Ever wondered why sometimes you, the buyer, are the one accounting for VAT instead of the supplier? That’s where the Reverse Charge Mechanism (RCM) comes into play — a system designed to simplify VAT collection, especially in cross-border transactions. With more businesses going global, this concept is becoming increasingly important for Botswana-based companies to understand.
In a standard VAT transaction, the supplier is responsible for charging VAT to their customers. With the Reverse charge VAT system, a supplier does not charge VAT on the tax invoice but instead the recipient of the goods or services charges the output VAT. It is a self-account system. The recipient then calculates the Output VAT and input VAT and declares both amounts on their VAT return. This mechanism was reinforced through the VAT (Amendment) Bill, 2025, particularly to cover remote or digital services supplied from abroad.
When is it applicable
- The supplier is not based in Botswana, and
- The recipient is a VAT-registered business in Botswana
If a Botswana VAT registered business makes a purchase of goods and services with a supplier based outside Botswana, the Botswana based business must account for the net VAT amount that would have been charged by the supplier. This system helps BURS enforce VAT on remote services which was recently introduced through the VAT (Amendment) Bill, 2025 as well as other cross-border transactions. For a consumer who is not VAT registered, the cost is an expense, as no input VAT recovery is available.
Effect of Reverse charge VAT on Botswana businesses and compliance
Accurately recording and reporting Reverse Charge VAT is crucial for businesses that have cross-border transactions. Both the supplier and the customer have responsibilities to ensure their accounting reporting procedures are in line with compliance measures set by BURS.
Key compliance points include:
- Keeping all records of all reverse charge transactions
- Ensuring the correct output and input VAT are declared in returns
- Properly apportioning VAT if the business makes both taxable and exempt supplies
Failure to comply can attract penalties from BURS, so understanding and correctly applying RCM is not just good practice — it’s a key compliance essential.
Final Thoughts:
As Botswana continues to integrate into the global digital and trade ecosystem, the Reverse Charge Mechanism plays a vital role in closing VAT gaps and ensuring fairness in tax collection. For local businesses, understanding how it works is not just about compliance — it is about being prepared, proactive, and financially savvy in an evolving tax landscape.
So next time you receive an invoice from an international supplier, take a moment to ask yourself: Who should account for the VAT — them or me?
Andersen Tax is here to hold your hand through it all. Give us a call or email.
