Reverse charge
What you need to know about reverse charge of Value Added Tax (VAT)
The reverse charge procedure helps to simplify sales with VAT within the EU by regulating the transfer of sales tax between sellers and customers who are based in different EU countries. The purpose of the reverse charge rule is to simplify trade within the EU, and it’s been in place for approximately 20 years now.
What is the reverse charge procedure?
The reverse charge procedure (according to §13b UStG) is a special regulation which reverses the sales tax liability. Reversal of tax liability means the recipient of the service is the one who must pay the VAT and not the entrepreneur providing the service. When reversing the tax liability, a distinction must be made as to whether the supplier is located in another EU country or in a so-called third country outside the EU.
Where the VAT is due
If a product or service is sold from one country to another, the VAT must be offset between the two countries. Within the EU, the application of this procedure is simple: The supplying company does not show VAT on its invoice but reports the transaction to the tax authorities.
The entrepreneur (recipient) in the other country then receives the goods or services and adds the VAT applicable in his or her country.
Saloodo! is a German company so if you buy services from Saloodo!, Value-Added Tax (VAT) is normally charged and accounted. If your company is not based in Germany, reverse charge procedure is applicable.
Simplify your VAT
The reverse charge procedure helps to simplify sales with VAT within the EU by regulating the transfer of sales tax between sellers and customers who are based in different EU countries. The purpose of the reverse charge rule is to simplify trade within the EU, and it’s been in place for approximately 20 years now.
What are the advantages?
Application of reverse charge procedure
When the reverse charge is applied, the recipient of our transport services makes the declaration of both their purchase (input VAT) and the supplier’s sale (output VAT) in their VAT return.
In this way, the two entries cancel each other from a cash payment perspective in the same return. So this is why within the EU, the supplying company does not show VAT on its invoice but reports the transaction to the tax authorities. The receiving company (who gets the invoice) receives the service and adds the applicable VAT in their country.
Benefit from the reverse charge procedure
Not every cross-business activity falls under the reverse charge procedure, but so does transport services and it must be invoiced by reverse charge. This is actually an advantage for the recipient, as he does not have to pre-finance the VAT and wait for the authorities to refund it.
Example for EU countries
Does reverse charge also apply to customers in countries outside of the EU?
When reversing the tax liability, a distinction must be made as to whether the supplier is located in another EU country or in a so-called third country outside the EU.
In general, if you are not based in the European Union, no VAT is charged or paid to Saloodo!.
However, there are some countries that have specific agreements with Germany that regulate the rules of sales tax in a similar way to the reverse charge procedure. If your company is registered outside of EU the Saloodo! invoice will include the net amount only and additionally the text “The service recipient may have to account for VAT (Reverse charge) in his country”.
Do you need further assistance?
Please note that the above information is without guarantee. If you have any questions about VAT, please contact a tax specialist in your country.
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