VAT reverse charge

What is reverse charge tax?

Reverse charge refers to a change in the liability for  VAT payment , where the buyer, instead of the seller, becomes responsible for paying the tax to the treasury. This mechanism is mainly regulated by Law  37/1992 , article 84, which establishes the specific cases in which reverse charge for VAT is applicable.

The reverse charge for VAT changes the liability for paying the tax.

In addition, this operation must be reported annually through  Form 390 , an annual VAT summary declaration, which details all operations subject to this mechanism.

Situations in which the reverse charge is applied

At the national level, the reversal of the taxable person is applied in cases such as the sale of rural land, execution of works in bankruptcy proceedings, and sales of recovery materials such as unprocessed gold.

In intra-community trade, it is applied when mobile phones, video game consoles or digital tablets are delivered to businesspeople or professionals within the European Union. This mechanism is common in the construction, technology and electronics qatar email list  sales sectors, where the regulations seek to prevent fraud in the payment of VAT.

Examples of invoicing with reverse charge

Let’s imagine that a company buys mobile phones. In this case, the purchasing company or the service provider must assume the status of taxable person and declare the corresponding VAT in its country of residence.

On the invoice, the seller must clearly indicate that this is a reverse charge how to display a facebook feed in wordpress (5 Easy Steps)  transaction and that the buyer is responsible for paying the VAT. This situation occurs especially when these items are part of the fight against VAT fraud, such as carousel fraud.

Another example could be the sale of rural land by a construction company.

In this sector, it is common to have situations where the buyer, usually a company or professional, assumes responsibility for declaring and paying VAT. If the transaction is subject to VAT reverse charge, the buyer must reflect this transaction in their accounting and ensure that VAT is correctly declared and paid.

These examples demonstrate the importance of understandin telemarketing forum and correctly applying this mechanism to avoid tax problems and ensure that all operations are carried out within the legal framework.

Tax obligations of the buyer and the seller

In the context of VAT reverse charge, both the buyer (new taxable person) and the seller have specific tax responsibilities.

Buyer’s Responsibilities

The buyer, assuming the role of taxpayer, must charge the corresponding VAT in his/her declaration. This means that he/she must calculate and declare the VAT as if he/she were the seller, reflecting both the accrued and deductible VAT.

In addition to the VAT self-assessment, the buyer must be aware of other taxes that may apply in the case of property sales, such as the Property Transfer Tax (ITP) or the Value Added Tax (VAT), depending on whether the property is new or second-hand. However, these taxes are not directly related to the taxpayer’s reversal of VAT.

Seller Responsibilities

In cases where reverse charge applies, the seller must not include VAT on the invoice. Although the seller does not collect VAT, the seller is obliged to correctly reflect the transaction in its accounting books and ensure that the buyer is aware of its new status as a taxable person.

In addition, the seller is still required to comply with other taxes related to the sale of the property. These include:

• Personal Income Tax (IRPF) on capital gains;
• Real Estate Tax (IBI) ;
• Municipal capital gains tax that taxes the increase in the value of land.

Tax and legal consequences of not correctly applying the reverse charge

The tax and legal consequences of not correctly applying reverse charge can be significant. Both the buyer and the seller may face penalties from the tax authorities, which may include fines and surcharges.

Failure to comply with this mechanism can result in serious penalties, including fines and the loss of the right to deduct input VAT. In addition, failure to comply can result in the obligation to pay undeclared tax, which could lead to long-term financial and legal problems.

Procedure for the application of the reverse charge

To correctly apply the reverse charge, the invoice must reflect that the buyer is the one who assumes responsibility for the VAT.

It is essential that the invoice contains a clear mention that it is a “reverse charge transaction”. In addition, it must include a reference to the applicable legislation, such as: “Transaction subject to the provisions of  art. 84.1.2ºC of Law 37/1992 on VAT”.

It is crucial that both the buyer and the seller record the transaction accurately in their accounting books, clearly indicating the reversal of the taxable person. The buyer must record the input and output VAT in their accounting systems, even if no actual payment is made to the Tax Authority.

Let’s take an example. A repair shop issues an invoice for the sale of recycled batteries for €500. The invoice must indicate that VAT is not included and mention that reverse charge applies. The shop will not charge VAT, but the buyer will have to deduct it in their VAT return.