Free of Charge called FOC in abbreviation could be used to deliver goods without any payment required from the customer for the goods or services. They may be free samples, gifts, free service or anything else that customer gets without any payment required. However sometimes tax might be applied for free of charge customer order lines as per the government's or tax authority body’s regulations. In some cases, there is a threshold amount to apply taxes for free of charge customer order lines. In that case, tax will be applied for the customer order line only if the value of the customer order line exceeds the threshold amount. The company can decide whether the company itself going to bear the cost of tax for free of charge goods/services without getting the tax payment from the customer. In the invoice, free of charge customer orders will be printed in a separate section.
Note: It is possible to use Free of Charge option for all supply codes.
In some countries, tax has to be paid for free of charge goods/services even if no price is charged. Sometimes tax is paid by the customer for free of charge. Sometimes company decides to bear the cost for the free of charge goods/services.
Tax for free sample applies only if the value/cost or more precisely tax calculation basis for free samples exceed a particular amount. That amount is said Threshold amount for free samples in the system. Threshold amount is defined per Company.
The tax calculation for FOC goods/services can either be
based on part cost or the order line price. The setting is defined in
Company/Tax Control/Supply Chain tab and the default value
is part cost. The tax calculation basis value can be changed by the user. Based
on the selected value, the unit cost or unit price is multiplied by the quantity
to derive the default tax calculation basis for FOC. This value can be altered
by the user in each instances.
Some of the FOC customer order lines may not required to pay taxes while some are required to. If tax are to be paid for FOC customer order lines tax may be paid by the customer as usual or the cost of the tax for FOC lines might be bared by the company itself for FOC customer order lines.
Tax Paying party for FOC can take these values:
In summary, the flow when managing free sample can be described as follows.
When the FOC customer order line is delivered, postings are created as usual. I. e. there is no impact to the postings created from FOC customer order lines at the delivery of customer order line.
When the invoice is posted invoice postings are created based on the tax paying party for free of charge goods/services.
The company has delivered 5 pieces of sales parts free of charge to a customer. Each sales part costs 20 USD. The default tax calculation basis is the cost of 5 sales parts, which is 100 USD. Say that tax for the sales part is 25%. The pasting created when the invoice is posted differ based on the tax paying party for FOC goods/services.
Tax paying party for FOC : No tax
| Debit | Credit | ||
| IP2 Customer Claims, Invoice | 0 | M28 Taxable Sales | 0 |
Tax paying party for FOC : Customer
| Debit | Credit | ||
| IP2 Customer Claims, Invoice | 25 | M28 Taxable Sales | 0 |
| IP4 Inv Value Increase - Order Transit | 25 |
Tax paying party for FOC : Company
| Debit | Credit | ||
| IP2 Customer Claims, Invoice | 0 | M28 Taxable Sales | 0 |
| M263 Cost of Company Bearing Tax for Free Samples | 25 | IP4 Inv Value Increase - Order Transit | 25 |
Additionally if the free of charge amount needs to be posted
for a separate account, the control type ‘C116 – Free of Charge’ is enabled
for M24 and M25 posting types.