Latvia VAT domestic reverse charge on timber

Fri 13th Nov 2015

Latvia has been granted leave by the European Commission to implement the reverse charge on supplies of timber.

The reverse charge shifts the burden of reporting sales VAT onto the purchaser from the seller. It is typically employed for cross-border, intra-community supplies between EU VAT registered businesses to avoid the need to VAT register in foreign countries where they are selling.

The domestic reverse charge applies the same concept to transactions where both the seller and purchaser are VAT registered in the country of the transaction. It eliminates the need for a cash payment.

Domestic reverse charge may be used only with the approval of the EC where an EU member state can demonstrate that there is potential VAT fraud. It have been extensively used in areas such as computer chips, mobile phones, laptops, tablets, electricity supplies and carbon emission trading. The EC estimates that VAT fraud in the EU amounts to up to €100bn per annum.