Doing business with USA member states

gentlepilot45 said:Does anyone happen to know how we should handle things starting July 1st—specifically regarding credit memos or those refunds applied to invoices issued at the 22%, 23%, or 0% tax rates in the sales tax return?
Or am I looking at how to report supplier R2 payments made after July 1st for those specific types of invoices?

Everyone is hyper-focused on the new VAT rules, while sweeping these kinds of issues under the rug. But honestly, we’re going to hit a wall in the very first month. Small business owners and freelancers are going to struggle even more when they can't figure out how to log a payment or collection for an invoice dated before June 30th that actually clears after July 1st within the EU.

Just to make things even more complicated—and I say this loosely—we'll have payments or collections for imports/exports that were valid through June 30th but aren't anymore. They won't fit the EU forms, and they won't fit the domestic ones since those haven't been updated properly yet, or so it seems looking at the new VAT form. Where am I supposed to put them? The forms separate goods and services... and there's just a mountain of other issues. Besides, they don't even belong in the books after July 1st, unless maybe some random line on the VAT form under Section III to adjust the liability.
I have absolutely no clue, and I haven't heard a single soul ask this during any seminars, let alone have a lecturer actually warn us about it.
Bravo, handyman. That is a "killer" question, and the answer?... who knows when we'll get it! 😁

Richard Howard55 said:Everyone is hyper-focused on the new VAT rules, while sweeping these kinds of issues under the rug. But honestly, we’re going to hit a wall in the very first month. Small business owners and freelancers are going to struggle even more when they can't figure out how to log a payment or collection for an invoice dated before June 30th that actually clears after July 1st within the EU.

Just to make things even more complicated—and I say this loosely—we'll have payments or collections for imports/exports that were valid through June 30th but aren't anymore. They won't fit the EU forms, and they won't fit the domestic ones since those haven't been updated properly yet, or so it seems looking at the new VAT form. Where am I supposed to put them? The forms separate goods and services... and there's just a mountain of other issues. Besides, they don't even belong in the books after July 1st, unless maybe some random line on the VAT form under Section III to adjust the liability.
I have absolutely no clue, and I haven't heard a single soul ask this during any seminars, let alone have a lecturer actually warn us about it.
Bravo, handyman. That is a "killer" question, and the answer?... who knows when we'll get it! 😁

My gut feeling is that invoices for things still technically classified as imports or exports will just follow the old rules. Since they carry a June date, they'll land in the June VAT form, just like they always have.
At least that's how it works for corporate income taxpayers. 🤷

ruggedmaker2 said:Honestly, we aren't even sitting around waiting for some official notice from the IRS. We’ve already reached out to all our clients and vendors to let them know about the number, and frankly, nobody is breathing down our necks asking for a formal VAT form to prove anything. A quick heads-up from us is plenty; they can just hop online and verify everything through the standard databases if they’re feeling skeptical.
If they really want to be extra, they can go check the IRS website right now to confirm we're active in the system.

We did shift our acquisition and delivery dates around a little bit just to give ourselves some breathing room.
Look, if we mess something up early on—and hey, life happens—we’ll just fix it. What else are we supposed to do?
It’s not like this is our first rodeo. 😁

So, I just got word from a colleague who attended a seminar today. Apparently, they were warned that until there's an official ruling from the IRS regarding the VAT ID, that number doesn't actually exist in the VIES database. It’s only once the IRS issues that decision that the taxpayer gets officially registered in VIES. They were specifically advised not to hand out VAT IDs to partners until that official IRS ruling is actually in hand...

Look, I’m just as lost on this one:

We operate as a sole proprietorship, and we have a partner based in Mexico who is a tax resident there (which counts as a third country). We handle and invoice vehicle towing services—basically transporting cars to repair shops. Since this is a B2B transaction, we don't charge sales tax on the invoice; instead, we cite Section 17(1) to indicate a reverse charge. Is it legally sound to use the phrase "reverse charge per Section 17(1)" as a clause, or should I word it differently? Now, here’s the kicker: they withhold a 10% commission for their brokerage services on all transport interventions performed. They only calculate that 10% based on the line items specifically for transport; things like highway tolls, ferry fees, or waiting time aren't included in their commission math. Instead of sending us an actual invoice for this fee, they just send a "deduction authorization" as a payment notice. It basically tells us they’re going to pay our invoices minus that specific commission amount for each individual bill. Up until now, I’ve been converting these notices from Euros to US Dollars using the mid-market exchange rate on the day they actually settle the invoices, then booking it as a net expense.
What am I supposed to do regarding the July 1st changes? Am I required to account for sales tax on that commission—meaning, report it as an obligation in Box II.12 of my VAT form—while simultaneously claiming it as input tax in Box III.5? Or how does that even work? 🤷 Someone please help meeeeeeee!

ruggedmaker2 said:My gut feeling is that invoices for things still technically classified as imports or exports will just follow the old rules. Since they carry a June date, they'll land in the June VAT form, just like they always have.
At least that's how it works for corporate income taxpayers. 🤷

Yeah, it’s not an issue for corporate taxpayers, unless you have some R-2 invoices getting paid in July.
When I was writing that previous post, I was thinking strictly about those cash-basis taxpayers—the ones who handle VAT based on when money actually changes hands. They’re the ones who really have something to worry about. 🤔

ruggedmaker2 said:I actually love the fact that we can finally write off pre-tax expenses using documents that aren't even officially labeled as "invoices," as long as they have all the right info on them.
We’ve got this one absolute genius vendor who keeps sending us these "payment summaries" instead of actual invoices just because he’s trying to dodge his tax liabilities for the month—he basically gives us 60-day terms so he can push the tax hit to the next month. 😁
Then, once we finally pay him based on his little "summary," only *then* does the guy grace us with an actual invoice.
Well, guess what? Under these new rules, that ridiculous "summary" counts for sales tax purposes just as much as a real invoice. 😁

Am I reading this right, though? Are those R1 and R2 designations on invoices officially dead now?

That bolded part is throwing me off a bit... how are there no more labels?
Maybe this is a "dumb" question since I'm not doing accounting professionally yet, but does this mean I can write off any receipt through the company regardless of what label it has? Like, I won't have to specifically ask for an R1 anymore? 😕 hm...

rowdyscout8 said:That bolded part is throwing me off a bit... how are there no more labels?
Maybe this is a "dumb" question since I'm not doing accounting professionally yet, but does this mean I can write off any receipt through the company regardless of what label it has? Like, I won't have to specifically ask for an R1 anymore? 😕 hm...

I figured out the whole R1 and R2 thing is dead too.
But don't get it twisted—that doesn't mean you can claim every single receipt under the sun. You can still only deduct stuff that's actually made out to your business, and you can only claim input tax on invoices that check all the legal boxes required by the IRS.

I printed out the new tax code to pore over it myself; I want to have some solid questions ready to throw at the instructor during the seminar.

I have a quick question regarding imports starting from July 1st, 2013.

For instance, let's say I'm importing a printing press from a Canadian supplier valued at $10,000.00.
E, so, is this the right way to handle it: I take that $10,000.00, convert it into US dollars using the exchange rate from the invoice date, and then just record it in my books as a standard entry without any extra duties or paying import VAT, just like I've always done?

If anyone could point me in the right direction on this, I would be absolutely incredibly grateful!

darkjackal17 said:I have a quick question regarding imports starting from July 1st, 2013.

For instance, let's say I'm importing a printing press from a Canadian supplier valued at $10,000.00.
E, so, is this the right way to handle it: I take that $10,000.00, convert it into US dollars using the exchange rate from the invoice date, and then just record it in my books as a standard entry without any extra duties or paying import VAT, just like I've always done?

If anyone could point me in the right direction on this, I would be absolutely incredibly grateful!

Are you registered for VAT? If you are, then besides what you mentioned, you also have to record the VAT liability and the input tax in the same period—both in the general ledger and on the VAT form. There isn't actually any cash moving for the tax part itself.
When you file your VAT form for July by August 20th, you'll need to submit it to the IRS along with a declaration for acquiring goods and services from another EU member state.

If you're in the VAT system, you should be getting a notice regarding your tax ID from the IRS any day now. You absolutely have to give that tax ID to the company you're buying the machine from. It shows the foreign firm that you're officially part of the VAT system and that you'll be handling the tax calculation yourself. If you don't get the ID automatically, you'll have to reach out to the IRS and request one.
Honestly, though, your best bet is probably calling your specific agent at the IRS and asking them directly. From what I've been reading, even the IRS doesn't seem to agree on how to interpret this part.

Richard Howard55 said:Yeah, it’s not an issue for corporate taxpayers, unless you have some R-2 invoices getting paid in July.
When I was writing that previous post, I was thinking strictly about those cash-basis taxpayers—the ones who handle VAT based on when money actually changes hands. They’re the ones who really have something to worry about. 🤔

Honestly, I don't care if there's just one such invoice; even a single outlier means you have to sort it out before the first "new" tax filing hits.
One thing that really cracked me up this morning: the IRS apparently has enough free time to spruce up their website ten days before the entire country's tax system undergoes a massive overhaul, yet somehow they can't find the time to fix the new VAT form (Row III is supposed to be the sum of Rows 1 through 9, but they still haven't added a nine, and they somehow skipped seven 😂).
The other thing bouncing around my head: I realized that for imports from the European Union, I have to calculate taxes using the mid-market rate from the Federal Reserve on the supplier's invoice date—is the system the same for deliveries within the EU? If so, someone really needs to teach people that you can't just pre-date invoices for next week while you're sitting out on a boat...

gentlepilot45 said:Honestly, I don't care if there's just one such invoice; even a single outlier means you have to sort it out before the first "new" tax filing hits.
One thing that really cracked me up this morning: the IRS apparently has enough free time to spruce up their website ten days before the entire country's tax system undergoes a massive overhaul, yet somehow they can't find the time to fix the new VAT form (Row III is supposed to be the sum of Rows 1 through 9, but they still haven't added a nine, and they somehow skipped seven 😂).
The other thing bouncing around my head: I realized that for imports from the European Union, I have to calculate taxes using the mid-market rate from the Federal Reserve on the supplier's invoice date—is the system the same for deliveries within the EU? If so, someone really needs to teach people that you can't just pre-date invoices for next week while you're sitting out on a boat...

Look, we use Chase for our business account. Most of the time we don't even keep Euros in the foreign currency account, so when we need to pay something, we just convert from USD—and that conversion amount becomes my base for the VAT form calculation. Am I doing this wrong?

Drew Rogers6 said:Look, we use Chase for our business account. Most of the time we don't even keep Euros in the foreign currency account, so when we need to pay something, we just convert from USD—and that conversion amount becomes my base for the VAT form calculation. Am I doing this wrong?

I honestly can't say if that's "wrong" or not—I'm still trying to wrap my head around what the actual rule is myself. But it feels completely illogical to me. It doesn't make sense that the base for an outgoing invoice of $1,000 would fluctuate depending on which bank someone uses or when they decided to trade their currency, especially when the rules for input tax/credits clearly state you use the Federal Reserve exchange rate from the supplier's invoice date.🤷

ruggedmaker2 said:Are you registered for VAT? If you are, then besides what you mentioned, you also have to record the VAT liability and the input tax in the same period—both in the general ledger and on the VAT form. There isn't actually any cash moving for the tax part itself.
When you file your VAT form for July by August 20th, you'll need to submit it to the IRS along with a declaration for acquiring goods and services from another EU member state.

If you're in the VAT system, you should be getting a notice regarding your tax ID from the IRS any day now. You absolutely have to give that tax ID to the company you're buying the machine from. It shows the foreign firm that you're officially part of the VAT system and that you'll be handling the tax calculation yourself. If you don't get the ID automatically, you'll have to reach out to the IRS and request one.
Honestly, though, your best bet is probably calling your specific agent at the IRS and asking them directly. From what I've been reading, even the IRS doesn't seem to agree on how to interpret this part.

I am registered for sales tax! Thank you so much for the help!

ruggedmaker2 said:I figured out the whole R1 and R2 thing is dead too.
But don't get it twisted—that doesn't mean you can claim every single receipt under the sun. You can still only deduct stuff that's actually made out to your business, and you can only claim input tax on invoices that check all the legal boxes required by the IRS.

I printed out the new tax code to pore over it myself; I want to have some solid questions ready to throw at the instructor during the seminar.

Oh, wait, I totally misread that. Let me fix myself—yeah, yeah! I misunderstood what happens when those R1 and R2 labels disappear... I thought it meant all receipts were basically the same now, but obviously, they still need to have all the essential info. 😁 I was so confused, honestly, I really need to stop skipping to the end of things. 😁 My bad.
Just one more thing: it sounds like whenever I'm buying stuff for the business with cash at a register, they’re going to ask if it’s for the company. 😁 I'm getting so tired of having to specify everything... I don't know how many times I've forgotten 😁 to mention it, though I doubt...
And sorry, one last little edit: where can I find that actual law? I'm really curious to dive into it and study... it's probably on the IRS website, I'll go look.

Alright, here’s that famous piece of legislation everyone’s buzzing about:

Am I reading Article 140 right? Does Linić actually have a three-month window to get those regulations finalized? 😲

Edit: Honestly, trying to wrap my head around this Law is giving me a massive headache. I’m just scrolling back and forth through these pages and everything starts to 😵

I have one more question regarding the tickets... everything is legal, I just want to say upfront that it all seems fine... they lowered the sales tax from 25% down to 5%, and those three companies collaborating on the organization basically pocketed an extra 20% margin. Whatever, I guess 😁 business is business, simple as that...

What I mean is, I already paid a higher tax back in May, while someone else will pay a lower tax for the exact same ticket, you know? Even though the ticket price looks the same on paper, that's how they profited... I'm not in a worse position than other customers, but the point is they’re going to make an extra 20% on every single ticket because they kept the prices identical. All the organizers involved are just sitting pretty, I guess 😁

Maybe now I get why they waited until just a few weeks ago to release the tickets... maybe I'm wrong... it was probably just to maximize that profit...

The only thing bothering me is that I paid more in taxes to the government than anyone buying a ticket after July 1st, even though the concert isn't until August 13th. It's not really about the three companies organizing this event, it's about the US government! They put me in a disadvantageous position regarding taxes... but oh well, laws are what they are...
It just occurred to me when I saw the rate drop by 20% for concert tickets, so I called them to ask if I'd get a tax refund. They told me the price stays the same—of course they did, they aren't stupid given consumer protection laws; they just made sure to pocket that extra 20%.
It's the same thing as when restaurants had their sales tax cut to 10% and they just tucked that 15% margin into their pockets. It doesn't feel ethical, but hey, they'll pay corporate income tax eventually, right!! 😁

and edit: thanks, I started looking through the tax code on the IRS website. Rhode Island 😁

Drew Rogers6 said:Look, we use Chase for our business account. Most of the time we don't even keep Euros in the foreign currency account, so when we need to pay something, we just convert from USD—and that conversion amount becomes my base for the VAT form calculation. Am I doing this wrong?

Yeah, that’s not quite right. You should be booking the transaction using the Federal Reserve's mid-market exchange rate on the actual invoice date—that’s what you should use as your base for the sales tax calculation.

Nicole Lee6 said:So, I just got word from a colleague who attended a seminar today. Apparently, they were warned that until there's an official ruling from the IRS regarding the VAT ID, that number doesn't actually exist in the VIES database. It’s only once the IRS issues that decision that the taxpayer gets officially registered in VIES. They were specifically advised not to hand out VAT IDs to partners until that official IRS ruling is actually in hand...

Wait, so did anyone actually get that "famous" number from the IRS?
I just got a note from a supplier over in Canada asking me to provide it. For now, I’m playing dumb since I don't have it yet, though I was half-tempted to just send them our US Tax ID... I don't even know....

I haven't been to any seminars lately... so there's nothing for me there... I'm basically flying blind here.
but this is going to be fun 🙂

Wait, what on earth is this? It was just posted on the IRS website on June 21st.
Here’s the directive regarding sales tax starting July 1st—let me copy it here:

A registered sales tax payer will report input tax on imported goods in their sales tax return (Form Sales Tax), just as they do currently.
It highlights that based on a ruling from the Department of the Treasury – IRS, sales tax payers who have a full right to input tax deductions may not actually have to physically pay the tax upon import. Instead, it could be handled as an accounting category. This means that in the same sales tax return, the taxpayer would report the sales tax liability for the import and simultaneously claim that exact amount as an input tax credit in the appropriate field.
This accounting method won't be implemented immediately on July 1st, since we need a specific regulation to be issued first. Therefore, until that regulation is finalized, sales tax on imports will continue to be paid into the federal treasury just as it was before America joined the European Union.

Honestly, I can't make heads or tails of any of this!

Douglas Nguyen30 As I was saying:
What on earth is this now? I just saw this posted on the IRS website on June 21st...
I’m pasting the new VAT guidelines that kick in on July 1st—here goes:

When it comes to importing goods, any taxpayer currently registered for VAT will handle their prepayments exactly the same way they do now—by reporting them directly on their standard VAT return. It’s essentially business as usual for anyone already in the system.
It’s being pointed out that there might be a significant shift coming based on recent rulings from the Department of the Treasury and the IRS. For those of us who are tax-compliant importers—specifically those of us with full input tax deduction rights—we might finally see some relief. Instead of actually having to cough up the VAT cash upfront during the import process, they are looking at turning it into a mere accounting entry. Essentially, what this means is that in a single VAT filing, you would report the VAT owed on the import and then immediately claim that exact same amount back as an input credit in the appropriate field. It’s a procedural change, sure, but it changes the whole cash flow dynamic. If this actually holds up, it would stop the constant headache of waiting for credits to clear while our capital sits tied up in transit. We'll have to see if the Department follows through on this, but it's certainly a development worth watching closely.
The new calculation category isn't actually going to kick in on July 1st, 2013, as everyone was expecting. It turns out that for this specific import calculation method to become official, the Department has to pass a formal regulation first. Since that hasn't happened yet, we aren't seeing any changes just yet. Until that regulation is officially on the books, the VAT on imports will continue to be paid into the federal treasury exactly the way it was before America joined the European Union.

Honestly, at this point, I am completely lost. I can’t make heads or tails of any of this anymore!

🤔 I’m not exactly sold on this either... It leaves a bad taste in my mouth. And what about those incoming invoices from Canada for brokerage services? Since they’re essentially transferring the tax liability onto our shoulders, does that fall under that new July 1st accounting category, or are we all just left hanging in limbo until the Department actually releases the official regulations?