Invoicing in a foreign currency and stating VAT in local currency

You may invoice in any currency

Article 230 of the VAT Directive lets amounts on an invoice be expressed in any currency, provided that the VAT amount to be paid is expressed in the national currency of the member state, using the exchange-rate mechanism of Article 91. A Swedish company can invoice a Danish customer in euro, but the invoice must also show the VAT in Swedish kronor. Draftbill’s checklist includes this requirement for every EU country when the invoice currency differs from the country’s currency.

Outside the EU the rules differ by country. Draftbill asks for an exchange rate whenever the invoice currency differs from the country’s currency, but the legal requirement to print the local-currency VAT is built into the EU templates only; for other countries check what your authority requires.

Which exchange rate

Article 91 says the rate is the latest selling rate recorded on the most representative exchange market of the member state when the tax becomes chargeable, or a rate determined by reference to that market under the member state’s own method. Member states may also use the latest rate published by the European Central Bank.

In practice each tax authority names the source: many accept the central bank’s or the ECB’s daily rate for the date of supply or the invoice date. Check the page of your authority and write down which rate you used and its date; Draftbill prints the rate on the invoice next to the converted VAT amount so the reader can follow the calculation.

How the amount is calculated

Draftbill first computes the VAT in the invoice currency, rounded to its smallest unit, because that is the figure the customer pays. It then multiplies the total VAT by the exchange rate and rounds to the smallest unit of your national currency. The rate is entered as units of the national currency per one unit of the invoice currency, for example 11.25 for SEK per EUR.

In the Peppol file

Peppol BIS Billing 3.0 has a place for exactly this. The invoice states its own currency in DocumentCurrencyCode, names the VAT accounting currency in TaxCurrencyCode, and carries a second TaxTotal element with only the VAT amount in that currency. Draftbill writes both elements when an exchange rate is entered, and omits them otherwise.

Common mistakes

Using a rate from the wrong date, rounding the converted amount per line instead of per invoice, and forgetting the local-currency VAT altogether are the usual errors. A fixed exchange rate written in the sales contract may be acceptable commercially but does not replace the rate your tax authority requires for the VAT figure.

Quellen

• VAT Directive 2006/112/EC (EUR-Lex)
• Peppol BIS Billing 3.0
• Skatteverket: Momslagens regler om fakturering
• CRA: Input tax credit information requirements