Reverse Charge VAT: How It Works (With Examples)

In a normal VAT transaction, the seller charges VAT and remits it to the tax authority. Under the reverse charge mechanism, this responsibility shifts to the buyer.

The seller issues an invoice without VAT, and the buyer 'self-assesses' the VAT on their own return — declaring it as both output VAT (amount due) and input VAT (amount deductible), resulting in a net zero effect for VAT-registered buyers.

This avoids the seller having to register for VAT in the buyer's country for cross-border B2B transactions.

The reverse charge is mandatory in several situations:

1. Cross-border B2B services within the EU (general rule under Art. 196 VAT Directive) 2. Domestic supplies in certain sectors (construction in Germany/Austria, metal waste, carbon credits) 3. Supplies involving non-established businesses 4. Certain goods (mobile phones, computer chips) in countries with domestic reverse charge

It does NOT apply to: • B2C transactions (consumer can't self-assess VAT) • Domestic B2B in most sectors • Goods shipped to consumers

Your invoice must include: • Your VAT number • Client's VAT number (verify via VIES) • Net amount only (no VAT amount) • Clear mention: 'Reverse charge — Article 196 Council Directive 2006/112/EC' or local equivalent • In France: 'Autoliquidation de la TVA' • In Germany: 'Steuerschuldnerschaft des Leistungsempfängers'

Do NOT leave the VAT amount as €0 — omit the VAT line entirely or clearly state 'Reverse charge applies'.

Example 1: French web designer sells to German company → Invoice: €5,000 net, no VAT, mention 'Reverse charge' → German company reports €950 output VAT (19%) and €950 input VAT on their German return → Net effect: zero for the German company

Example 2: Spanish consulting firm advises Dutch company → Invoice: €10,000 net, no VAT, mention reverse charge → Dutch company self-assesses 21% VAT on their return

Example 3: UK freelancer (post-Brexit) sells to French company → Different rules apply since UK is no longer EU → French company may still use reverse charge under Art. 196 for services → But the UK freelancer should check if they need a French VAT registration