VAT Categories and Tax Exemptions (E-Invoicing)
What is a Tax Exemption?
A Tax Exemption defines why a line or document has no VAT or uses a special VAT treatment (e.g. reverse charge, intra-EU supply, export). In E-Invoicing, a tax rate of 0% is not sufficient — tax authorities require: • Tax Category Code • Tax Exemption Reason Code • (optional) Reason text
Instellix stores these values as a Tax Exemption and reuses them in tax rules and E-Invoices.
Why is it required?
E-Invoicing systems (SDI Italy, Peppol, Chorus Pro, etc.) reject invoices if the mandatory tax codes are missing or wrong. By configuring Tax Exemptions you ensure: • automatic conversion into valid XML fields • acceptance by platforms and validators • correct transmission to Avalara ELR
Using Tax Exemptions
Create Tax Exemptions
Go to Configuration > Billing > Tax Exemption and click + to add a new tax exemption.
- Ident: A unique internal identifier for the Tax Exemption. The Ident is used for technical reference and internal configuration only.
- Invoice Country: Defines the country whose VAT law applies to the invoice.
- Tax Category Code: Defines the type of VAT treatment according to the UNCL5305 classification (EN 16931).
- Tax Exemption Reason Code: Specifies the legal justification for not charging VAT. This value must be selected from the official PEPPOL VATEX list. The code must match the Tax Category Code semantically.
- Tax Exemption Reason Text: A human-readable explanation of the VAT situation.
- Description: Internal documentation field.
Using Tax Exemptions in Tax Rules
After a tax exemption has been created, it must now also be added to the corresponding tax rule. Go to Configuration > Billing > Tax Rules. If a new tax rule is created, the Tax Exemption can be added at the end via dropdown.
In case of adding a Tax Exemption to an existing Tax Rule, a new Variant has to be created. Go to "Details" of an existing tax rule. Click + for a new tax rule variant and select here the Tax Exemption.
Tax Category Codes (UNCL5305 / EN 16931) (BT-118)
The Tax Category Code defines what kind of tax situation applies. Instellix uses the official UNCL5305 Tax Category Code list as defined in the European E-Invoicing standard EN 16931. These codes are mandatory for structured electronic invoices under the EU standard and are required by many national platforms and Peppol networks.
We support the following Tax Categories
| Tax Category Code (BT-118) | Description | Typical Use Case |
|---|---|---|
| AE | Reverse Charge | VAT liability shifts to customer |
| E | VAT Exempt | Medical, education, social services |
| S | Standard rate | Normal domestic sales |
| Z | Zero-rated | 0% VAT but taxable |
| G | Export / Outside EU | Supply to non-EU countries |
| O | Outside VAT scope | Not taxable at all |
| K | Intra-EU Supply | EU B2B trade |
| L | Canary Islands tax | Spanish special region |
| M | Ceuta / Melilla | Spanish special region |
| B | Transferred VAT (Italy) | Italian national reverse charge |
The full and up-to-date code list is maintained by Peppol and can be found here.
Tax Exemption Reason Codes (BT-121)
Whenever an invoice or invoice line is issued with a VAT rate of 0%, electronic invoicing regulations require that the legal reason for the missing tax is explicitly stated.
A tax rate of 0% by itself is not legally sufficient for E-Invoicing.
Tax authorities and validation systems require that the exemption, zero rate or special tax treatment is justified using a structured and standardized code. Tax Exemption Reason Codes indicate why VAT is not charged on an invoice.
Without a valid reason code, an electronic invoice with 0% VAT is considered formally incorrect and will be rejected.
Below are some typical Tax Exemption Reason Codes and their meaning:
| Code (BT-121) | Explanation |
|---|---|
| VATEX-EU-AE | Reverse charge mechanism |
| VATEX-EU-IC | Intra-community supply |
| VATEX-EU-G | Export outside the EU |
| VATEX-EU-132 | VAT exemption under Article 132 of the EU VAT Directive |
| VATEX-EU-150 | VAT exemption under Article 150 of the EU VAT Directive |
| VATEX-EU-151 | VAT exemption under Article 151 of the EU VAT Directive |
Instellix follows the official PEPPOL Aligned Tax Exemption Reason Code list (VATEX) and can be found here
Tax Exemption Reason Text (BT-120)
The Tax Exemption Reason Text is a human-readable explanation of why VAT is not charged on an invoice.
Many countries and invoice formats require or strongly recommend a reason text to make the exemption legally transparent and understandable.
E.g., for Italian Peppol invoices, Natura Codes must be provided in BT-120 (Tax Exemption Reason Text) according to the Italian Peppol profile. (Example: N6.2) Source: Official Italian Peppol documentation by AGID.
Always verify the applicable legal requirements for each Tax Exemption in the respective country and align the configuration with your professional tax advisor to ensure full compliance with local VAT law.
Updated about 8 hours ago