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5 Important VAT Rules You Should Focus On
Friday, 02 September 2022

Who is entrepreneur should be aware of the concept of what is VAT (Value Added Tax), for this is a potential strategy to reduce bureaucracy in the tax system in order to concentrate the taxation of sales of goods and services on a single charge. In addition to contributing to a more practical system for companies, there are also tools to combat tax evasion.

After all, what is VAT?

VAT is a Government strategy designed to reduce bureaucratic taxation mechanisms, which is one of the bases of the proposed tax reform for the country. The idea is quite simple, to unify federal, state and municipal consumption taxes in a single tax burden. If you need to understand what VAT is and how VAT facilitates your business, and how you can take the benefits, you can hire the professional tax advisory.

The transition and application

The transition from the system with different taxes to that of a single taxation would happen gradually and not instantaneously. For a certain period the other taxes would be maintained, but at rates that would be reduced throughout the process, at some point these taxes would eventually disappear. In parallel to this, the VAT rate would go through gradual increases, while single taxes are reduced, the only increase in participation. In the end it would come to a point where there would be only one tax to pay, VAT.
Imports and exports

The services purchased abroad are also subject to the tax - the goods are imposed on the importation, while the provision of services and certain services in execution of a contract must be declared and imposed by the purchaser / recipient of the service. Conversely, exports and services performed abroad are exempt from the tax, the reason lies in the fact that such benefits are normally subject to a foreign VAT. The place of supply is determined according to various principles, such as the principle of the place of the recipient, the principle of the place of the lender or the principle of the place of execution of the activity.

Exclusions from the tax, reduced rate and special rate

For social, economic or other reasons, certain benefits are not subject to VAT or are subject to VAT only in a limited manner. Thus, benefits in the sectors of health, education, culture and the lease or sale of real estate are excluded from the tax in full. Those who perform similar services and purchase upstream services in this regard cannot, however, deduct the previous tax on such purchases against the FTA, except if they are willing to voluntarily impose the services excluded by the tax.

Reverse charge

The reverse charge consists of a mechanism to discharge the tax directly by the transferee. To limit tax evasion, it was established that, for certain transactions, the transferor will issue an invoice without indicating the VAT payable, which will instead be exposed by the assignee through the integration of the invoice or the issue of a self- invoice. For practical purposes, this mechanism only involves the transfer, from the customer to the supplier, of the burden of indicating the VAT on the document, but it does not produce any burden, nor does it affect the right to deduct.

VAT "for cash"

The VAT accounting mechanism considers the tax indicated on the active invoices, i.e. issued, and passive, i.e. received, regardless of their actual collection or payment. Recent provisions of the law, which arose with the intention of preventing the anticipation of VAT, and therefore the payment of an amount not yet collected, subtracted liquidity to the companies, and introduced the principle of "cash" VAT that is due only at the time of actual collection. VAT is based on the principle that those who consume contribute to state financing.
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