Introduction:

For invoices sent from countries in the European Community, VAT charges may be omitted from the invoices raised by the FBO, under the reversed-VAT ruling.

The reversed VAT ruling is a mechanism used in certain situations where the liability for paying VAT is shifted from the supplier (FBO) to the customer (recipient of the service). This typically occurs when the recipient is registered for VAT in their own country and the services provided by the FBO are subject to VAT in the recipient's country.

By applying the reversed VAT ruling, the FBO does not charge VAT on the invoice. Instead, the responsibility for accounting for the VAT is shifted to the customer, who reports and pays the VAT to the tax authorities in their own country.

The business logic for EC-Reversed VAT:

If a client is a business entity from another country, VAT charges for services will be reversed to that country. This applies to value-added services like handling charges and excludes goods such as fuel, catering, taxis, and rent. In FBO One, each product must be configured as applicable or not applicable to EC Reversed VAT.

The reversal of VAT charges applies to all business entity clients, regardless of whether they are based in the European Community (EC) or not. In both cases, no VAT is charged on the invoice issued by the FBO to the client. When the client is not based in the EC, reversing the VAT to the client is essentially a VAT exemption. However, when the client is based in the EC, the FBO is obligated to report the revenue amount for which VAT was reversed to the tax office on a per-client basis. FBO One provides the 'EC Reversed VAT Sales List' report for this purpose.

In FBO One, the following logic is applied to each line item in the handling order:

1. The debtor's Charge VAT setting is checked to determine if VAT needs to be charged. If VAT is not applicable (e.g., Charge VAT setting is 'Never'), no VAT will be charged. Otherwise, the following steps are executed.

2. If EC reversed VAT is not enabled for the FBO, the regular VAT rate applies. EC reversed VAT should be enabled for any FBO based in the EC. To enable EC reversed VAT, a value is entered in the 'EC reversed VAT enable date' in the administration, typically set to 1/1/2010.

3. If EC reversed VAT is not applicable for the product, regular VAT will be charged.

4. It is determined if the debtor is a foreign business. This is determined by checking if the 'Country for VAT purposes' and 'VAT number' fields of the debtor are not blank.

5. If the debtor does not match the criteria for a foreign business, regular VAT is charged. This is checked against the Administration owner. If there are multiple locations in different countries, an FBO contact must be created for each country, as the country for VAT purposes may differ.

6. If the country of the debtor is not in the EC (as defined in the list of EC Countries), the VAT code EC-EX is applied. The debtor is exempt from VAT in this case, and no reporting obligation exists.

7. If the country of the debtor is in the EC, the VAT code REV is applied. The debtor now has the responsibility to declare the revenue for which VAT is reversed in their home country, and the FBO also has a reporting obligation.

The finance manager at the FBO can run the 'EC Reversed VAT Sales List' report on a monthly basis. This report displays the revenue for the REV-VAT code per debtor VAT number. The report can be sent to the local tax authorities to fulfill the reporting obligations for reversed VAT.