As a self-employed person, you sometimes have to deal with VAT reverse charge. But what exactly does that entail? When do you use such a VAT reverse charge, and how do you make sure it appears correctly in your administration and VAT return? In this article we explain it clearly and step by step (with good examples).
What does VAT reverse charge mean?
With VAT reverse charge, you as a supplier or service provider do not pay VAT yourself. Instead, you shift this 'responsibility' to your customer. They must then declare and remit the VAT via their own VAT return.
On your invoice, you clearly put that the VAT is reverse-charged. But you do not include VAT in the total amount. This happens mainly in the construction industry, for deliveries within the EU or if you work for an entrepreneur who is himself subject to VAT.
When do you use VAT reverse charge as a self-employed person?
As a self-employed person, you only use the VAT reverse charge in specific situations. Below, we list the most common cases for you.
When subcontracting or loaning construction personnel
Do you work as a self-employed person in construction and carry out assignments for a main contractor? In that case, you are obliged to reverse charge VAT. This also applies if you supply personnel to another contractor. This rule is designed to prevent fraud and abuse.
For deliveries to entrepreneurs within the EU
Does your company supply services or goods to a company in, say, Germany or Belgium? Then you reverse the VAT to that company (as long as they have a valid VAT number, of course). On the invoice, you put that the VAT is reverse-charged and you do not charge Dutch VAT.
For orders from outside the EU
Do you work for a customer outside the EU (e.g. in the United Kingdom or the United States)? In that case, you will send an invoice without VAT. This is considered a non-taxable service. In that case, you do not have to declare or reverse charge anything, but it does fall outside the Dutch VAT system.
When selling digital products or services to businesses in the EU
Do you sell digital products such as e-books, software or online training to companies in other EU countries? Then the VAT reverse charge applies to you too. Are you selling to private customers (i.e. not companies but people)? Then, on the contrary, you must charge VAT according to the rules of the customer's country - via the One Stop Shop (OSS).
Note: VAT reverse charge is only intended for business customers. So always check whether your customer is a businessman and submits VAT returns. In doubt? Use the European Commission's VIES system To check the VAT number.
How do you put reverse charge VAT on your invoice?
On your invoice, you must clearly show that the VAT is reverse-charged. For example, put there: "VAT reverse charge" or "Reverse charge according to Article 12(3) of the Turnover Tax Act 1968".
But also note the following:
- Omit the VAT amount (you don't calculate it).
- Include your customer's VAT number (this is mandatory for foreign customers).
- If necessary, add an explanation in your terms and conditions (so you have everything clear).
How do you process reverse charge VAT in your VAT return?
You report this turnover in section 3b of your VAT return. This is the place for supplies and services where the VAT is reverse-charged, within the Netherlands or the EU. You don't have to pay VAT on this, but you do have to report the amount to the tax authorities properly.
What if VAT is transferred to you?
It may happen that you are on the other side of the arrangement. In that case, the VAT is actually transferred to you. You will then receive an invoice without VAT, with a clear statement on it showing that the VAT has been transferred.
What you do in that case then:
- You calculate the amount of VAT involved yourself and enter it in your VAT return (section 2).
- Are you entitled to a deduction? Then immediately deduct that same amount again as input tax.
You can see this, for example, with services you buy from a freelancer from abroad.
Reverse VAT within the EU (intra-community)
As a self-employed person, you apply VAT reverse charge when supplying goods or services to companies within the EU. In that case, you then include the customer's VAT number on the invoice. You also put the following on it: > "Intra-Community supply, VAT reverse charge".
You enter this turnover in section 3b of your VAT return. You also do a CPI declaration.
When is reverse charge VAT not applicable?
VAT reverse charge does not apply in the following situations:
- With private customers.
- When your customer does not file a VAT return.
- For services that are not part of the exceptions, such as normal sales within the Netherlands.
- If you apply the small business scheme (KOR) and do not charge or declare VAT.
Conclusion
Moving VAT is not rocket science, but you have to get it right. So always check that everything is correct. Also apply the right rules to your invoice and VAT return. And avoid hassles by using the right accounting software or just asking your accountant for help.
