Exchange rate change causes issues with foreign currency VAT on import

My base currency is ZWL$. I import goods from a neighbouring country. I have a freight company that handles the freight, customs clearing, etc. They bill me for their services, and the customs duty and VAT on the imported goods. Most of the time this is in ZWL$, but occasionally there are goods that are required by our tax authority to have their duty and VAT paid in USD. In this case the freight company sends me a USD invoice for the duty and VAT for those items.

In Manager I enter the invoice from the freight company as a purchase invoice. I use a 100% tax code for the VAT paid on the imported items. Manager converts this USD amount to a ZWL$ amount based on the exchange rate of the day, and this is deducted from my VAT payable account.

However, when I submit my VAT returns, I need to submit the bill of entry as supporting documentation. This has an earlier date than the invoice I received from the freight company, and so the amount of VAT paid when converted to ZWL$ is different because of the different exchange rates.

How can I account for this difference in Manager? At no point in my accounting process do I enter the bill of entry into Manager, and so it has no way to pick up the difference and assign it to foreign exchange gains / losses. For unrelated reasons (see this topic) I created my own custom foreign exchange losses account. Shall I just allocate this difference to that account too? Any suggestions appreciated.

For anyone who might be interested in this topic:

My accountant has said that the USD input VAT cannot be claimed against ZWL$ output VAT; the currencies cannot be converted or mixed, as the supporting documentation (the bill of entry in this case) only specifies the USD amount and has no conversion. So I’ve created a new VAT payable (USD) account and corresponding 100% VAT on import (USD) tax code to keep the transactions separate.

Whether I will have an opportunity to claim the USD input VAT back within the 12-month window is doubtful, but even in the day since I started this topic we have had significant changes to our financial system here announced, so who knows what’s going to happen in the months to come.

Hie, GrahamvdR

Really interesting, not sure about the advise from your accountant am sure he is in the best position to advice you. I think you will still be able to claim customs VAT on imported goods. This is not up for debate as it provided for in the income tax act which is legislation. The only issue will be how much can you claim.

According to my understanding you can make use of two rates based on different dates. If l can recall accurately your invoice from your freight company will show customs VAT as separate line item from all the other items, why don’t you convert the rest of the invoice using the exchange rate at the invoice date. For customs VAT l would suggest maybe using the average exchange rate as per the date on your supporting documentation.

When you declare your VAT, just submit as per your manager VAT report along with the supporting documentation. If the tax authorities are not satisfied with the conversion they will issue an assessment with the correct equivalent amount you can claim. Once you receive the assessment you can always do a journal entry to correct and reconcile your assessment to your manager VAT report for that period.

Hope this will be helpful.