Reverse VAT liability DK

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With effect from July 1, 2014, new VAT rules have been introduced for trade in certain types of electronics. The rules concern reverse charge and will result in additional administration for both buyer and seller. Reverse charge means that the seller must invoice a number of products without VAT and that the buyer instead becomes responsible for correctly settling the VAT. The scheme is very similar to the method we have used for several years to handle acquisition VAT when trading between EU countries. The big difference is that the new rules apply to trade within Denmark. The products covered by the new rules are:
  • Mobile phones and smartphones
  • Tablets
  • Laptop computers
  • Game consoles
  • Chips and microprocessors
The rules apply to Business-to-Business (B2B) trade and NOT to trade with companies that mainly trade with private individuals (retail). This means that if you buy a laptop from your IT supplier as part of a traditional B2B transaction, the VAT on the PC must be processed in one way. However, if you go to a retail store and buy the same PC, the VAT on the purchase must be handled in a different way, simply because the retail store primarily caters to private customers. The reason for introducing these rules is to curb the type of fraud cases referred to as "VAT carousels". The introduction of the rules will inevitably lead to an increased administrative burden for almost all businesses. For non-VAT registered businesses, it may mean that they now have to register for VAT just to be able to purchase one of the above products. Seller's obligations In the first example, the seller must issue an invoice without VAT. The seller must state the buyer's VAT number on the invoice and ensure that the VAT number is correct. In addition, the invoice must state that the goods have been sold VAT-free according to the rules on reverse charge. Finally, the value of the sale must be stated in the VAT report in section C. Buyer's obligations In this situation, the buyer must calculate how much the purchase VAT would have amounted to. This amount must be included in the buyer's VAT settlement, both as purchase VAT to the extent that he would normally have a VAT deduction for this and as sales VAT. The value of the purchase does not need to be declared in box A, as it is not a purchase from another EU country.

Setting up reverse charge DK

VAT accounts and VAT codes must be created to manage reverse charge VAT. In addition, VAT zones and VAT codes must be created on the debtor and goods. This guide is based on a Uniconta standard chart of accounts where the entire VAT setup is created by an accountant to calculate correct VAT for reverse charge VAT. Uniconta standard chart of accounts can be created automatically when creating new accounts.

Financial account for VAT in connection with purchase of goods with reverse charge

It is recommended to create a financial account to be used for accounting for VAT in connection with reverse charge. In the example below, account 6905 is used for the purchase of IT equipment with reverse charge.

VAT codes for reverse charge DK

It is recommended to create 2 VAT codes for use with reverse charge in Denmark. In the example below, the VAT codes IOMV are used when purchasing goods with reverse charge and UOMV is used when selling goods with reverse charge.

Debitor group

On the debtor groups used for Danish debtors, it is important that the Revenue coding field is filled in with the value Product groups, as different VAT codes must be used depending on whether customers buy IT equipment that is covered by the new rules, or other goods where ordinary 25% VAT applies.

Product group

The goods covered by the reverse charge VAT rules must be assigned to one or more special product groups. There must not be associated goods where ordinary 25% VAT is payable to the same product group to which goods with a reverse charge obligation are associated. For example, in the example below, a special product group called GrpElektro has been created: Items are assigned to item group In the inventory, make sure that all items subject to reverse charge are assigned to the specific item groups you have for this purpose.

Creating debtors

On your debtors, remember to fill in the VAT zone field correctly. This means that for your private customers, you must select VAT zone = Not VAT registered and for your Business customers from Denmark, you must select VAT zone = Domestic. You must also make sure to link the debtors to the debtor group for which you have selected revenue recognition by product group.
 
  • When creating the items, enter sales price 1, 2 or 3.
  • Create a sales price without VAT and a sales price with VAT.
  • Sales price without VAT for Business customers.
  • Sales price with VAT for private customers.
 
  • Private customers are created in the debtor file in the same way as Business customers.
  • Select the debtor group for private customers and remember to tick the field Prices including VAT in the debtor card file.
  • Remember to select the sales price created with VAT.

Creating an item

  • Goods subject to the reverse charge VAT rules are created in the inventory register.
  • Remember to create 2 sales prices - price with and without VAT.
  • Remember to select the product group for goods with reverse charge VAT.
 

Sales order for business customers

A business customer buys 2 items from us - 1 item with regular sales VAT and 1 item with reverse charge VAT.    
  • The invoice looks like this. VAT is calculated correctly for item number 2000.
  • Invoice layout and item text must be customized, pointing out that the buyer must report VAT on the mobile phone and that the item is sold without VAT.
  • The debtor's VAT number must appear on the invoice.
      The posting of the invoice looks like this:  

VAT specification

The VAT statement looks like this.

The sale of a mobile phone and an ordinary taxable product

Ordinary VAT DKK 18.75 stated as sales VAT - the sale of an ordinary taxable item. The value of the sale of the mobile phone with reverse charge VAT declared in box C.

Indkøb of the mobile phone

We have purchased the mobile phone from the supplier without VAT. We must therefore report the VAT ourselves under outgoing taxes and incoming taxes.