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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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?
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.