Forex info reverse charge system
Under the reverse charge mechanism, when a supplier who belongs outside. Singapore3 makes a B2B4 supply of services5 to a GST-registered. Under the reverse charge mechanism, the obligation to The exchange rates to be used in converting foreign currency invoices in. The VAT calculated by the buyer under the reverse charge system is fully deductible in the same VAT return if the services are used strictly for taxable. IWAC DEFINITION BETTING ADVICE
In addition, sales are also taxable when the purchaser, due to a VAT reverse-charge mechanism, is the party that must pay VAT. When the purchaser has made a self-billing invoice, it is regarded as if the seller has issued it, if the purchaser and the seller have agreed on this arrangement and if there is a way for the seller to give approval to the self-billing invoice for more information, see 5. For other VAT-exempt sales that are domestic, sellers do not have to issue an invoice that fulfils the information requirements of the VAT Act.
There is no obligation to issue an invoice if the above goods or services are sold outside the European Union. Advance payments — also known as prepayments — are compensations, which the seller receives prior to the delivery of goods or supply of services.
If the entire amount has not been invoiced in advance, sellers must also give an invoice when they complete the delivery of goods or supply of services. In the interest of clarity, it is recommended that sellers only invoice the remaining amount at this stage. As an alternative, the previously invoiced advance payments may be listed on the final invoice.
However, this must be done in such a way as to avoid confusion, and reference must be made to the earlier invoices issued. These invoices do not have to contain information on unit prices. No invoice must be issued if the adjustments, compensations or similar amounts have already been taken into account in a previously given invoice, either directly in the price of a good or service or otherwise. Sellers must issue an invoice also in cases where the price has changed for some other reason after the initial invoice was issued, or if the entire sales transaction is cancelled.
Within a so-called "group of persons liable to VAT", or between reindeer owners within the same herding co-operative, there is no requirement to issue VAT invoices. The circumstances relevant to self-billing are discussed below.
Self-billing invoices are common practice in several industries, including the procurement of timber and in various sectors where business enterprises buy goods from primary producers. However, the seller is always responsible for the accuracy of the invoice.
When the purchaser has issued an invoice, it is regarded as if the seller has issued it, if the purchaser and the seller have agreed on this arrangement and if there is a way for the seller to give approval to each invoice that the purchaser issues. The seller may have agreed on the arrangement tacitly, i. Purchasers must give a copy of every self-billing invoice to the seller for approval.
The approval of invoices by the seller may go on tacitly, as well: if the seller does not give comment regarding the contents of the self-billing within a reasonable time, the seller is then treated as having approved it. If the seller and the purchaser have agreed upon the issuing of invoices and on their approval process as described above, the invoices that the purchaser issues are treated as invoices that the seller has issued, in reference to the VAT Act.
If the self-billing is not accurate in the seller's opinion, the seller must issue a replacement invoice that fulfils the requirements of the VAT Act. This invoice must contain a reference to the original self-billed invoice that the purchaser had issued. However, the seller still continues to be accountable for compliance with the invoicing rules of the VAT Act. The issue date of an invoice is the date when the party that issues it has made it available to the other party.
For example, an invoice in electronic format can be presented to the recipient directly: by e-mail or by delivery via one or more service providers. It may additionally be posted on a web portal in order to make it available to the recipient. The VAT Act does not define other time limits for issuing an invoice except the ones discussed above. The required VAT information may be written on the invoice in any language.
The Tax Administration may ask for a translation during a tax audit or other control procedure. For more information on the required details, see 6. In addition, with a system of sequential numbering, a missing invoice can be detected. Invoices issued during the same accounting period cannot have the same invoice number. VAT liable persons are free to use several series of sequential numbering at the same time if desired.
The unique sequential number does not have to consist of digits only — characters other than digits are acceptable as well. If a self-billing arrangement has been made and the purchaser instead of the seller issues the invoices, the seller should have the invoices in a series of sequential numbering.
The Tax Administration recommends that purchasers engaging in self-billing use specific series of unique sequential numbering for every seller. In exchange situations one VAT invoice can include both selling and buying of goods and services. This is particularly common in the retail sales of motor vehicles, where the seller prepares an invoice that shows the sale of both the original vehicle and the used vehicle that the customer gives to the seller. Because such an exchange is treated as two separate transactions, the company that sells the motor vehicle must assign a unique sequential number to its own sales invoice and to the invoice given by the customer the seller of the used vehicle , in case the latter is liable to pay VAT on this transaction.
As a result, two sequential numbers must be mentioned on the invoice. The information requirements of VAT invoices do not have to be fulfilled if the customer the seller of the used vehicle is a private person, or if the used vehicle had been in use for non-VAT-deductible purposes. When preparing an invoice for exchange situations as described above, it is prohibited to merely show the "net" amounts so as to offset the prices and the taxes.
This means that it is not allowed to only show the difference between the selling price and the purchasing price and the difference between the VAT of the selling price and the VAT of the purchasing price. It is required of a business enterprise to enter its Business ID in the documents relating to the conduct of business. In addition, sellers must enter their VAT number on the invoice when a distance sale of goods to the territory of another Member State is being made, and likewise, when a new means of transport is being sold to another EU-country, even if the purchaser is a non-VAT-liable person e.
As a purchaser must be entered the name to whom the goods or the services are being sold to. The invoice must be directed and addressed to the purchaser, or to several purchasers, if there are more than one of them. For example, the purchase of a factory machine can be shared, so that two business enterprises buy the machine together.
In this case, both buyers' names must be entered as the purchasers on the invoice. Both business enterprises receive the right to deduction of VAT only if both their names are shown on the invoice. If the invoice does not indicate the proportions of how the two businesses are sharing the newly purchased machine, the assumption is that each gets one-half of it.
Invoices must contain the seller's and the purchaser's company names, or auxiliary names, in the version entered in the Trade Register. If the seller or purchaser is an enterprise that is not registered in the Trade Register, the seller or purchaser uses the version of the name that has been recorded in the registers of the Tax Administration.
When a business is acting on behalf of someone else, i. If spouses engage in primary production, they are treated as a partnership for purposes of VAT. For practical reasons, they are registered only under one spouse's name in the VAT register, and the Business ID is issued to this spouse only. Invoices must show the name of the spouse who is VAT registered, and they may additionally show the name of the other spouse.
What is important is that the seller's or purchaser's names must be set out clearly, so they cannot be confused with another business enterprise. In addition to the seller's and the purchaser's names, e. If the seller has several establishments, and consequently, more than one address, the seller can choose the most convenient address to be shown on the invoice. The Tax Administration recommends that sellers use the address of their main establishment on invoices, or alternatively, the address of the establishment where the goods or services are supplied.
A coded address can substitute the actual address text if both the seller and the purchaser, and the Tax Administration as necessary, know how to decode the coded addresses in order to identify the parties of the transaction. The purchaser's address must be mentioned on the invoice in full.
Instead of a street address, it is permissible to use a P. Box or an address containing the purchaser's specific postal code. The invoice can be sent to an address that differs from the purchaser's address on the invoice: for example, to an accounting firm, to a paper-scanning service firm, or to the subsidiary of a group enterprise that provides centralised services for the group.
In this case, the invoice must show two addresses: the purchaser's actual address and the delivery address. It is permissible to show the information on the purchaser's actual address elsewhere on the invoice, not necessarily in the usual address field.
Services should be identified by mentioning the types of the services. Alternatively, the invoices can show descriptions of the goods and services in a coded format if the supplier, purchaser and the Tax Administration, as necessary, have a decoding key at their disposal. If such a decoding key is separately provided, it must be stored in the same way as the actual invoice itself.
The description may alternatively be made by a reference to a contract, to an order, or to a product catalogue sent to the purchaser. The mention about the extent of the services is only necessary in cases where the invoice does not otherwise give details on the content of the services being invoiced.
For example, an invoice for the rental of goods indicates the extent of the service by showing details on the rental period — in other words, the point in time when the services are supplied. Under Article 9a, the invoice issued or made available by each taxable person taking part in the supply of the electronically supplied services must identify such services and the supplier thereof.
In addition, the invoice or receipt issued or made available to the customer must identify the electronically supplied services and the supplier thereof. This concerns situations where the taxable person has explicitly indicated the actual provider of the electronically supplied services as the supplier of these services, and where the taxable person is not acting in his own name on behalf of the actual provider.
Invoices for services should at least indicate the month when the services were supplied if no exact supply date can be determined. If supplies of goods are made under FOB or CIF conditions, the date when the ship sails can be treated as the date of supply. When the supply date of goods or services is the same as the date of the invoice, the supply date does not have to be mentioned separately on the invoice. In the same way, if possible, in the case of prepayments, the invoice should show the actual date of payment.
However, the final invoice for the transaction does not have to show the dates when the seller had received the prepayments. The final invoice must show the supply date of goods or services. Some supplies of goods or services are made on a continuous basis. In this case, the compensation is related to the period of time — an example of this is rental service.
However, a one-off sale so that the customer pays in several instalments is not a continuous supply. In the same way, if the compensation is not based on time but quantity, it is not a continuous supply. This means that a contract to construct a building, for example, is not treated as a continuous supply of goods or services. In the continuous supplies of goods or services, the supply is regarded to take place on the expiry of every period of account relating to such supply.
The supply date on the invoice is the expiry date of such period. For clarity, the invoice can additionally show the length of the invoicing period. If there is no exact supply date for continuous supply of goods or services, the mention on the invoice is the time period during which the sale is carried out.
If intra-Community supply is in question, and goods are delivered on a continuous basis over a period longer than a calendar month, the goods are regarded as being supplied on expiry of each calendar month. Examples: In a piecework contract, the contract price is the unit price.
In selling electricity, the unit price is the price of electric power per kilowatt-hour. Unit prices may occasionally be defined as for " pieces" of the goods — in this case, the batch of pieces forms the unit price. Similarly, a package of products may occasionally be defined as a unit, and in this case, the price of such a package is treated as the unit price.
If one invoice covers both taxable and tax-exempt selling, the invoice must keep these categories separated. If applicable rebates or discounts are not included in the unit price itself, the invoice must specify them, either as percentages or as amounts of money. The requirement to spell out rebates or discounts on the invoice does not mean that exact details on them should be included line-for-line. The rebates and discounts can be shown anywhere on the invoice.
The requirement only concerns actual rebates and discounts given to the purchaser at the point of time when the invoice is issued. If the seller gives them afterwards, the seller must issue a new invoice document or credit note. In general, the seller must issue a separate invoice when the purchaser becomes entitled to the rebates, discounts, etc.
The amount of the usual commercial discounts is generally modest and so is its impact on the VAT relating to the sale. Nevertheless, the invoice should spell out both alternative total values of the invoice. As a minimum, the invoice should at least show the total amount of the cash discount itself including VAT. The invoice that includes a cash discount can be recorded in the accounting system so that to first use its full amounts of tax base and VAT payable, without subtracting the discounts, and afterwards when the discount has been used, to make separate entries specifying both the discount and its VAT effects.
Therefore, the seller must ensure that the invoice and the payment can easily be traced back to one another so that the seller can record and pay the right amount of VAT. The purchaser can make his accounting records in the same way as the seller.
In the same way, the purchaser must ensure that the purchase invoice and the money paid out to settle it can easily be traced back to one another so the right amount of VAT is deducted. If a credit note is issued to the purchaser in order to indicate an annual discount, the period concerned by the discount must be set out. There is no need to refer to the invoices themselves. It is sufficient to indicate the time period also if the rebate only relates to a specific product family.
A reference to the original invoice, through which a business enterprise has supplied returnable packages and transport appliances, might be impossible in practice. For this reason, the requirement is to include the reference if it is possible. The invoice must show the sum total of VAT that the seller must pay. The VAT sum does not have to be mentioned per different VAT rates, because this information can be counted from the other details as necessary.
It is important not to include any amounts of VAT in the invoice that have already been shown on a previous invoice, unless the invoice is a correction, or a replacement of an earlier invoice. Sellers of second-hand goods, works of art, antiquities and collectibles under the VAT margin scheme are not allowed to mention the amounts of VAT on the invoices. Instead, it must show the mention "reverse charge".
The VAT amount must be expressed with two decimals. Usual arithmetical rules apply for the rounding of uneven values: the last decimal digit to keep is increased by one, if the next digit is 5 or more. Rounding should only concern the final amount of the invoice.
The VAT amount must be expressed in the local currency of the EU country where the sale is carried out. However, the time of the invoice or the time when the payment has accrued is the decisive time of the exchange rate to be used, if the VAT is assigned to the month of invoicing or to the month of payment. If domestic sales in Finland are made in a non-euro currency, the seller must enter the VAT amount payable in euros on the invoice. However, if the authorities are currently processing the seller's application for VAT registration, the seller is entitled to indicate the amount and rate of VAT on the invoice on condition that the seller also spells out the fact that VAT registration has been applied for and is currently pending.
To have the right to VAT deduction on this invoice, the purchaser must check that the seller is successfully registered. This can be checked for example on the ytj. If the seller fails to obtain a VAT registration, he must give the purchaser a corrective invoice to replace the invoice issued. Even if the seller lodges an appeal against the decision not to register him for VAT, he must give the replacement invoice. Tax Administration's recommendations of entering this information on an invoice is covered in section 6.
Reverse charge of VAT is applied on the selling in Finland by a foreigner in circumstances where the foreign seller does not have a fixed establishment in Finland and has not applied for Finnish VAT registration. If the foreigner has a fixed establishment in Finland, but this establishment does not intervene in the supply of goods or services in question, VAT reverse charge is applied.
Reverse charge is not applied on situations where the seller is a foreigner and the purchaser is a private person or a foreigner who does not have a fixed establishment in Finland and who is not in the VAT register in Finland by applying for entry. Moreover, the VAT reverse-charge mechanism is also not applied on supply carried out by a foreigner if the supply relates to distance selling, passenger transport, or admission to educational, scientific, cultural, entertainment or similar events and to services relating directly to the admission.
The required VAT entry on the invoice is the "reverse charge" mention. Tax Administration's recommendations of entering information on an invoice is covered in section 6. The purchaser is entitled to add information to the invoice, if the invoice received from a seller from outside the EU is missing purchaser's VAT number or the mention "reverse charge". When a received invoice has been completed in this way, it must be visible what has been added and what was displayed on it originally.
When reverse charge applies, VAT rate or VAT amount must not be shown on the invoice, and the purchaser may not add that information on to it. If a vessel is being sold, the required information is: Date of supply, date of putting the means of transport into service, and accumulated hours of sailing.
Correspondingly, for aircraft: Date of supply, date of putting the means of transport into service, and accumulated hours of flying. The Tax Administration recommends that the seller enters a mention on the invoice that the selling price includes no deductible VAT.
The "Margin scheme — Second-hand goods", "Margin scheme — Works of art" or "Margin scheme — Collector's items and antiques" mentions must be shown as appropriate. Section 7 of the published guidance contains examples of the required VAT information on invoices. The above rule applies to all circumstances where an invoice is changed. It is important that the reference to the previously issued invoice is unambiguous. The unique invoice number can be used in the reference.
If the change has to do with the seller's sales made during a certain period of time, you can make reference to such a period. For example, if you are granting an annual discount to your customer, you should indicate the time period — the year — on the invoice. If the invoice has to do with distance selling, intra-Community supply or with cross-border selling on which the purchaser is liable to pay VAT, and the original invoice is changed so that a new invoice is issued, the new invoice must contain all required VAT information.
In this case, it is not enough just to refer to an earlier invoice. The obligation to issue an invoice concerns the supplies that would be VAT-exempt if they were carried out in Finland. In the case of triangulation within the Internal market, the first seller enters, in the usual way, the purchaser's VAT number and a mention of an intra-Community supply on the invoice in addition to its own VAT number.
After that, the first purchaser — i. In addition, the second seller must indicate that the VAT reverse charge is applied with the mention "Reverse charge". When a Finnish business enterprise supplies services for which the place of supply is other than Finland and for which the purchaser is liable to VAT, the Finnish seller must enter the mention "reverse charge" on the invoice.
This applies when the purchaser is from within the EU and also when the purchaser is from outside of the EU. When goods or services, which are in use, which only partially entitles to deduction, are sold, VAT must be paid only for the part that entitles to deduction.
The invoice must show the amount of VAT to be paid. In addition, the simplified rules apply when the invoice concerns retail sales or similar, where almost all selling is made to individuals. Examples of a sales operation similar to retail include the operation of a kiosk, a shoe repair shop, a hairdresser's or a funeral home. Simplified VAT information is sufficient for invoices relating to restaurant and catering service and passenger transport with the exception of services that are bought by a buyer that intends to re-sell them on to another customer.
Moreover, simplified information is sufficient on the receipts printed out by parking meters and comparable devices. In this case, there is no need to show the base of VAT. However, it is permissible to include more information on the invoices and receipts than what the VAT Act rules require. More information on this documentation is found below in sections 6. This deduction requires that the seller gives the purchaser a document that includes details on the VAT amount payable.
This document must at least contain: date of issue of the document containing the details the names, addresses and Business IDs of the seller and the purchaser nature of the supply the amount of VAT that the seller must pay. In the same way, a deduction can be made if the landlord has charged the energy expense separately from the rent. However, only the amount corresponding to the VAT payable on energy resources or fuels purchased by the owner, or the holder of the immovable property, may be deducted.
A precondition for the right to deduction is that the seller gives the purchaser a document that includes details on the VAT amount payable for the energy recourses or fuels that the seller has bought. The transferee must give the transferor a document that establishes that the sold or supplied goods and services will be used for VAT deductible purposes. The transferor must also give the transferee a document on supplied immovable properties for more information, see section 6.
For more information, see section 6. The VAT liable person must prepare a memo voucher for self-manufactured goods and services, which includes the purchase invoices for any goods or services that he had to buy in order to manufacture the goods or services.
If the VAT liable person is a limited liability company, no VAT deduction for initial stock is allowed if the original purchase had been made by a private person e. Under the circumstances, the purchase is not a purchase made by the limited liability company. It is neither possible for a private person to issue an invoice with VAT included to a limited liability company. The list is free-form. In addition, sellers may be under obligation to issue an invoice due to legislation in force in another country.
VAT is not payable on the sale of goods or services, which are used for purposes of other than those which entitle to deduction. When goods or services, that have been in non-deductible use, are being sold, the invoice should show a mention of it, e. The Tax Administration recommends about the documentation: When paid expenses relate to consortium's construction work, but some of the expenses are included in the bookkeeping of one of the shareholders in the consortium, the shareholder must give a document about these expenses to the consortium.
Examples of such expenses include YEL pension insurance premiums, insurance premiums for cars, and depreciations of machinery and equipment. This way the VAT base of own use of construction services is dictated correctly to the consortium. The authenticity of the origin, the integrity of the content and the legibility of an invoice, whether on paper or in electronic form, must be ensured from the point in time of issue until the end of the period for storage of the invoice.
Business enterprises can select freely between any control process that create a reliable audit trail between an invoice and a supply of goods or services. Both the seller and the purchaser can independently ensure the authenticity of the origin. The seller must ensure that the information on the invoice is true regarding the supply of the goods or services, and the identity of the seller. The seller must also ensure the identity of the party who issues the invoice, if the issuer is the purchaser or a third party.
If the purchaser is a business enterprise, as well, the purchaser must be able to ensure that the information on the seller's identity on the invoice is true. In addition, purchasers must ensure that the seller has supplied the goods or services described on the invoice.
A typical way to do so is to compare the invoice details with other documents for the same business transaction. A VAT liable person must store the documents that have been used for ensuring for the entire storage time of the invoices. You may also be able to defer, suspend, reduce or obtain relief from import VAT.
Imported goods: accounting for import VAT These are normally charged at the same rate as if they had been supplied in the UK. You can reclaim the VAT incurred on the imported goods you own as input tax subject to the normal rules. Alternatively a business can choose to pay import VAT on importation. If you choose to do this, you can reclaim the VAT incurred on the imported goods you own as input tax subject to the normal rules.
To claim input tax you will need the import VAT statement as evidence. A shipping or forwarding agent cannot usually reclaim this input tax because the goods were not imported to be used in part of their business. Find out more about accounting for import VAT on your return. If you use delayed declarations and are not registered for VAT, you will pay import VAT when you make your supplementary declaration.
Find out more about delaying declarations. Services received from overseas suppliers When you buy services from suppliers in other countries, you may have to account for the VAT yourself — depending on the circumstances.
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Tax liability may also be transferred in the case of certain domestic deliveries or services. Tax liability can be transferred in the case of construction works where the recipient themselves was contracted to perform the works or usually performs construction works themselves Section 19, paragraph 1a UStG.
Reverse charge invoice When the reverse charge system is applied, the recipient company will be issued an invoice by the company providing the service stating only the net amount no tax statement and is responsible for paying the VAT due. This can then be deducted should they be entitled to input tax deduction. The invoice must be issued by the 15th of the calendar month following the month in which the service was provided.
When issuing an invoice under the reverse charge system, the following should be borne in mind Section 11, paragraph 1a UStG : The invoice must provide information on transfer of tax liability to the recipient s of the service. The regulations on separate tax statements do not apply. However, that often results in misreporting of VAT returns in many jurisdictions. The reverse charge VAT mechanism aims to eliminate that risk. Unlike the normal VAT scenario, the end-user of a business transaction is responsible for filing value-added tax with the authorities.
The receiver of the goods or services charges an input and output VAT charge. In other words, the receiver acts as a supplier and a customer at the same time. The net effect of both transactions nullifies the value-added tax for the originating source of supplies. Tax authorities set rules for defining the threshold amount of sales for value-added tax requirements. All businesses exceeding sales above this threshold need to register for VAT. Also, the VAT rate can differ from one jurisdiction to another.
The rules may differ slightly for domestic and international transactions. However, the working mechanism remains the same where the originating source of a sale does not incur any value-added tax charge. The tax regulatory authorities set out value-added tax compliance regulations including the decision on the reverse charge. The value-added tax rate is also defined. The supplier of goods or services receives an order from the buyer.
They manufacture products or provide services to the buyer. The supplier would charge the customer for the product costs and shipping charges only. The invoice would include a note on the reverse charge VAT mechanism. When manufactured goods are resold by the receiver to a retailer, they charge an output VAT to that retailer. If the buyer was the end-user, they will calculate the applicable VAT charges. It would then make the VAT payment to the tax regulatory authorities in its jurisdiction.
All other regulations are applicable in a similar manner. For instance, the compliant need to be a VAT registered business. It needs to meet the threshold limit and other compliance requirements as well. There may be more than two parties involved in a service contract as well. For instance, a contractor, a sub-contractor, and the end-user of the services. The first supplier of the goods or services will follow the same procedure as we discussed above. It will not charge any value-added tax to its customer.
Instead, it will include a reverse charge note on the invoice and the VAT registration number of the client. The second party will include an input and an output VAT amount in its invoices respectively. Both amounts will cancel out each other and will have a nil effect on the cash flow of the company. The second party also does not make an actual value-added tax payment.
The end-user of goods or services will receive a reverse charged value-added tax on its invoice. This end-user suppose a retailer would include the value-added tax amount to its products and will charge the customers. It is a VAT-registered business and its annual sales exceed the threshold limit.
Its net effect will cancel for the transaction made with ABC company.
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