As an entrepreneur, you must charge VAT (BTW) on turnover - that is, on your revenue. At the same time, when sending an invoice to a buyer/client, you indicate in it the amount of VAT that is charged from him. Then, after compiling the report, you pay VAT to the tax office. But in some cases, the VAT charge is shifted to the buyer/client to whom you supply goods/services - we are talking about the so-called reverse VAT (verleggingsregeling in de BTW).
What is VAT reverse?
We are talking about the so-called reverse charge of VAT. If you have to apply a VAT reverse, you do not charge VAT to the buyer/client. The invoice must indicate that BTW verlegd ("VAT shifted"). It is very important to indicate not only your VAT number, but also the valid number of the VAT payer to whom the VAT* is transferred (i.e. the number of your buyer/client). And already the buyer must declare VAT, and under certain conditions, he can deduct the accrued VAT.
One number is the so-called "internal" BTW number, or OB number, which is "tied" to the BSN of the person who opened the EMZ. This number is currently only used to identify the EMZ in the Dutch tax office (for example, all tax returns are filed using this number), and in the outgoing documents of the EMZ entrepreneur that he issues to clients (for example, in verkoopfacturen), this number not specified.
The second number is the so-called “external” BTW number, or BTW-identificatienummer: BTW-id, consisting of the same format of letters and numbers as the OB-nummer, but the 9 digits used in it are in no way connected with the BSN number of the individual, and the last two digits after B are always different from 01.
Exactly BTW-id number must be specified from January 1, 2020 in their invoices for the sale of goods / for the provision of services to individual entrepreneurs - EMZ registered in the Netherlands.
Please note that, except for EMZ, all other legal forms (VOF, BV, etc.) have only one BTW number - OB-nummer.
The BTW number is always preceded by the country code of the EU member state, for example, for the Netherlands it is NL. You can check its correctness by https://ec.europa.eu/taxation_customs/vies/#/vat-validation.
The VAT reverse was introduced to prevent VAT fraud. This mechanism is mainly applied to goods/services that are susceptible to fraud, an example of this is the sale of mobile phones. At the same time, there are strict rules for the application of the mechanism, in particular, on the website of the tax service list cases where VAT can be transferred.
When is it applied?
Reverse VAT is applied in the following cases:
- provision of services and sale of goods outside the Netherlands;
- subcontracting (under a business contract) and outstaffing of personnel (usually through an outsourcing bureau) in the construction and shipbuilding sectors, cleaning and gardening;
- sale of mobile phones, chips, gaming computers, laptops and tablets;
- sale of gold;
- removal of garbage and old materials;
- Property For Sale;
- some other activities and services.
What are the pros and cons?
The advantages of VAT reverse are obvious: you do not need to first charge the amount of VAT and then pay it, because the client pays the VAT. The disadvantage is that you must have clear agreements with the client in advance.
Your client may not want to pay VAT, so you must clearly agree and fix agreements on this in advance. Always do it in writing, that is, by e-mail or in a paper letter. If you do not have such arrangements, you may have problems with the tax.
Decision of the Supreme Court in the VAT Reversal Dispute
What kind of problems may arise in connection with the reverse VAT is well demonstrated decision of the Supreme Court of the Netherlands ECLI:NL:HR:2023:691. https://uitspraken.rechtspraak.nl/#!/details?id=ECLI:NL:HR:2023:691.
Briefly about the situation. A scrap metal dealer had to deal with a VAT reverse. The buyer himself took the metal and paid in cash. The VAT identification number (it was registered in Germany) turned out to be incorrect after verification. However, the goods were handed over, and the invoice indicated "VAT shifted." This was revealed during the audit, after which the seller was subject to additional taxes.
The seller appealed to the court, which did not consider the additional charge appropriate. However, in the end, the case reached the Supreme Court, which decided otherwise. According to the court, it has not been proven that the scrap dealer was involved in fraud. However, the Supreme Court considers that without establishing the buyer's identity (i.e. his valid VAT number from Germany), it cannot be guaranteed that the buyer will actually pay the VAT due. Thus, the Supreme Court upheld the additional assessment of taxes by the seller.
Caution and more caution
This Supreme Court decision makes it clear that you have to be careful if you need to apply a VAT reverse. If you apply it without checking the counterparty (that is, the one to whom you transfer this VAT), you risk that the tax service will refund the VAT due from you.
