Knowing the 8 examples of reverse charge

VAT is present in practically all transactions involving purchasing and selling products and services. In the vast majority of cases, the businessman must collect this tax and then remit it to the Tax Agency every three months. But there are times when the customer assumes this responsibility. The following examples of reverse charge illustrate when this mechanism is triggered and how the actors involved have to proceed.

Inversa is not only an alternative financing platform. In an exercise of transparency and line with our commitment to education and ethical investment, we analyze relevant issues for our investors, such as taxation of their investments. At the end of the day, savers not only need to know what they are investing in. They also need to be aware of the consequences of their investment.

This knowledge is not exclusive to citizens who allocate capital to finance sustainable projects. Companies that understand the examples of reverse charge can avoid facing penalties due to an erroneous VAT return.

This situation rarely occurs, and, in all cases, the consumer must be an acting professional. Ordinary people do not play the role of the taxable person; they simply pay the VAT at the time of purchase. However, you should also be aware of the main examples of reverse charge.

What is the reverse charge?

There must be a commercial transaction involving VAT for the reverse charge to occur. Generally, the customer assumes the taxpayer’s role, and the trader is the taxable person. The former is responsible for paying the tax, and the latter is obliged to correct the debt before the active subject, in this case, the Tax Agency. Although the tax falls on the final consumer, the tax office will claim it from the businessman.

But in the following examples of reverse charge, the taxpayer has to declare the VAT. The tax is not included in the transaction, as the customer will pay it later, and the trader can only charge the price of the service or product supplied. Therefore, the same person acts as both a taxable person and a taxpayer simultaneously.

His information must appear on the invoice issued by the businessman, which will explicitly state that the transaction has taken place through the reverse charge, following article 84.1.2º of Law 37/1992, of December 28, 1992, on Value Added Tax (LIVA).

Likewise, the trader has to record this kind of sale in forms 303 and 390; two documents delivered quarterly and annually to the Treasury. The VAT of the invoices issued throughout that period is accumulated.

Companies that understand examples of reverse charge can avoid facing penalties

Examples of reverse charge

Knowing the examples of reverse charge is of great help in identifying the situations in which this mechanism is activated. Therefore, the eight cases are listed in the original law, except for the last two, added in a subsequent amendment, and detailed in Law 28/2014, of November 27. Thus, the reverse charge is put into effect:

  • In all those commercial transactions or provision of services starring natural or legal persons who do not reside in the territory of application of the tax.
  • When the object of the transaction is unprocessed gold, or semi-finished gold products, of a grade equal to or higher than 325 thousandths.
  • In deliveries of new industrial waste, residues, foundry waste, waste paper, cardboard or glass, and other recovery materials.
  • When the object of the transaction is emission allowances, certified emission reductions or greenhouse gas emission reduction units.
  • In the deliveries of certain real estate, such as those derived from a bankruptcy process or those carried out in the execution of the guarantee.
  • In the execution of works, whether or not materials are provided, in addition to the assignment of personnel for their start-up, when the objective is to urbanize a plot of land or construct or rehabilitate a building.
  • When there is a delivery of silver, platinum or palladium, whether unwrought, powdered or semi-manufactured.
  • When the object of the transaction are cell phones, laptops, digital tablets or video game consoles, provided that a reseller acquires them, or the total amount exceeds 10,000 euros.

What to do if we receive an invoice with the inversion of the taxable person?

If professionals are unfamiliar with these examples of reverse charge and how this mechanism works, they may feel a bit lost when receiving an invoice of this nature. But this process does not have to be complicated.

The first step is to check that there is an express mention of the regulations to ensure that everything is within the legal limits. Then, the customer records the amount, and when the quarter ends and it is time to declare the VAT, the tax is auto-recorded.

How is this done? You only have to indicate it in form 303, including that figure in the accrued VAT and deductible VAT boxes, to send it to the Tax Agency. If the agency accepts the VAT deduction, the consumer will have paid a lower amount for the purchased good than under normal conditions since the tax payment is saved. This is precisely one of the great benefits of reverse charge.

The importance of identifying all examples of reverse charge is paramount. Neglecting any detail can expose the professional to penalties due to non-compliance with his tax obligations. After all, he is responsible for declaring this tax to the Treasury. Law 37/1992, of December 28, 1992, on Value Added Tax details these fines, which will amount to 1% of the accrued fees corresponding to the operations that caused the sanction, from a minimum of 300 euros and up to a maximum of 10,000.

In short, knowing the examples of reverse charge is essential, not only for large company managers but also for all players in the financial system, including those who decide to finance invoices to obtain profitability.

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