What is VAT reverse charge

VAT reverse charge is an arrangement that shifts the responsibility for paying VAT from the supplier (seller) to the customer (buyer). This scheme is used in transactions between companies from different EU countries or in sectors susceptible to fraud. The buyer pays the VAT directly to the tax authorities.

Benefits of reverse charge VAT

Referred VAT has several advantages for the supplier and customer. Which are these?

1. Combating fraud: The system was devised to combat carousel fraud, where VAT is reclaimed without having been paid.
2. Simplifying administration: Shifting VAT obligations to the buyer will ease the administrative burden on suppliers.
3. Stimulating intra-EU trade: It lowers barriers for companies to offer services and goods across borders.
4. Improving cash flow for businesses: Businesses no longer have to advance VAT that has to be reclaimed later.

When are you allowed to reverse charge VAT?

VAT reverse charge may be applied in specific situations. The main ones are:

1. Domestic transactions in certain sectors: Such as construction and cleaning.
2. Transactions between companies in different EU member states: When supplying goods and services to companies in other EU countries.
3. In subcontracting: When a main contractor hires subcontractors.
4. When the customer himself is liable for VAT: The reverse charge mechanism can be used if both parties are liable for VAT.

Specific conditions and applications may vary, depending on national legislation and European directives.

What does the tax authorities expect

The tax authorities explains on their website how VAT reverse charge works in the Netherlands. In summary, it boils down to this:

1. Invoicing: The seller invoices the goods or services without charging VAT. The invoice must clearly state that the VAT is reverse-charged, for example with the text “VAT reverse-charged”.
2. Declaration by the buyer: The buyer must declare and pay the VAT that would normally be remitted by the seller through their own VAT declaration.
3. Set-off: At the same time, the buyer can deduct this VAT as input tax, to the extent that the purchases relate to VAT-taxed sales.
4. Administration: Both parties must keep careful records showing that the reverse charge was rightly applied.
5. Reporting: In some cases, such as intra-Community deliveries, the supply must also be reported in the declaration ICP (Intra-Community Supplies).

Shifted VAT with TriFact365

TriFact365 offers a scan and recognise solution for processing invoices including reverse-charged VAT. VAT codes with reverse charge VAT are recognised and the VAT is calculated and booked into the accounting software accordingly.