Reverse charge VAT shifts the obligation to account for VAT from the seller to the buyer, commonly applied in cross-border B2B transactions within the EU.
Under the standard VAT rule, a seller charges VAT on taxable supplies and remits it to the tax authority. The reverse charge mechanism inverts this: the buyer — rather than the seller — accounts for the VAT directly in their own VAT return. The seller issues the invoice without VAT, annotated with a reverse charge statement, and the buyer self-assesses the VAT at the applicable local rate.
The reverse charge is widely used in cross-border B2B transactions within the EU. When a VAT-registered business in one EU member state supplies services to a VAT-registered business in another, the place of supply rules under Article 196 of the EU VAT Directive generally move the supply to the buyer's country, with reverse charge applying. The buyer accounts for the VAT (output tax) and, if the supply is for business purposes, simultaneously reclaims it as input tax — resulting in a net VAT of zero for the buyer in most cases.
Domestic reverse charge rules also exist in many countries for specific sectors such as construction, wholesale energy, mobile phones, and scrap metal, aimed at combating VAT fraud in supply chains prone to missing-trader fraud (carousel fraud).
On an invoice subject to reverse charge, you should not show a VAT amount or VAT rate. Instead, include a statement such as 'VAT: Reverse Charge' or 'Intra-Community supply — reverse charge applies' along with the customer's VAT number. When you validate a customer's EU VAT number in Invotify, VIES returns their registration status; combined with dual-tax fields, you can record zero-rated tax lines and note the reverse charge basis in the notes block.
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