VAT for services from abroad (CH)

[ARQ]

Hello all!

VAT is a recurring topic on the forum, but have not yet seen a topic on the reverse charge mechanism.

In Switzerland, like in EU countries, there is a so-called reverse charge mechanism where, when you acquire a service from abroad,

1. this service is first added to the taxes that need to be paid (field 382 in the Swiss VAT forms) and in turn
2. the same VAT amount can be deducted (field 405 in the Swiss VAT forms).

From an accounting perspective, there is both input VAT (field 405) and output VAT (382), so a simple accounting entry would be (assuming an accounts payable invoice for a foreign software subscription like Manager Cloud):

Debit Subscription costs 39 USD
Debit Input VAT 7.7% 3 USD (filling field 405)
Credit Output VAT 7.7% 3 USD (filling field 382)
Credit Accounts payable 39 USD (foreign invoice without VAT)

Most accounting software is not programmed to handle this well and typically, this requires manual adjustments. I was wondering how this is dealt with by yourselves here at the M Forum.

Thank you for your valuable input.

[Davide]

Manager handle reverse charge for VAT. The only problem is that it is only at reporting level and not at ledger transaction level. A solution is under Ideas

[Davide]

Reverse Charged Tax Code - Tax Summary vs Tax Transactions Report

Dear @lubos, our chartered accountant pointed out the inconsistency (he defined it an incorrect accounting under Italian law but I know that maybe in other countries this could be different…) in the reporting between Tax Summary and Tax Transactions for transactions under reverse charged tax code. In order to meet the Italian legal requirements he required also the Tax Transaction report to show the identical amount on tax on sales and tax on purchases for each invoice. This would also make t…

[ARQ]

Thank you Davide. Being new to the forum, how do I support your Idea to get it promoted in priority?

[Mark]

I see there is no localisation VAT file available for Switserland yet. When available, you can import it in Settings and then choose Import at the right side of the title bar.

This works well in the Dutch VAT localisation by simply selecting the VAT 0% EU option.

[Tut]

Manager handles reverse charge VAT as described in this Guide: https://www.manager.io/guides/16455.

@Davide’s dissatisfaction with the scheme has its origins, I believe, in his extensive use of custom reports, where it may be desirable in some cases to show both halves of offsetting transactions to the general ledger to be compliant with local accounting practices. For most users, this is not an issue, however. You should not take his comments to suggest the built-in reporting gives incorrect results, only that implementation details make some of the custom reporting he wants to do impractical. The built-in reports, in fact, do include both the sales and purchase attributes of reverse charge VAT, as shown in the Guide. What @Davide wants are line item details to make his custom reporting more suitable for his needs.

@ARQ

how do I support your Idea to get it promoted in priority?

Visit the topic and vote for it.

[Davide]

What I need is to be compliant to the law, ie that Manager does all the ledger registrations that right now is missing.

It doesn’t register any VAT on both sides (debit and credit) but it does only a reporting maquiage.

This is not the correct way to register reverse charge. With a correct accounting all the reports (standard and custom) will be automatically correct.

[ARQ]

@Tut Very clear, thank you

[Davide]

@Tut

The built-in reports, in fact, do include both the sales and purchase attributes of reverse charge VAT, as shown in the Guide.

Only Tax Summary is correct. Tax Transactions and GLT are not correct since there is no trace of reverse charge taxes.

[Tut]

@Davide

Tax Transactions and GLT are not correct since there is no trace of reverse charge taxes.

I certainly do not intend to start an argument about this. But it is necessary to point out that the transactions you want, saying they are necessary under Italian law, are not listed because they do not exist in the database. Manager uses an implementation of reverse charge VAT that eliminates the identical, offsetting transactions you want to be included. It does that for simplicity, because they have no financial impact.

You can advocate to have these included. There would be nothing wrong with that. But it is equally valid to take the other viewpoint, that is, they are unnecessary because they have no effect. I suspect if we asked 3 accountants in 3 countries, we could obtain at least 4 opinions about the subject. But if you have transaction reports, it does not seem right to complain they omit transactions the program does not enter. As you said, adding those transactions—with no effect—would eliminate the issue.

[lubos]

Well, I made it now so reversing tax codes do actually make reversing debits/credits. It makes zero impact on financial statements but when it comes to custom reports which you can slice and dice any way you like, the inclusion is essential as it can have impact after all.

[ARQ]

Amazing! This really shows speed and determination.