The Creditable VAT It is a tax that must be paid to the government for the consumption of products and services. In Mexico, the percentage that is added is 16% on the net value of the good, product or service.
Being an entrepreneur entails endless challenges. However, one of the great responsibilities that are acquired by being part of this world is focused on learning to know each and every one of the tax obligations with which you must comply. But who is obliged to pay VAT and, even more importantly, what does it mean and how does it work? Creditable VAT?
With this new installment you will be able to easily digest these issues so that it is easy for you to understand them and apply them correctly in your business. Let us begin!
What is creditable VAT?
Before entering fully into the subject, it is important that you are clear about , also known as VAT. This is a tax that is levied on the consumption of goods, products or services. However, when it comes to business finance, in addition to VAT, there are two more players: Creditable VAT and Transferred VAT. But I will tell you about the latter later.
Creditable VAT refers to goods and services to suppliers. You find this specifically in the invoices you receive and before which you carry out the corresponding deductions. However, it is divided into two aspects: creditable VAT and creditable VAT. But what is the creditable VAT and what are the differences?
Creditable VAT
This is the VAT that is charged on what you buy and which, in turn, is also added to the services you pay for.
VAT to be credited
It involves that VAT that you have not yet paid because what you have bought you have done on credit. This means that it is charged when it remains to be paid, including; both the acquisition of merchandise and the payment of specific expenses for your business. And, on the other hand, it is paid when you make a return or they apply a discount.
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What is transferred VAT and who pays it?
This is the VAT that is added to the cost of your products or services and is charged to your customers when they buy from you. This commonly happens through an invoice, which becomes a tax payment receipt that shows and confirms the exact price for your product or service along with the VAT that is paid on any of these.
Here it is important that you understand that the transferred VAT does not fall directly on your income, but only impacts the cost of your product or service. For this reason it is called transferred, because it is transferred to the final consumer.
Differences between creditable VAT and transferred VAT
One of the easiest ways to remember the difference between one and the other is the following:
Credited VAT = the one you pay when you buy a good or a service.
Transferred VAT = the one that you invoice, or transfer, to your clients.
How does creditable VAT work?
This VAT class applies to you if you provide any service or sell goods as a legal, natural or self-employed person. However, the most recurring question is the following: ‘How much do I have to pay to the SAT as part of my tax obligations?’ To know this information, I invite you to pay special attention to the following.
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To determine how much you must pay, you must first recognize that this payment is the relationship between the VAT that you pay for a product or service (creditable) and the VAT that you charge or invoice your clients (transferred). So you must subtract the VAT that you charge to your customers to know the amount that you are going to pay.
In simpler words. When you reach the end of each period, you must do an accounting exercise that will help you differentiate the money that enters your business from the sale of your products or services and the one that you charged for VAT. That is, the one you charged your customers through an invoice. This will give you as a result the amount you must pay to the Ministry of Finance.
For this reason, it is important that throughout the month you keep all the Digital Tax Receipts over the Internet that you issue, better known as CFDI. This, in addition to being important to correctly carry out payments before the SAT, also allows you to identify if there is a difference in payment in your favor. Since, in case you still did not have it on the radar, the SAT can carry out a return. Yes, here you found your grain of motivation!
How to calculate the VAT to pay?
Currently there are several factors that determine what you must pay. From the tax regime under which you are registered with the SAT, to the country in which you live. However, to have on your radar the main elements that you must consider to determine the value added tax, VAT, I share the following formula:
– = VAT payable
How to calculate VAT manually?
There are two variants when calculating VAT. The first is when the price does not yet include the amount equivalent to VAT and the second is when the price already includes it.
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How to get VAT
Example when the price does not include VAT. Imagine that you are going to buy a product with a value of $3,000 MXN. To calculate the transferred VAT, you need to multiply the price by .16 (VAT in Mexico). The amount you get is the additional amount you have to pay VAT.
* = $3,480 MXN
Example when the price already has VAT added. Taking into account the previous information, the only thing that changes is the way in which you are going to use the formula.
/ = $3,000 MXN
How to calculate creditable VAT and transferred VAT?
Imagine that you have two people in front of you. One of them is Ana, who sells paintings, and Mario, who buys at Ana’s store. Today Mario came with Ana to make a purchase. The VAT that this purchase has is known as creditable VAT and corresponds to Mario.
However, for Ana, who is the one who sells and charges for said purchase, to that same VAT. This does not mean that the VAT belongs to Mario or Ana, it means that the VAT is paid to the government through the monthly declaration. This, in numbers, looks like this:
10,000 is the sub total to pay for Mario +
$1,600 VAT
___________________________
11,600 the total to pay for Mario
For Mario, the $1,600 MXN is equivalent to creditable VAT, while for Ana it is equivalent to transferred VAT. Now, if from this moment on Mario wanted to sell what he bought from Ana, he would be the one who transfers the VAT to his clients.
$15,000 subtotal to be paid by the final consumer +
$2,400 VAT
__________________________
$17,400 to be paid by the final consumer
Summary
Summing up, knowing what is a creditable tax and what is a transferred tax is important to carry out your movements and tax payments correctly. Having them on your radar will help you to have an optimal tax strategy and to declare properly on a monthly basis, regardless of whether you are an individual, legal entity or self-employed person.
What do you think if we see everything point by point in an express way? Let’s go!
What is creditable VAT?
The credited VAT is the one that is applied when a product or service is purchased.
What is transferred VAT and who pays it?
The transferred VAT is that which is charged or transferred to a customer for the product or service that he acquires.
Differences between creditable VAT and transferred VAT
Credited VAT is the one you pay when you buy a product or service, while transferred VAT is the one you invoice or transfer to your customers when they buy a product or service from you.
How does creditable VAT work?
At the end of each month you must do an exercise that will help you differentiate the money that enters your business for the sale and the one that you charged for VAT. The result is the amount that you must declare before the SAT each month.
How is VAT calculated?
– = VAT payable
How is VAT calculated manually?
When the price does not include VAT, the following formula is followed:
* = VAT to be paid
When the price does have VAT added, the following formula is followed:
/ = VAT paid
How to calculate creditable VAT and transferred VAT?
When there is a purchase-sale, the seller is transferring the VAT to the person who acquires the product or service for sale. In other words, the buyer is transferred and the seller is credited with VAT.
Now that you have been able to delve into the subject, it should be pointed out that it will always be important for you to know the . Especially if you have in mind to create your online store throughout this 2022.
If this is your case, and discover how our platform can help your business take off. Do it without requiring technical knowledge and with the total confidence that you will be able to take full control of your tax strategies! 💙
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