by Isabel Dias | 27 June, 2018
There are exceptional situations in which someone who sells a product or service does not have to charge VAT or return it to the State. The buyer then has to pay it off. In these situations, the invoice includes “VAT – Reverse-Liquidation”. But what is this exactly, why does it happen and how does it work in practice?
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VAT reverse charge: what you need to know
VAT reverse charge occurs when the recipient or purchaser of goods and services is also the debtor of the tax. That is, when the purchasing entity is responsible for paying VAT, rather than the selling entity.
Why does the VAT reverse charge system exist?
Some sectors of economic activity were identified by the European Commission as more susceptible to fraud and tax evasion, which involves, in part, the non-payment of VAT on transactions, namely international ones.
To avoid this situation, Member States are allowed to opt for the so-called reverse charge of VAT. Currently, this is a mandatory standard, which must always be implemented and controlled by both parties, service provider and purchaser.
When does VAT reverse charge?
You will have to self-assess the VAT, in Portugal, when you purchase:
- “ services that have as their object emission rights, certified emission reductions or greenhouse gas emission reduction units”;
- “ Civil construction services, including the remodeling, repair, maintenance, conservation and demolition of real estate, under contract or subcontract”;
- “ Intra-community acquisitions of goods when the place of arrival of the shipment or transport to the purchaser is located in the national territory”;
- “ goods and services in the waste, residues and recyclable scrap sector”;
or in other situationsrelated to the transfer of real estate, micro-farmers and investment gold.
However, if you are ataxable person under articles 9 or 53 - exemption regime for internal operations orspecial exemption regime - you will not have to do this self-assessment.
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Practical example of VAT reversecharge
Imagine that yourcompany contracts civil construction repair services from contractor X, in theamount of €2,000. Normally, you would have to pay €2000 + €460 (VAT) tocompany X, which in turn would pay €460 to the State. Later, your companycould deduct all or part of this amount on the VAT return.
However, with the VATreverse charge rules, your company will pay, instead of €2,460, only €2000, andthe remaining €460 will be paid directly to the State. Then, if there is aright to deduct, in whole or in part, your company will deduct the VAT.
If the deductibleamount is equal to the amount paid, you will receive the 460€ from theState. If the deductible amount is less than the settled amount, you willreceive the difference.
And to avoidmistakes, learn to calculate VAT .
How to invoice in case of VATSelf-assessment?
The VAT reverse charge must be indicated on the invoicing, and the issuer of the invoice is responsible for placing the indication “ VAT – Reverse charge ” . fields in Table 06 .
Know what other elements must be included in the invoices issued and communicated to AT.
VAT and invoicing with Jasmin
The Jasmin, expert software management , simplifies the process of billing of your business, and communication of the invoices to the AT.
By default, Jasmin includes the configuration of a wide range of VAT Regimes , Entities and Items. However, you can create new VAT regimes or consult the information associated with existing ones through the Configuration | Taxes | Article Taxes or Entity Taxes .