EC reversed VAT logic

For invoices sent from countries in the European Community, VAT charges may be omitted from the invoices raised by the FBO, under the reversed-VAT ruling.

The business logic for EC-Reversed VAT

If a client is a business entity from another country, VAT for 'services' will be reversed to that country. These services include typically all 'value added' services such as handling charges, and exclude goods such as fuel, catering, taxis and rent. Therefore, each product in FBO One must be configured as applicable or unapplicable to EC Reversed VAT.

Reversal of VAT charges applies to all clients that are business entities, regardless of if they are based in the EC or not. In either case, no VAT is charged on the invoice that is issued by the FBO to client. When the client is not based in the EC, reversing the VAT to the client is in effect a VAT exemption. When the client is based in the EC, the FBO has the obligation to report the amount of revenue for which VAT was reversed - per client - to the tax office. FBO One has a report for that purpose, the 'EC Reversed VAT Sales List'.

In FBO One, this logic is applied to each line item in the handling order: -
  • First of all, the debtor's Charge VAT setting is checked to determine if VAT needs to be charged in the first place. If that is not the case, for example because the Charge VAT setting is 'Never', no VAT will be charged. Otherwise, the steps below are executed.
  • If EC reversed VAT is not enabled for the FBO, the regular VAT rate applies. Reversed VAT should be enabled for any FBO that is based in the EC. To enable EC reversed VAT, enter a value in the 'EC reversed VAT enable date' in the administration. Typically this date is set to 1/1/2010.
  • If EC reversed VAT is not applicable for the product, regular VAT will be charged.
  • It is determined if the debtor is a foreign business. This is the case if the 'Country for VAT purposes' of the debtor is not blank, and the 'VAT number' is also not blank.
    • If the debtor does not match the criteria for a foreign business, regular VAT is charged. This is checked against the Administration owner. In case there are multiple locations at different countries, for each country an FBO contact must be created because the country for VAT purposes is different.
    • If the country of the debtor is not in the EC - as defined in the list of EC Countries - the VAT code EC-EX is applied. The debtor is exempt for VAT in this case and no reporting obligation exists.
    • If the country of the debtor is in the EC, the VAT code REV is applied. The debtor now has responsibility to declare the revenue for which VAT is reversed in his home country, and for the FBO a reporting obligation exists as well.

Each month, the finance manager at the FBO can run the report 'EC Reversed VAT Sales List'. This will show the revenue for the REV-VAT-code per debtor VAT-number. This report can be sent to the local tax authorities to fulfill the reversed VAT reporting obligations.

See also

How to configure EC reversed VAT

http://ec.europa.eu/taxation_customs/taxation/vat/key_documents/legislation_recently_adopted/index_en.htm

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:044:0011:0022:EN:PDF

http://www.hmrc.gov.uk/VAT/managing/international/imports/importing.htm#3