The VAT reverse charge, explained simply

The reverse charge is a VAT rule under which the customer, not the supplier, accounts for the VAT on a sale. On certain cross-border business-to-business sales, your invoice shows no VAT and your customer declares it in their own VAT return instead.

How it works

For most business-to-business services, the EU VAT Directive puts the place of supply where the customer is established (article 44), and article 196 makes the customer liable for the VAT when the supplier isn't established in that country. The EU's Your Europe portal summarises it: when you sell services to businesses in another EU country you don't usually charge VAT, and your customer pays VAT at their own country's rate through the reverse charge.

For example, a VAT-registered designer in the Netherlands invoices a VAT-registered company in Germany €2,000 for a logo. The invoice shows €2,000 net, no Dutch VAT and a €2,000 total, and the German company accounts for German VAT on that €2,000 in its own return.

When it typically applies

• Services to a business in another EU country. The main case, described above.
• Goods sent to a business in another EU country. Strictly, this is an exempt intra-Community supply rather than a reverse charge. Your Europe says you don't charge VAT if the customer has a valid EU VAT number, and the invoice refers to the exemption instead (article 226(11)).
• Domestic reverse charges. Some countries use the mechanism inside their own borders for particular sectors, such as the UK for certain building and construction services (see the HMRC link below).

Selling from the UK

The UK follows similar logic. HMRC's VAT Notice 741A says the general rule for business-to-business services is that the supply is made where the customer belongs (section 6.3). If that's outside the UK, you don't charge UK VAT, but you need to consider the tax rules of the customer's country (section 2.2) and keep evidence that they're in business, such as their VAT number. When a UK business buys services from abroad, it applies the reverse charge itself (section 5.2).

What to put on the invoice

• Your VAT number and your customer's (article 226(3) and (4)). Check theirs in VIES before you invoice.
• No VAT amount charged (0), with the net total.
• The mention “Reverse charge”, which article 226(11a) requires wherever the customer is liable for the VAT. You can add the legal reference alongside it, for example “Reverse charge: VAT to be accounted for by the recipient (article 196, Directive 2006/112/EC)”.
• An issue date that meets the deadline. For these services, and for intra-Community supplies of goods, the invoice must be issued by the 15th day of the month after the one in which the chargeable event occurs, which is normally when the supply is made (articles 63 and 222, the latter in the wording set by Directive 2010/45/EU).

Report it

In the EU you must also include these services in your recapitulative statement, the periodic list of VAT-registered customers in other member states you've supplied (article 262(1)(c)).

Make it easy

Invoice Forever includes ready-made legal notes for cases like intra-Community supply and reverse charge, so you can add the right wording with a click. If you export the invoice as an EN 16931 e-invoice, a reverse-charge invoice for services goes out with VAT category AE, and the export checks that both VAT numbers are filled in. See the VAT invoice template to get started.