Reverse Charge VAT Explained: When It Applies and How to Invoice
The reverse charge moves the obligation to account for VAT from the seller to the buyer. It exists so that a cross-border business-to-business transaction is taxed once, in the country where the customer is, instead of being taxed in the supplier's country and then reclaimed. Getting the invoice wording wrong is the single most common way businesses get this wrong — and the consequence falls on the customer, not on you. The legal basis is Article 196 of Directive 2006/112/EC: Article 44 decides where a B2B service is taxed, Article 196 makes the customer liable for the VAT.
- Reverse charge is a B2B mechanism. Consumer sales never use it — they go through OSS or a local registration.
- Your invoice must name the mechanism. "VAT exempt" is the wrong wording and is routinely rejected by customers' auditors.
- Both VAT numbers must appear, yours and the customer's.
- You still report the sale, with the VAT at zero. Not reporting is treated as an omission, not as reverse charge.
- Intra-EU movement of goods looks like reverse charge but isn't the same rule — it rests on the intra-Community supply exemption.
1. What the reverse charge actually does
Normally, a supplier charges VAT and the customer reclaims it. For a cross-border B2B service, applying that default would mean the tax is charged in the supplier's country, reclaimed there, and then charged again in the customer's country — two assessments, one economic transaction, and a cash-flow cost for both sides.
Reverse charge removes the first assessment. The supplier charges nothing. The customer takes the VAT into account themselves, at the rate of their own country, as both their output and (subject to the usual rules) their input tax. The net effect is that the tax is due once, in the customer's country, and the supplier has no VAT to charge or reclaim.
That is the whole idea, and it is why reverse charge is a relief mechanism rather than an exemption. The supply is still taxable. It is simply taxed by the party in the customer's country, which is the only party with the information to do it correctly.
2. The four situations it covers
1. Cross-border B2B services
The most common case by far. A supplier in one member state provides services to a taxable person in another, and the place of supply would otherwise follow the supplier. Under the reverse charge it follows the customer, so no VAT is charged by the supplier. Typical examples: consultancy, software development, marketing, accounting and legal services.
2. Intra-EU acquisitions of goods
Goods are dispatched from one member state to a business in another. The supplier makes an exempt intra-Community supply at zero VAT and reports it; the customer self-accounts the VAT on taking delivery. The result resembles reverse charge, but the legal basis is the intra-Community supply exemption rather than the reverse charge mechanism — a distinction that matters if you are relying on a specific provision.
3. Certain domestic transactions
Several member states apply a domestic reverse charge, most notably to construction and building works, supplies of investment gold, and some categories of electronics, mobile phones and computers above a value threshold. These exist to combat VAT fraud in sectors prone to it. They are national rules, not EU-wide, so check your own country's list rather than assuming.
4. Services received from outside the EU
Where a business in the EU receives services from a supplier outside the EU, the recipient self-accounts the VAT. This is a long-standing rule and is separate from the OSS arrangements entirely. Common for non-EU SaaS vendors, overseas agencies and foreign parent-company charges.
3. Reverse charge vs OSS vs normal
These three get confused constantly because all three exist to avoid multiple VAT registrations. They apply to opposite sides of the same transaction.
| Scenario | Who is taxed | Rate applied | Invoice shows |
|---|---|---|---|
| B2B services, cross-border | Customer self-accounts | Customer's country | No VAT, both VAT IDs, mechanism named |
| Goods moved intra-EU to a business | Customer self-accounts on acquisition | Customer's country | No VAT, both VAT IDs, supply reported |
| B2C goods or e-services, cross-border | Supplier charges and remits | Consumer's country | Destination rate, reported via OSS |
| Domestic B2B or B2C sale | Supplier charges and remits | Domestic rate | Normal domestic VAT |
The one-line version: reverse charge means the supplier charges nothing and the buyer sorts it out; OSS means the supplier charges the destination rate but only files once. If your customer is a business, reverse charge. If your customer is a consumer, OSS or local registration.
4. What your invoice must say
Four things, all of them required. Miss any one and the customer cannot deduct, and they will come back to you.
- Charge zero VAT. The net amount is payable in full. Do not add a "VAT" line at zero and leave it blank — show the VAT element explicitly as zero where your format allows.
- Show both VAT identification numbers. Yours and the customer's. The customer's number is what establishes they are a taxable person entitled to self-account.
- State that VAT has not been charged because the supply is subject to the reverse charge mechanism. Name the mechanism. Do not write "VAT exempt", "exempt from VAT" or "no VAT" — those describe an exempt supply, which is a different thing entirely and gives your customer's auditor grounds to question the deduction.
- Identify the provision you are relying on. Cite the specific article of the VAT Directive in your national transposition, and check that the wording matches what your tax authority expects.
The full statutory field list — including which elements survive when VAT is charged at zero — is in the EU invoice requirements guide. Build the document with the Invoice Generator so the mandatory fields are present before you add the reverse charge wording.
5. What each side reports
Supplier: reports the supply on the VAT return with the VAT amount shown as zero, and — for cross-border supplies of goods — on the EC Sales List. Failing to report at all is treated as an omission rather than as a valid reverse charge, so the declaration is not optional.
Customer: declares the self-assessed VAT as output tax in their return for the period, and deducts it as input tax subject to the normal rules. For a business that is fully taxable, the net effect on VAT is usually nil. For a business with partial exemption, restricted input VAT, or a non-VAT-registered activity, the deduction can be limited — which is a real commercial reason to negotiate who should be the supplier.
6. Why B2C never uses it
Reverse charge depends on the customer being a taxable person who can account for VAT on their own return. A consumer cannot do that, so the mechanism simply does not work for B2C. Cross-border consumer sales are instead taxed where the consumer lives, through OSS or a local registration.
For cross-border B2C goods and electronic services there is an EU-wide threshold of €10,000, in place since 1 July 2021. Below it, a supplier established in the EU may continue to charge VAT in the member state where they are established, as a simplification. Above it, destination-country rates apply and OSS becomes the efficient route. Note the word may: it is a permission, not an obligation, and member states differ in how they apply it. The threshold is a cumulative EU-wide figure across all destination countries, not a per-country one.
To check which regime a specific transaction falls under, use the reverse charge vs OSS checker.
7. Three worked examples
Example 1: German agency, Dutch client
A Berlin marketing agency invoices €10,000 net for strategy work to an Amsterdam company with a Dutch VAT number.
Example 2: Italian shop, French consumers
An Italian shop sells €15,000 of goods a year to French consumers, and so exceeds the €10,000 EU-wide threshold.
Example 3: Dutch manufacturer, Belgian buyer
A Dutch manufacturer dispatches €10,000 of goods to a Belgian business.
8. Four mistakes that cost money
- Writing "VAT exempt" on a reverse charge invoice. The most common error, and the most damaging, because it contradicts the treatment you are applying.
- Omitting the customer's VAT number. Without it you cannot establish that the customer is a taxable person entitled to self-account.
- Not reporting the supply at all. Silence is not reverse charge. A missing line on the return is treated as an undeclared supply.
- Applying reverse charge to a consumer sale. It does not exist for B2C. Charging €0 VAT to a consumer means you have under-charged and they will not reimburse it.
Frequently asked questions
When does the reverse charge apply?
Mainly to cross-border B2B supplies of services where the customer is established or established in the EU, and to intra-EU acquisitions of goods by a taxable person. It also applies to certain domestic transactions such as construction works, investment gold and some electronics above a value threshold. It does not apply to B2C sales, which are handled by the One Stop Shop or by local registration instead.
What must a reverse charge invoice say?
It must show both VAT identification numbers, and must state that VAT is not charged because the supply is subject to the reverse charge mechanism. It should name the mechanism and identify the provision relied on. Writing "VAT exempt" is not sufficient — it describes an exempt supply rather than a taxable one that the customer accounts for, and a customer's auditor can reject the deduction on that basis.
Does the reverse charge apply to B2C sales?
No. It is a B2B mechanism, and it depends on the customer being a taxable person who can account for VAT on their own return. A consumer cannot do that. Consumer sales are taxed where the consumer lives, through OSS for cross-border distance sales or a local registration.
What is the difference between reverse charge and OSS?
Reverse charge is for business-to-business supplies: the supplier charges no VAT and the customer self-accounts. The One Stop Shop is for cross-border business-to-consumer sales: the supplier charges the destination country's VAT but reports it once through a single registration instead of registering in every member state. Both avoid multiple registrations, but for opposite sides of the transaction.
Does the supplier report anything when using the reverse charge?
Yes. The supplier reports the supply on their VAT return with the VAT amount at zero, and for cross-border supplies of goods also on the EC Sales List. Failing to report is treated as an omission rather than a valid reverse charge, so the declaration is not optional. The customer declares the self-assessed VAT as output tax and deducts it as input tax, subject to the usual rules, so the net effect is usually nil for a fully taxable business.
Is intra-EU movement of goods a reverse charge?
It is related but distinct. Goods dispatched from one member state to a taxable person in another are an exempt intra-Community supply: the supplier charges no VAT and reports it, while the customer self-accounts the VAT on the acquisition in their own country. The practical result resembles reverse charge, but the legal basis is the intra-Community supply exemption rather than the reverse charge mechanism.
Sources
- VAT One Stop Shop — European Commission. Confirms the €10,000 EU-wide threshold for cross-border B2C goods and TBE services, in force since 1 July 2021, and that below it such supplies may remain subject to VAT in the member state of establishment.
- Council Directive 2006/112/EC (VAT Directive) — the source of the reverse charge mechanism, the intra-Community supply exemption and the OSS. Cited here by description rather than article number; confirm the specific provision against the consolidated text for a compliance decision.
Disclaimer: General information only, not tax or legal advice. The reverse charge mechanism is common EU law, but reporting requirements are national. Confirm your own position with your tax authority. Corrections are logged in the changelog.