Brandon Anderson10 said:Question
I’m bringing in some inventory from the European Union, and my colleague in logistics already handled all the customs stuff. My question is about the tax side of things. Since there isn't an actual cash flow involved—where the liability and the credit happen simultaneously on the tax return—and we don't deal with those old JCD forms or VAT on them anymore, I'm stuck. How exactly do you calculate the VAT amount for this type of acquisition? All I have on hand is the invoice from the foreign vendor, the shipping docs, and the CMR. I’ve searched everywhere—the Internal Revenue Code, the regulations, even the IRS website—but I can't find a straight answer anywhere.
Anyone happen to know the drill here?...🤷
Reporting acquisitions on the VAT return
When acquiring goods within the European Union, the taxable person reports the assessed VAT on the acquisition on their VAT return, but they also report the right to deduct that same tax in the same filing. This means there is NO physical cash payment required for the VAT.
Example:
A business in the European Union supplies goods to a domestic business for $10,000.00.
The European entity issues an invoice but does not charge VAT—as it is a supply to a US business.
The US business calculates the VAT on the goods purchased from the European entity and simultaneously uses that calculated VAT as an input credit.
Consequently, the US business will not physically pay any VAT on the acquisition of goods from the European supplier.
$10,000.00 x the Federal Reserve exchange rate on the date of acquisition (e.g., 1.25)
x 25%
= $12,500.00 x 25% = $3,125.00 VAT
Accounting entries:
Accounts Payable - Vendor (Credit)
Inventory (Debit)
VAT Payable on Acquisition - Liability (Credit)
Input VAT on Acquisition - Credit (Debit)