Doing business with USA member states

ruggedmaker2 said:First things first, are you and your client actually registered in the VAT system?

Assuming you are (and listen, you better have proof your client is a registered taxpayer, regardless of where they're based overseas), then you’re looking at an exemption under Section 45, subsection 1, item 1 of the Value Added Tax Act and Section 108, subsection 8 of the regulations (look those up yourself, I'm not in the mood to copy-paste a legal textbook right now).

For exports, obviously, everything has to be documented via customs declarations, and you need solid proof that the goods actually left the US.
Since you're dealing with an upgrade, you've also got to make sure you have all the right import customs paperwork in order.

On your VAT return, you just list this under the exempt supplies section... there's a specific line for exports somewhere in there (I don't recall the exact line number off the top of my head).
As far as your financial bookkeeping goes, just keep doing what you've been doing; nothing changes there.

Honestly, if you don't have all the proper documentation—meaning the customs declarations and proof that your client is a registered taxpayer—then I have no idea how you'd even pull this off.

mistymason24 said:Clients from Canada sent us a machine. Our job is to modify it—basically, we have to upgrade one part and then ship it back to them.

I'd just add one more thing. This falls under Section 46, Subsection 1 of the Value Added Tax Act. It covers exemptions for services performed on movable property imported into the US for repair or adjustment, provided ownership doesn't transfer to the service provider.

All that stuff I mentioned above applies regarding the requirement to have customs declarations, both for temporary imports and for the export.

On the invoice, just add a note: Exempt from sales tax per Section 46 of the Value Added Tax Act.

When booking it, it goes into the regular report under Other Exemptions.

So, we just got an invoice from a supplier over in Canada for some goods. It’s listed in USD. It claims a VAT exemption under Section 17, paragraphs 1 and 2 of the Value Added Tax Act.
Is this actually a legitimate acquisition? I'm a bit tripped up because the invoice is in USD (with no tax applied) and the payment is being sent to a bank account here in the States. I checked their info against the IRS database and everything looks fine there.
Any ideas? Help a guy out!

Steven Anderson14 said:So, we just got an invoice from a supplier over in Canada for some goods. It’s listed in USD. It claims a VAT exemption under Section 17, paragraphs 1 and 2 of the Value Added Tax Act.
Is this actually a legitimate acquisition? I'm a bit tripped up because the invoice is in USD (with no tax applied) and the payment is being sent to a bank account here in the States. I checked their info against the IRS database and everything looks fine there.
Any ideas? Help a guy out!

So you ordered goods, but the invoice cites Section 17, paragraph 1... that usually implies services. That specific section defines where services are taxed based on the basic principle.

Could it be some kind of shipping or freight service or something?

Based on what's written on that invoice, we're looking at an import of services from within the USA. As the recipient, per Section 75, paragraph 1, item 6, you're responsible for the sales tax—meaning you have to perform a taxable acquisition where you'll immediately claim it as an input credit. Basically, no actual cash leaves your pocket for the tax itself.

But it literally says right there in Article 17, sections 1 and 2. Plus, we already took delivery of the goods. The price was agreed upon as franco—meaning zero shipping costs—and there isn't even a mention of freight anywhere on the invoice.

Steven Anderson14 said:But it literally says right there in Article 17, sections 1 and 2. Plus, we already took delivery of the goods. The price was agreed upon as franco—meaning zero shipping costs—and there isn't even a mention of freight anywhere on the invoice.

It’s definitely subject to American VAT regulations. Just record it as a standard taxable acquisition and be done with it. No big deal.

Thanks a ton. I'll get on that acquisition and sort out the VAT regulations.

So, I’m issuing a credit memo to a business partner—another taxpayer—in a different state, specifically under those VAT regulations regarding interest and late fees.

I’m scratching my head here because I don't think this fits into those other non-taxable supply categories. According to the IRS guidelines I was looking at:

I.10. You report the data from column 16 of the Issued (outbound) Invoices Ledger (Form I-RA), which basically means you input data for supplies covered under sections 43, 46, 47, 48, 49, 51, 52, 53, 54, and 56 of the Tax Code that are exempt from sales tax with a right to credit. This line item also includes supplies for goods on ships, aircraft, and trains under section 14.

To me, it looks like there's nowhere to put this stuff. 🤔 Am I totally off base here?

Can I actually ask for help here regarding the new RRI chart of accounts—the one they updated to align with the European Union standards? If anyone has a copy, please PM me 🙂

You can grab it right off their website.

ruggedmaker2 said:You can grab it right off their website.

🙈

thanks, found it now

I am looking for some guidance regarding invoice entry and our VAT reporting.
Here is the situation: we purchased goods that originated within the European Union (manufactured in the EU).
The payment was processed to Russia, and the invoice we received was issued from Russia.
The shipment arrived without issue and no customs duties were paid, but I am hitting a wall with the bookkeeping and the VAT return. Since we don't have a specific VAT ID for this entity, how should we fill out the form?
To provide some context, this is a massive corporation with offices spread across all of Europe; however, for this specific region, the headquarters is located in Russia, while the actual distribution hub—where the goods physically originated—is in Denmark. Two other companies that order from them are facing the exact same dilemma, as they actually reached out to us to ask how we are handling the filing.
When we settled the payment based on the initial quote, the documentation specified that the goods would never leave the European Union, and noted that the Russian invoice is linked to an account held at a bank in London.

brightnomad16, you’ve got a mess on your hands here. 😁
You’re throwing so many different companies into the mix that I can’t tell if you’re dealing with a fake three-way deal or just a standard chain of deliveries.

There was an article about this exact scenario in the latest issue of an accounting and tax journal—try to track down that specific edition.

With these kinds of shipments, every tiny detail on the invoice matters, and they’re going to scrutinize every single piece of supporting paperwork you have.
It’s impossible to give you a straight answer without seeing the actual files.
The whole thing hinges on where everyone is registered for VAT purposes and how the goods actually moved from point A to point B.
Since you don't have a VAT ID, I'm guessing you bought the goods inclusive of tax, right?

Look, the cleanest way to handle this is to grab every scrap of paper you have, spread it all out on your desk, and lay it out chronologically. Once you've done that, call up a tax advisor and let them walk you through it step-by-step.
Be ready, because they’re going to grill you on every little thing—all the VAT IDs, the specifics on the shipping manifests, and the exact logistics of how the cargo moved (was it delivered with transport included, or separate? who handled the freight? what was the route?).

ruggedmaker2 said:brightnomad16, you’ve got a mess on your hands here. 😁
You’re throwing so many different companies into the mix that I can’t tell if you’re dealing with a fake three-way deal or just a standard chain of deliveries.

There was an article about this exact scenario in the latest issue of an accounting and tax journal—try to track down that specific edition.

With these kinds of shipments, every tiny detail on the invoice matters, and they’re going to scrutinize every single piece of supporting paperwork you have.
It’s impossible to give you a straight answer without seeing the actual files.
The whole thing hinges on where everyone is registered for VAT purposes and how the goods actually moved from point A to point B.
Since you don't have a VAT ID, I'm guessing you bought the goods inclusive of tax, right?

Look, the cleanest way to handle this is to grab every scrap of paper you have, spread it all out on your desk, and lay it out chronologically. Once you've done that, call up a tax advisor and let them walk you through it step-by-step.
Be ready, because they’re going to grill you on every little thing—all the VAT IDs, the specifics on the shipping manifests, and the exact logistics of how the cargo moved (was it delivered with transport included, or separate? who handled the freight? what was the route?).

Our company does have a VAT ID; I misspoke earlier. The firm in Russia doesn't have one because they aren't part of the European Union.
I'll just give my bookkeeper a call; I'm sure she'll figure something out.

Just a heads-up, the whole "VAT ID" thing isn't called the same thing everywhere you go. 😉
First things first, take that tax number from your invoice and run it through the VIES database to see if they’re actually registered for VAT in Denmark.

If they show up as registered and you've got their valid VAT ID, then you just treat it like any other acquisition and book it accordingly. From what I gathered, these folks in Denmark are basically just a branch of the outfit over in Russia. 😕

Now, if they aren't registered there? Then you're looking at receiving goods and services from an entity based outside the US, which means you handle the input tax based on those rules.

That’s all assuming we're talking about one single company. If they're actually two separate legal entities, the whole situation changes completely. It really all boils down to whatever is printed on your paperwork—you've got to cross-reference the invoice against the CMR and the shipping manifest.
Look, if you want to be absolutely certain, check everything with the IRS. They might even ask you to send over scans of everything you've got, because when it comes to this stuff, every little detail matters.

Hey, I need some help here. We’ve got these fuel bills for our trucks from back when we were driving through Austria. We just got a consolidated invoice covering a specific period from Shell USA, and they’ve charged us Austrian sales tax.

The total is $930.24 plus 22% tax 😁

We already sent them our US tax ID. My question is: do we need to perform a self-assessment on this—basically, do we have to account for the use tax on our end?

Also, where am I supposed to log an invoice like this in our tax records? Since the bill shows their local tax, I'm assuming it shouldn't be going into our standard sales tax filings, or am I totally off base?

Look, they charged you sales tax, plain and simple. You don't list it anywhere—not on your tax returns, not in your filings—because if you aren't reporting a liability, you have zero right to claim an input credit.

Just write the whole thing off as an expense. If you’re really hell-bent on getting that sales tax back, you'll have to go through the IRS online portal and fight for it there.

🙏🙏🙏

ruggedmaker2 said:Look, they charged you sales tax, plain and simple. You don't list it anywhere—not on your tax returns, not in your filings—because if you aren't reporting a liability, you have zero right to claim an input credit.

Just write the whole thing off as an expense. If you’re really hell-bent on getting that sales tax back, you'll have to go through the IRS online portal and fight for it there.

🙏🙏

So basically, I just log it in my books for the IRS as a straight expense, cool.

Man, this sales tax stuff is driving me crazy—just when I thought I finally had things figured out, something else trips me up. I give them my tax ID and they still hit me with the tax... isn't that what the B2B exemption is for? ...ugh, whatever. 😵😵

Back again 🙂🙂 just thinking out loud here...

So, we just got an invoice from a carrier based in Mexico for a transport service they handled back on May 8th, 2013. They moved some goods for us from Steinhagen to Mexico City.

The bill is for 2000 EUR—transport services, zero VAT listed.

Now, looking at the VAT law, specifically Article 138. Regarding VAT obligations incurred before this Law took effect, the rules for determining, collecting, and refunding them will follow the provisions of the previous VAT law that was in force until this one kicked in.

Basically, that means I should be applying the old law to this specific invoice, and under those old rules, this service doesn't fall under the exemptions—meaning it’s not taxed.

If that's the case, I don't need to list this under supplies from non-resident entities in the US, right? Can I just log it as a standard expense in the regular books for the IRS?

Thanks for the help, everyone. I promise this is my last rant for the day 🙂🙂

So, a few days back, some small-time hosts—the kind who pay a flat tax and aren't part of the VAT system—got hit with a notice from Booking.com. Apparently, starting July 1st, they’re supposedly responsible for calculating and paying American VAT on those commission invoices sent over by Booking.com (and other foreign companies that don't have an American footprint). They mentioned that little guys who aren't currently in the VAT system can actually apply for limited VAT registration, which sounds like a total mystery because my local IRS office hasn't heard a single word about it. If anyone out there actually understands why a private host would be on the hook for VAT on Booking.com's fees—especially when they're just paying a flat tax and aren't even in the VAT system—could you please walk me through it? And does this limited VAT registration thing actually exist?

slyfalcon22 said:So, a few days back, some small-time hosts—the kind who pay a flat tax and aren't part of the VAT system—got hit with a notice from Booking.com. Apparently, starting July 1st, they’re supposedly responsible for calculating and paying American VAT on those commission invoices sent over by Booking.com (and other foreign companies that don't have an American footprint). They mentioned that little guys who aren't currently in the VAT system can actually apply for limited VAT registration, which sounds like a total mystery because my local IRS office hasn't heard a single word about it. If anyone out there actually understands why a private host would be on the hook for VAT on Booking.com's fees—especially when they're just paying a flat tax and aren't even in the VAT system—could you please walk me through it? And does this limited VAT registration thing actually exist?

There is a "limited VAT registration," if you want to call it that, though it isn't an official term.
It comes up when a taxpayer—and we're all taxpayers if we're running any kind of business, whether it's registered (like a corporation or a sole proprietorship) or unregistered (like renting out your own property)—engages in transactions with the European Union, meaning one party provides or receives a service.
See, goods have a taxation threshold that protects small taxpayers from entering the VAT system if they stay below it, but services don't have that luxury.
On the other hand, for the "matching" system within the European Union (VIES) to work when thresholds don't apply to services, there needs to be an "echo" on both sides (one country provides the service, the other receives it). That's why situations like yours happen, where you have to register for VAT on a limited basis. You aren't a full-scale taxpayer (you're still technically outside the system), but because of that "echo," you just need to submit the ZP form and the VAT form to the IRS during the months you receive such an invoice.
If you were the one issuing the invoice (the reverse scenario), you'd just submit the VAT form and the ZP form to the IRS in those specific months.
Honestly, I hadn't even considered that this could affect you guys on the flat tax. So, yeah, check it out yourself, and maybe someone else on the forum can weigh in if I'm right about this being a general rule for taxing services and how it hits flat-tax payers.
The IRS bases this on Article 75, Paragraph 1, Point 6, and Article 77, Paragraph 5 of the VAT law.