Tax Calculation Service in Dynamics 365 Finance and Operations
The Tax Calculation Service for Dynamics 365 Finance and Operations provides an alternative to the built-in tax engine, managed through the Regulatory Configuration Service (RCS). Before using the service, significant technical configuration is required — follow the environment setup guide carefully, and refer to the detailed setup and usage documentation.
Creating a New Tax Feature
The service is managed in the Regulatory Configuration Service (RCS). Once configured, a Globalization features tile appears on the RCS dashboard. Click this tile, then select Tax calculation.
This opens the landing page for tax calculation feature configuration.
Create a new tax feature by clicking Add. You can create from scratch or base it on an existing feature.
The system creates a new draft version. Click Edit and select the configuration version (the electronic reporting model imported during basic configuration).
Select the applicable legal entities (multi-select supported). In this example, only the "DEMF" legal entity is configured.
Setting Up Tax Codes
Create a new tax code (e.g. "DE-STD") for the standard German VAT rate of 19%.
After saving, additional fields appear. Use the Add button to add the 19% rate.
Setting Up Tax Groups with Determination Rules
Create a tax group (e.g. "DE-STD"). Notably, you can use the Manage Columns button to add additional data fields from the source document — such as Delivery terms — to drive tax determination. In this example, tax is calculated only when the order header delivery terms are "EXW".
Create a corresponding tax item group to complete the setup.
Publishing the Tax Feature
Once setup is complete, publish the feature by clicking Change status on the version. First complete the feature, then publish it.
Configuring the Legal Entity in D365 F&O
Navigate to Tax > Tax configuration > Tax calculation parameters.
- Enable the integration by ticking Enable tax calculation service.
- Link the feature to the legal entity by selecting it in the Feature setup name field.
- Select which business processes the tax calculation applies to. Unselected processes fall back to the built-in logic.
When selecting the feature, a dialogue prompts for missing information such as settlement period and ledger posting group (not recorded in the RCS configuration). After entering the required information, data synchronises and a log is generated.
The "DE-STD" tax code is now visible in Tax > Indirect taxes > Sales tax > Sales tax codes within D365 F&O.
End-to-End Test: Sales Order
Create a sales order in the "DEMF" legal entity for customer "DE-011 Northwind Traders". Initially, the delivery terms are set to "CIF".
Add a sales order line — the sales tax group and item tax group are automatically set to "DE-STD".
Clicking Financials > Sales tax on the line ribbon shows an empty tax calculation — because the tax determination rule requires "EXW" delivery terms at header level, not "CIF".
After changing the header delivery terms from "CIF" to "EXW", the tax calculation shows 19% VAT on the line as expected.
This demonstrates how the Tax Calculation Service uses configurable determination rules based on source document fields to drive tax calculation in D365 F&O.