company in home country invoices Cyprus company to get the funds to home country?

[NicolasMaduro]

Presuming I´m a company based in EU Country A with 25% VAT and I bought consulting for 100.000 EUR from EU Country B,
then my VAT declaration would look like something like this:

VAT of services bought abroad with reverse charge: 25.000
Purchase VAT: 25.000
Value of services bought in other EU Countries: 100.000

VAT to pay: 0

Presuming I'm a company based in EU Country B selling 100.000 EUR of consulting to a company based in EU Country A my
VAT declaration would look like this:

Value of Services sold without VAT to other EU Countries:
100.000

VAT to pay: 0 (No VAT to deduct)


So where is this 20.000 EUR or 25.000 EUR bill you are talking about?

I´m not trying to troll. I just want to understand. What am I missing?

 

[JustAnotherNomad]

@NicolasMaduro is right on VAT.
If there is negative VAT, there will be a refund. It’s the same thing as if a newly registered company bought equipment in its home country, but didn’t make any sales that year. There will be a negative VAT balance and any VAT paid will be refunded by the tax office.

Also the invoice plan is high risk.The taxman is well aware that people have offshore companies and will try to do something like that to repatriate some of the funds. Also many countries have reporting requirements. The mere fact that he did not disclose his ownership of the CY company to local tax authorities could already be problematic. Just don’t do it. Even if not flagged automatically, it will create issues if you’re audited.

 

[NicolasMaduro]

So Xzars you still here? Im still curious to know

 

[JustAnotherNomad]

Maybe tax @xzars - that should make it easier for him to see the thread

 

[Tax Cow]

So Xzars you still here? Im still curious to know

A Cypriot accountant can tell you the exact consequence, even help with entries. If the matter is important, you should reach out to one.

Border line is that the VAT tax is a hot potato to be passed on to the end consumer. If you don't produce anything with your business to pass it on, then your business is burned by that VAT potato like Sarah and Bob buying actual potatoes on Sunday. The only difference is that a business can write it off as business expense, or request a refund after some government formalities.

I do not not recommend the latter in your situation because any requests for net VAT refunds elevate risks of an audit.

 

[JustAnotherNomad]

@xzars
There would be no VAT refund as @NicolasMaduro explained. There would simply not be any VAT to pay. Nobody gets burned.

But of course invoicing in such a way is still not a good idea.

 

[Tax Cow]

That's correct if buyer and seller are VAT registered in the same state. In his case, they are not. Recipient makes a bank transfer to the tax office to pay the reverse charge VAT, and later deducts the expense or seeks a refund - if he wants full compliance.

 

[JustAnotherNomad]

No. If they are registered in the same state, VAT needs to be paid and there may be a refund later. Reverse-charged VAT exists only with cross-border transactions.

The case you mentioned, where you apply for a refund is when (for example) a company from country A receives services in country B from a company registered in that country. For example, you have company-owned car (country A) and you drive it across the border to get it serviced in country B. In that case, VAT needs to be paid (services rendered locally in country B) and the customer can later apply for a refund from his own tax office in country A. They will then ask for a refund from tax office in country B and forward the money to their own taxpayer.
At least that’s how it works in the EU.

 

[Tax Cow]

@JustAnotherNomad

If they are registered in the same state, VAT needs to be paid and there may be a refund later.

So in the EU, there's an incentive to buy from abroad? Buying locally apparently freezes up your work capital, but sourcing from i.e. Cyprus is free of VAT: reverse charges must not be wired to tax officials for compliance enhancement, tax officials by default assume that you're a good boy!

 

[JustAnotherNomad]

In a way, yes. Because when would the reverse charged VAT have to be paid? Do you think that for every cross-border service invoice, you wire the VAT immediately once the invoice is paid? You just put your VAT ID as the reference for the wire and hope the taxman will be able to guess what it’s for?

Obviously not, you submit monthly or quarterly VAT declarations and that’s when you’d have to pay. Conveniently, that’s also when you’d get your refund. If the balance is 0, there is nothing to pay, but you also don’t get a refund.

You can look at it the other way: A company with local clients and no cross-border clients has an advantage because they get the VAT as an interest-free short-term loan.

 

[NicolasMaduro]

Yes Xzars. As I also tried to explain you. But you refused to believe it.

 

[JustAnotherNomad]

And the reason for this is that they do it to make it harder to run VAT carousels. So they’re not doing it to be nice, they’re doing it because they think the alternative would be worse.

 

[Tax Cow]

...You just put your VAT ID as the reference for the wire and hope the taxman will be able to guess what it’s for?

For tax affairs your payment reference is your business tax ID. Nothing will be lost and having some pre-paid balance which can be used for any future liability is completely normal; better than risking penalties for late payment.

Regards to the cross-border services and VAT compliance in the EU, I'll take a consultation very soon. Odds are that I've been milking dated evasion methods for too long to know that some steps are over-compliant. And odds are that you're talking BS. I'm doubtful but certainly not agreeing with @JustAnotherNomad and not with you @NicolasMaduro

 

[NicolasMaduro]

For tax affairs your payment reference is your business tax ID. Nothing will be lost and having some pre-paid balance which can be used for any future liability is completely normal; better than risking penalties for late payment.

Regards to the cross-border services and VAT compliance in the EU, I'll take a consultation very soon. Odds are that I've been milking dated evasion methods for too long to know that some steps are over-compliant. And odds are that you're talking BS. I'm doubtful but certainly not agreeing with @JustAnotherNomad and not with you @NicolasMaduro

I’m fascinated. You are wrong. And you wont agree with the facts. Its like you saying cars dont exist and you wont agree with the fact that they do.
Its okay to be wrong sometimes. It Can be a little bit dangerous when you are so confident about it. You might have mislead so many Forum users.

 

[Tax Cow]

Well its troublesome that you are spreading wrong information and still being so confident about it. Some people will read it and Think you are right when in fact eveything you have written in this thread is wrong. Also its a bit funny how you are being so arrogant about it and condescending. You are wrong! Its okay to be wrong sometimes! You seem a bit narcisistic since you cant even handle being wrong. You wont even admit it.

I'll give you credit when confirmed. Hold on a few days.

 

[Crest]

This discussion is excellent. Looking forward to the next input

 

[JohnLocke]

This discussion has turned into something complex where most professionals have difficulties to agree. Let's see how it will develop.

 

[JustAnotherNomad]

It really isn’t difficult at all. These are the very basics of international VAT. Anyone who has ever had a business client from another country in Europe knows this stuff.
If you only do B2B transactions, you can simply say that VAT is never an expense for you. You either never have to pay it in the first place or you will get a refund

I also don’t think VAT refunds increase the risk of an audit, unless your company runs a
deficit. I own an EU business that doesn’t have a single local client. So all invoices are subject to reverse-charged VAT. As a consequence, my company doesn’t receive any VAT. But of course from time to time, the business makes purchases for which VAT needs to be paid. For those purchases, I apply for a VAT refund. So there is always either a balance of 0 or a refund.
That’s nothing suspicious, it’s just the way things are when you don’t have local clients and you only deliver B2B services.
All tax stuff is handled by my accountant, who I hope knows how this works. ;-)

Just to give a short explanation again, though I think @NicolasMaduro already did a great job. Say you are a located in country A.

Q1:
You buy some furniture for the new office.
20k + 25% VAT = 25k.
You also bill a smaller local project, 10k + 25% VAT = 12.5k.
You have paid 5k VAT and received 2.5k VAT.
You put that in your VAT declaration and receive a 2.5k VAT refund from your local tax office. It’s the equivalent of you sending the 2.5k to the taxman and then applying for a 5k refund. That would only be more complicated, so instead you get to keep the VAT and only receive the difference.

Q2:
You send a 200k invoice to a business client in country B. Country B has 21% VAT, but it’s reverse charged, so you receive the net amount only. No VAT. The VAT is the client’s problem.
You also buy 100k of services from a company in country C. There is reverse charged VAT, so you have to add your local VAT of 25%.
Finally you also buy a new laptop in a store in your country for €2000 + 25% VAT = €2500.

In your VAT declaration for that quarter, you write:
25k reverse-charged VAT on 100k services.
2.5k local VAT paid.
(I’m actually not sure if you even have to mention the 200k invoice here since it’s not relevant for local VAT.)
You would get a refund for the 25k just like you got a refund for the 5k VAT you paid for the furniture. But since you didn’t actually pay the VAT yet, there is nothing to be refunded.
So you only get a refund of €500 for the computer.

Q3:
You buy services from country D worth 10k. There is 25% reverse-charged VAT = 2.5k.
You also receive local payments worth 50k + 12.5k VAT = 62.5k.
You pay 12.5k VAT to the tax office (which your customers already paid you). You also declare the 2.5k reverse-charged VAT. You would get a refund for the 2.5k reverse-charged VAT if you had paid it. But you didn’t pay anything, you just write it in your declaration. So you pay the 12.5k your clients gave you and that’s it.

 

[Tax Cow]

Alright boys. Two hours booked with company X in Belgium. I'm specifically interested in a case where a Belgian company is the customer which buys services subject to BTW reverse charge from Germany.

Absent the discussion about a supply originating from Cyprus specifically, I believe we can still make some pretty good conclusions about our disagreements. If we have time left, I'll add in some examples from here.

 

[Tax Cow]

It's a sad day. We're all clueless and generalizing from our own experiences.

Liability to pay BTW (VAT in Belgium) upon receiving a Reverse Charge service invoice depends on what the customer does for his customer. There is no universal outcome to Reverse Charge invoices for Belgian customers.

In my case, the Belgian company leases property, a mix of residential and commercial units out of which some produce VAT-inclusive revenue, and some VAT-exempt revenue.

Part 1 of 3: Cash payment liability arising from a Reverse Charge invoice. There's no refund for tax paid.

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222: Sure, go ahead

111: Reverse Charge invoice from a German company is EUR 100,000 @ 0% which covers the kitchen appliances installation service in 10 rental units (5 residential, 5 commercial). Service cost per each unit is equal (EUR 10,000).

111: My company rents out each unit for EUR 1,000 per month, resulting in aggregate revenue of EUR 10,000 per month for all units.

111: Do I have a liability to pay BTW in Belgium for this Reverse Charge invoice?

222: One moment sir!

111: Sure.

111: Docy ou need more information?

222: Please send me your rent invoices and appliance installation invoice to xxxxxxx for reference.

111: Sorry but I cannot disclose my clients or my business at this point.

222: Is lease revenue per inclusive of BTW?

111: The EUR 5,000 from commercial units is inclusive of BTW and EUR 5,000 from residential units is exempt. Let's work with these numbers for now.
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222: Hello.

111: Yes, sorry!

222: Do you need declaration assistance from us?

111: No, please just tell me how much tax must be paid based on these numbers.

222: €10,500 which is net after you reclaim 50% input relief from €21,000.

111: I have a conflicting opinion from here:

Reverse charge on EU VAT It says that two entries of a Reverse Charge declaration (input and output) cancel each-other out from the cash payment perspective.

222: You have to pay sir, but claim half input relief.

111: Why? Could you please elaborate. Is this article wrong?

222: Residential property rents do not have tax included. So you cannot claim 100% input relief. You use half service for exempt supply and qualify for 50%.

111: Clear, that's what I'm doing now.

111: When should this be paid? If I received invoice on 6th of July, for example. Must I declare and pay the resulting tax obligation by 20.th of August, or can I just declare and wait till the end of quarter to see if I can get a BTW refund after adding up other costs (and not pay at all until there's clarity)?

Part 2 of 3: Where Nil (no tax) is the outcome for the customer

This is what interested you @NicolasMaduro. You're partly correct. There is no VAT payment liability, given my generous assumption that you exclusively offer VAT-taxable software development services in Belgium. What is not correct is echoing the opinion found on Avalara.com that a Reverse Charge invoice will end in a cash nil/neutral position for the customer. Whether or not there's a cash neutral end result depends on what the customer does for his customers. Since that essential information is not available, and there is no reference to possible exceptions arising from partial exemptions, the source is not credible and it could fool readers into making false declarations.

222: Please see the brochure for more information.

111: Residential unit tenants are already in contract without BTW included and I'll probably continue not charging BTW until it's mandatory for longer leases. But I should calculate the net effect for some units. Thanks for informing me!
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111: Could you please help me with a similar issue?

111: My business associate offers software development services in Belgium. Company is registered for BTW; his supplier does not have Belgian BTW registration but they have a VAT number in Cyprus.

111: His company received a Reverse Charge 0% invoice from that Cypriot company for advertising services. Do you think that there could be any BTW payment obligation in Belgium?

222: What is the issue?

111: Does a software development company have to pay BTW in Belgium for adverising services received from a VAT-registered Cypriot company? Let's say the invoice is from a Cyprus company for EUR 100,000 @ 0%, subject to Reverse Charge in Belgium. What would be the liability?

222: Most likely no liability. Software development is not exempt services.

111: They declare the purchase, claim 100% input relief, and not pay any BTW tax in Belgium?

222: Yes, that should be correct.
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