all items in QuickBooks (that have SKUs identical to the ones in ERPAG), and set up their accounts in QBO according to the ones that were chosen in ERPAG.