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Optional reverse charge for non-resident suppliers (art. 194 of the VAT Directive)
The EU VAT system is essentially based on fractionised payments, VAT being collected at each stage of the production and distribution chain after offsetting the input VAT paid on purchases against output VAT received on sales. According to the main rule laid down by Article 193 of VAT Directive, the person liable for the payment of this VAT is the person supplying goods or services. The liable person is the person who is obliged to pay VAT to the Treasury.
Member States in which the VAT is due may provide for that the person liable for the payment of VAT is the person acquiring the goods or services where the transaction is carried out by a supplier who is not established in the country in which VAT is due. Such reverse charge is defined by national regulation.
What are the rules in Austria?
Local reverse charge mechanism has been implemented in the Austrian VAT Act for foreign suppliers regardless of whether the recipient is established or not in Austria for the following goods and services:
- If a foreign company supplies goods that are assembled in Austria;
- If a foreign company supplies services except for the supplies of services regarding the admission to cultural, artistic, scientific, educational, athletic, entertainment and similar events;
- if a foreign taxable person supplies construction works that can be regarded as a supply of goods assembled in Austria.
Let's take an example
Imagine a company based in Germany, called “German Tech Ltd.”, that specializes in the assembly of computer servers. Another company, “Austrian Corp.”, based in Austria, decides to purchase these servers for their new data center.
In this case, “German Tech Ltd.” is a foreign taxable person as it does not have a fixed establishment in Austria. The servers are shipped from Germany to Austria where they are installed.
Under the reverse charge mechanism in Austria, “Austrian Corp.” would be responsible for calculating and paying the VAT on this transaction to the Austrian tax authorities, instead of “German Tech Ltd.”. This means that “German Tech Ltd.” would issue an invoice to “Austrian Corp.” without including any VAT. The invoice would state that the reverse charge applies.
“Austrian Corp.” would then need to account for the VAT on their VAT return as both an output tax (sales) and input tax (purchases), assuming they are VAT registered and the goods or services are for business purposes.
The Expert's eye
The reverse charge system in Austria is a mechanism where the liability to pay the VAT is shifted from the supplier to the recipient of goods or services. Reverse charge means that under certain conditions, the liability to pay the VAT is shifted to the recipient. The recipient has to calculate and pay the VAT on the transaction. They have to announce that tax in their tax returns, and they are allowed to deduct that VAT under certain conditions.
The supplier prepares an invoice that does not include tax rates and notes that it is a reverse charge invoice. The service provider must check the VAT ID of the recipient with the Federal Central Tax Office and mention this together with his own on the invoice.