VAT if Dutch BV invoices UK parent for salaries

VAT applicable if a Dutch BV subsidiary of a UK limited company invoices staff costs with no premium

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I run a UK business (limited company).  To help accelerate our European presence, we have decided to open a Dutch BV subsidiary, 100% owned by the UK company, and with overlapping directors.  In the short term, the Dutch entity has no revenues, and so needs to invoice the parent UK company for salary expenses of the Dutch employees.  This invoice will be for exactly the employment costs - no profit will be realised.

Does this charge attract VAT, or is it exempt?

If it does attract VAT and the Dutch subsidiary specifies 'VAT reverse-charged,’ will the UK company have to pay that VAT if there is insufficient VAT incoming against which to offset this 'salary VAT' - i.e. will the personnel cost be 20% higher?

 

Thanks!

 

Replies (3)

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By Matrix
27th Aug 2018 10:45

Why doesn't the UK company make a loan instead?

The recovery of the reverse charge will depend on whether the UK company is making taxable supplies.

I assume you took both UK and Dutch tax advice when you set up this structure and that the Dutch company will not be managed and controlled in the UK?

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Replying to Matrix:
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By jimme
27th Aug 2018 10:57

Thanks for your reply.

The UK company can make a loan, but then the Dutch salary will not be eligible for the UK R&D rebate, even though the bulk of the work done in The Netherlands is to the benefit of the parent UK company. Under the R&B rebate rules, invoices for work abroad done by 100% owned subsidiaries are 100% eligible.

The Dutch company will not be managed and controlled in the UK. It will be managed from Amsterdam.

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Replying to jimme:
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By Matrix
27th Aug 2018 11:02

The accountants who have advised to date will be open for business tomorrow so I suggest that you ask them the above questions since they have all the facts.

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