{"id":14639,"date":"2018-12-28T20:14:32","date_gmt":"2018-12-28T20:14:32","guid":{"rendered":"https:\/\/breicis.com\/reversais-pvn\/"},"modified":"2023-10-22T08:39:07","modified_gmt":"2023-10-22T08:39:07","slug":"reverse-charge-vat","status":"publish","type":"page","link":"https:\/\/breicis.com\/en\/reverse-charge-vat\/","title":{"rendered":"Reverse charge VAT"},"content":{"rendered":"

Reverse charge VAT<\/h1>\n
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What is the VAT Reverse Charge?<\/span><\/h2>\n<\/div>\n<\/div>\n

Reverse charge VAT means that the recipient of goods or services declares both the input VAT on the purchase and the VAT due from the supplier. In this way, the buyer declares both the input and output VAT, which are offset against each other and the difference (VAT payable to the budget is zero).<\/p>\n

The reverse charge mechanism was developed as a tool to simplify the reporting of transactions between EU Member States and to avoid unnecessary VAT registration<\/a> in another country.<\/p>\n

At the same time, the reverse-charge system means that the buyer of goods or services can deduct input tax only to the extent that he is entitled to recover input tax at all. If the Latvian buyer has no taxable transactions, e.g. the company is a holding company with no taxable transactions, the company will not be entitled to deduct input tax. It will reverse charge VAT (instead of the supplier) but will not be entitled to deduct the input tax in full.<\/p>\n

Example<\/h2>\n

In the example below, the transaction is between a manufacturer of an abstract good and a trader who resells the goods to final consumers (non-payers of VAT) applying the VAT in full amount. Then how will the VAT between the Manufacturer and the Trader be applied if the normal and reverse charge VAT arrangements apply?<\/p>\n

General VAT scheme<\/h3>\n

\"\"<\/p>\n

The Manufacturer applies 21% to the delivery of the goods to the Trader. The trader pays the VAT and deducts it as input tax. Consequently, at the time of the transaction, the Trader has a right of claim against the State budget in the amount of this input tax. The Manufacturer, in turn, must pay this VAT to the State budget in the amount of 315.<\/p>\n

VAT reverse charge<\/h3>\n

\"reverse<\/p>\n

In the case of a reverse charge VAT system, the Manufacturer is not entitled to collect VAT from the Trader and the obligation to declare the VAT due passes to the Trader. The trader declares this amount (315) as VAT payable and deducts it at the same time so that the VAT payable to the budget is 0. This fact is often misunderstood, since it is as if, contrary to the general principle, in this case, the budget receives no VAT at all. Misunderstandings can arise because the whole transaction chain is not considered. That is to say, VAT is indeed not paid to the budget on the purchase of finished goods, but it is paid at the next stage of the transaction when the trader sells the goods to the end users. For example, if the trader sells the product to the end user without a mark-up, he will charge VAT at the rate of 315 and pay it to the national budget. Therefore, in the case of reverse charge VAT, the liability for VAT in a Manufacturer-Traders transaction is shifted from the Manufacturer to the Trader and the fact that VAT is not collected at the time of the transaction only means that it will be paid at the next stage of the transaction chain for which the Trader is responsible.<\/p>\n

When is the reverse charge mechanism used?<\/h2>\n

Here are some examples from all EU countries where reverse VAT can be applied:<\/p>\n