Taxpayer
5.2. What is a Reverse Charge?
- What is Reverse Charge?
In the EU, there is a system called the reverse charge system. Normally, the seller of goods that records taxable sales or the provider of a service must pay the VAT to the tax office. The reverse charge system refers to a system in which tax liability is passed from seller of goods and services to acquirer of goods or beneficiaries of services. In other words, it is a system where the tax liability moves.
In addition, when using the reverse charge system, it is necessary to indicate that the reverse charge is being applied and the grounds for the basis, on the invoice.
- The Reverse Charge System
The Reverse Charge system moves the responsibility for the recording of a VAT transaction from the seller to the buyer for that good or service, eliminating or reducing the need for sellers to VAT register in the country where the supply is made. If the supplier incurs any local VAT on costs related to the service or goods supplied under the Reverse Charge, they may recover them through an EU VAT reclaim.
For example, if a British lawyer provides consulting services to an Italian company like the case mentioned above, the taxable place becomes Italy, the British lawyer is not in Italy, but you will have to register VAT. If you are a lawyer with corporate clients throughout Europe, you will need to register VAT in all 28 member states. In order to avoid such a situation, there is a system to "pass on tax obligation" called reverse charge on the European Value Added Tax Law. In order to pass on the obligation to pay taxes, if one member country has acquired the value-added tax number, it is not necessary to register the value-added tax number in each member country. For services that apply the reverse charge system, consulting services, advertisements, assignment of copyrights, human resources, assignment of goods by foreign companies, etc. are applicable. As the scope of application of the reverse charge system varies widely depending on the member countries, caution is necessary.
