Free of Charge

General

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.

Tax for free of charge goods/services.

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.

Threshold amount

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.

Tax calculation basis for free of charge goods/services

Usually tax is calculated for the net price of the part. However there is no price for free of charge goods/services. So the system uses the unit cost multiplied by the quantity as the default tax calculation basis for FOC. This value can be altered by the user in each instances. The tax calculation for free sample use the following parameters in the IFS application.

Tax paying party for FOC goods/services

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:

1. No Tax - Tax is not applied for free of charge customer order lines
2. Customer - Tax is applied for free of charge customer order lines and the tax should be paid by the company.
3. Company - Tax is applied for the free of charge customer order lines and tax is bared by the company itself.

Process Summary

In summary, the flow when managing free sample can be described as follows.

1. Define Tax paying party for FOC per company and tax paying threshold amount for FOC per company.
2. Enter a customer order.
3. Change or leave the default tax paying party for FOC retrieved from the company in the customer order.
4. Apply free of charge in the customer order line to make the price zero.
5. If the tax is paid for free of charge, tax basis for FOC is retrieved to customer order line. The default value is the cost of the parts. Change the value if required.
6. Process the customer order until the customer order is Invoiced/Closed. 7. Print the Invoice.

Postings

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.

Example:

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

Tax paying party for FOC : Customer

Tax paying party for FOC : Company