Applying Reverse VAT: General Information

A reverse VAT is a special type of tax used in some countries that moves the responsibility for the recording of a VAT transaction from the seller to the buyer of goods or services. That is, the VAT is reverse-charged to the customer, so that the vendors do not need to get tax registration numbers in the countries in which they supply goods or services.

Learning Objectives

In this chapter, you will learn how to do the following:

• Process an AP bill with a reverse VAT applied to it
• Prepare a tax report with the reverse VAT

Applicable Scenarios

You process purchases with reverse VAT if the vendor from which you are purchasing goods or services is not registered with the tax authorities and your company, as a customer, should pay VAT. If it is allowed by the legislation of your country, you can claim the VAT paid on such purchases from your tax agency.

Application of Reverse VAT to Purchases

When the reverse VAT is applied to the purchase, the buyer credits the Tax Payable account in the needed output tax amount as though the buyer had supplied the goods or services. At the same time, the buyer debits the Tax Claimable account in the input tax amount that the buyer had to pay under standard tax rules. These two entries offset each other. Later, the buyer can recover these charges, if this is allowed.