It is important to calculate reverse charged

[fomayof928@mowline]

It is important to calculate reverse charged VAT when it is required, otherwise purchases will not be taxed which is incorrect. If the VAT rules mean that the overseas supplier does not need to charge local VAT, the customer will need to calculate local VAT on a reverse charge basis as above. If the business can fully recover the relevant VAT then it is easy to think that the accounting for reverse charged VAT is not important as the net impact to the tax authorities is zero/overall tax is zero. However, this is important as you can often make the same argument for VAT, i.e. suppliers charge VAT to the business’s customers and they then refund it in full so overall the net estonia phone number example tax is zero. Some countries impose penalties if the reverse charge is not calculated as much as it should be, even if the charge is fully recoverable. Accurate accounting for reverse charges is essential if the business is partially tax exempt – in this case the reverse charged VAT may not be fully recoverable and therefore an amount of VAT will need to be paid to the tax authorities. This can result in a significant historical liability if ignored.




High-risk transactions
We often encounter issues where clients overlook the following high risk transactions and do not correctly account for reverse charged VAT. As mentioned above, this is particularly problematic for businesses that are unable to fully recover reverse charged VAT due to VAT recovery situations:

Intercompany transactions, particularly those that are booked on intercompany accounts rather than invoiced. Look out for ‘cost allocations’ which have the same effect. Agreeing the allocation of costs charged to the overseas group entity (e.g. by signing the accounts) means that the tax point for VAT reporting has been determined (assuming no VAT invoices or payments have been issued at this point). Therefore, any reverse charged VAT will need to be accounted for. For reverse charged services, a mandatory tax point for 31 December must also be created if a tax point has not otherwise been created for the above services;
Transactions with advertising and marketing service providers such as Google and Linkedin – the contracting parties are often based in Ireland and we find these transactions are ofte