There is a detailed list of the various types of activities and the rates applied. However, you bill your customers at the normal rate for the type of service or products you sell. For example, you are a pure service provider whose rate is 6%, but you charge 7.7% to your customers. The difference in your favor of 1.6% is an estimate of the amount of VAT you paid on the services and products you purchased. It is therefore an approximation.
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Which one to choose?
It is a question of weighing the pros and cons between an exact method (the normal count) and a more approximate method (the simplified count). But there is one criterion which seems to me decisive. To build up your turnover, the more products or services you buy from third parties for resale, the more appropriate the normal VAT statement is. The less you buy, the more the simplified count is required. In my opinion, this is the case, for example, for a pure service provider.
For the companies
It is up to each company to guarantee the accuracy of its VAT statements. This self-taxation expresses the confidence placed by the tax administration in the economy in general and in companies in particular. The degree of confidence in turn affects the need to carry out or not checks and their intensity. A company in strict compliance with VAT regulations enjoys greater confidence, realizes savings, increases the effectiveness and efficiency of its resources, optimizes its cash flow and avoids the risk of costly penalties. In its “VAT Megatrend” position paper, PwC Switzerland explores these views and shows companies how to view VAT compliance as an opportunity and an opportunity to improve. Using the tax return calculator comes up quite important there.
- Value added tax is one of the main sources of revenue in many countries. Delivering this tax correctly entered, on time and to the correct tax authority can be squaring the circle for some businesses. Indeed, an erroneous or incomplete declaration can affect, if necessary, not only the companies but also the persons responsible. This is why it is essential for companies to have well-established structures, clear processes and effective controls to sustainably control their VAT compliance.
VAT compliance, a source of savings
Ideally, VAT should be self-financing for the business. This can only be the case if it is passed on correctly to the buyers and if the VAT paid is then recovered. Depending on whether a company operates in the domestic market or abroad, the recovery of VAT will not be the same. In all cases, it is essential to properly document business operations. However, it is only if businesses understand at what intervals and where VAT costs are due, and know when they will be reimbursed, that they can optimally manage their cash flow. Companies in sustainable VAT compliance know how to identify sources of errors in time and adapt their processes if necessary.