Account for VAT on imports in Xero

Record VAT you pay on imports so Xero takes it into account when calculating your VAT payable or refundable. Xero has a special 'VAT on Imports' tax rate to account for this.

When would I use the 'VAT on Imports' tax rate?

The most common reason to use this tax rate is if you pay for something that doesn’t contain VAT (likely imported), and a customs or freight agent charges you the tax afterwards.

For example:

  • You receive a bill for a 10,000.00 import which has no VAT. You code it to the appropriate expense or asset account using a tax rate of 0%.
  • Customs or freight agent sends a bill for 2000.00 VAT. This amount must be included in your VAT Return.

You can use the 'VAT on Imports' tax rate to record the import tax. Xero reports transactions using this rate in your VAT return. You don't need to create a special account or tax code.

Your VAT account must have the Current Liability account type

Your VAT account must have the Current Liability account type for you to be able to select the 'VAT on Imports' tax rate for your import tax transactions.

If your VAT account doesn't have the Current Liability account type, edit your VAT account and change the account type to Current Liability before you enter an import tax transaction.

If you want your VAT account to appear in the asset section of your reports, add a switch rule to your report layout.

Apply the 'VAT on Imports' tax rate

When you're billed an import tax amount:

  1. Enter the amount as a line item on an existing or new transaction.
  2. In the Account field, choose the VAT account.
  3. In the Tax Rate field, choose the VAT on Imports tax rate.

    The VAT subtotal shows as 0.00 on the transaction. However, the total amount of the transaction is recorded against the import tax rate when reported.

    Image showing import tax bill.

Check your VAT Return. The full amount coded to the 'VAT on Imports' tax rate will be reported in box 4 and taken into account when Xero calculates the total tax refund or amount to pay.