What does reverse charge mean on a supplier's invoice?
It means the supplier has charged you nothing for tax and has passed the obligation to account for it to you. The invoice will usually carry a short note saying so. You then report the tax as though you had made the supply to yourself and, where the purchase is used in making taxable supplies, claim the same amount back as input tax in the same period. The entry is often neutral in cash terms, but it is not optional, and an unreported one is a real understatement of the tax you were due to account for.
Do I pay reverse charge tax if I cannot reclaim it?
Yes. The duty to account for the tax and the right to recover it are separate questions, and the second does not cancel the first. Recovery depends on what the purchase is used for. Where the buyer's own activity is exempt, or only partly taxable, some or all of the self-assessed tax sticks as a cost. That is where the reverse charge stops being a bookkeeping entry and starts affecting what a service actually costs, which is worth knowing before the contract is signed rather than after the first invoice arrives.
Why did my foreign software vendor charge me no tax?
Most probably because the place of supply rules put the supply where you are rather than where the vendor is, and the system then asks you, not the vendor, to account for the tax. A foreign supplier with no registration in your country has nothing to charge and no return to file. Nothing is wrong with the invoice. The consequence is that the tax has not disappeared; it has moved to your return, and it stays there whether or not anyone tells you.
Does reverse charge apply if my business is not registered?
It can. Several systems impose the charge on a recipient regardless of registration, and in some of them receiving the service is itself what brings the registration duty into being. So a business whose sales are well below any local test can still acquire an obligation by buying a service from abroad. The question to settle is which jurisdiction's rules govern the supply, and then whether that jurisdiction tests the recipient at all. Registering in one country does nothing for the next.
How do I report reverse charge on my return?
As two entries rather than one. The self-assessed amount goes in as tax you owe, and the matching claim, to the extent the purchase is used in making taxable supplies, goes in as input tax for the same period. Keeping both visible matters more than the net figure, because an authority reviewing the period wants to see that the supply was brought to account, not merely that the return balanced. Where recovery is restricted, the workings behind the apportionment belong in the file with the invoice.
Is reverse charge the same in Canada, India and the UAE?
No. The idea is shared but the scope, the naming and the tests are local. One system may describe it as self-assessment, another as tax payable by the recipient, and each decides for itself which services and which buyers are caught. No income tax treaty helps here, because this is not income tax. In a group buying the same service into several countries, the answer has to be worked out country by country, and the group's contracts should say clearly what is being supplied, to whom, and where the recipient is established.
Do American citizens living abroad have to pay taxes?
American expats and green card holders need to file US returns for life, and many of them pay little or no US tax once the relief is applied — but the filing is what unlocks the relief, so the two questions have different answers. The exclusion for foreign earned income, the credit for foreign tax already paid and the treaty between the two countries between them usually leave the total at roughly the higher of the two countries' tax rather than the sum. Skip the return and none of it applies. See Americans abroad.
Is "fund transfer pricing" the same thing as transfer pricing?
No — and if you came here to calculate FTP, this is not it. Fund transfer pricing is a bank's internal allocation of funding costs and benefits between its own business units, a treasury and asset-liability management discipline used to measure branch or product profitability. Tax transfer pricing is about prices between legally separate related parties across borders, and about which country taxes the resulting profit. The words overlap; the fields do not. See our transfer pricing work.
