Case 4. Reverse сharge on service purchased by an advance holder

An advance holder had purchased specific services from outside UAE (a foreign country service provider or supplier) and specified this purchase on the advance report. The company can recover the input VAT on this service according to the Reverse Charge Mechanism.  For this, the company has to create the following documents:

• Advance report which reflects the purchase
• Input VAT transaction based on the advance report
• Tax Invoice Received based on the input VAT transaction
• Output VAT transaction based on the advance report

How to process

Where: Money > Cash Documents > Advance Reports

Prepare an advance report for the employee who has received an advance amount intended for purchasing outside of UAE. On the new advance report created for the employee with payment expense as a basis, make sure Out of Scope is selected as Taxation option. For more details on creating advance reports, see the Using Advance Reports section. 

On the Expenses tab, specify the service item purchased by the employee and the purchase amount.

Click Save and close to register the document and to close it.

Where: Accounting > Value Added Tax > Input VAT Transaction

Create an input VAT transaction based on the advance report as follows:

1. Click Create to create a new Input VAT Transaction.
2. In the Company box, select the supplier.
3. In the Transaction Type field, select Reverse Charge (Services).
4. In the Adjustment Type field, select Increase.
5. Make sure the link below the fields contains Prices Do Not Include VAT. Otherwise, click the link to open the Prices and Currency dialog box, clear the Prices Include VAT check box there, and close the dialog box.
6. In the Basis field, select the advance report.
7. Click Save to assign the number to this document.
   
   
8. On the Inventory/Services tab, click Add to append a new line.
9. Select a service purchased by the employee.
10. In the Amount column, enter the service amount.
11. In the VAT Amount (Import) column, notice the reverse tax amount calculated on the service amount.
    
12. Click Post to register the document in the system.
13. Click the Generate button to open the drop-down list of options. Select Tax Invoice Received. The newly generated tax invoice received opens. It contain all the information from the input VAT transaction.
14.  Click Save and close to register the document in the system and close it.

Where: Accounting > Value Added Tax > Output VAT  Transactions

Create an input VAT transaction based on the advance report as follows:

1. Click Create to create a new Output VAT Transaction.
2. In the Company box, select the company from which the service was purchased.
3. In the Transaction Type field, select Reverse Charge (Services).
4. In the Adjustment Type field, select Increase.
5. Make sure the link below the fields contains Prices Do Not Include VAT. Otherwise, click the link to open the Prices and Currency dialog box, clear the Prices Include VAT check box there, and click OK to close the dialog box.
   
6. On the Inventory/Services tab, click Add to append a new line.
7. In the Contents column enter any comment to the transaction, for instance Reverse Charge on service.
8. In the Amount column, enter the service amount from the advance report.
9. In the VAT, % column, select the standard rate, 5%.
   
10. Click Post to register the document in the system.