مايو 14, 2024
The reverse charge mechanism is used in cross-border transactions between companies, where the service provider is located in a different country from the customer importing the service.
Definition of reverse charge: It is a system in which the beneficiary of the goods or service is directly responsible for paying the tax to the tax authority instead of the supplier of the goods or non-resident service provider, in cases specified in the Value Added Tax Law.
Practically, when applying the reverse charge mechanism, the foreign supplier does not impose VAT on their invoice. The importing company must calculate the VAT due on the supply and declare it in their monthly VAT return or reverse charge form to fulfill their obligations relating to VAT.
The reverse charge mechanism applies to transactions between a non-resident supplier company and another resident company (B2B), while the simplified supplier registration system that applies to transactions between a non-resident supplier company and a final consumer (B2C).
Definition of the simplified supplier registration system: It is a system that allows for the simplified registration of non-resident suppliers as specified in the executive regulations.
Importing a service for the purposes of business activities subject to VAT, or subject to the schedule tax in addition to VAT (according to Law 67 of 2016, second schedule which includes goods and services subject to schedule tax in addition to VAT and input tax deduction from VAT only).
The company is importing a service only for activities that are subject to the table tax
The company is importing a service that is not necessary for its activities.
The company is importing a service for its tax-exempt activities (not registered for VAT and only registered for income tax).
Overall, the reverse assignment mechanism is designed to simplify international tax compliance, ensuring that VAT is paid in the location where goods or services are used, thereby maintaining tax neutrality and enhancing compliance.
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