Reverse Charge VAT: When the Buyer Accounts for the Tax

Before asking whether the reverse charge applies, you have to answer a prior question: in which country is this supply treated as taking place? That is the place of supply, and it determines whose VAT rules govern the transaction.

The general rule for business-to-business services is that the place of supply is where the customer belongs, not where the supplier is. That single rule is what makes the reverse charge necessary: if a designer in Ireland supplies a company in Germany, the supply is treated as German, German VAT is due, and without the reverse charge the Irish designer would need a German VAT registration.

For business-to-consumer supplies the general rule points the other way — usually the supplier’s country — with significant exceptions for digital services, where tax follows the consumer’s location. That asymmetry is why establishing whether your customer is a business is the first practical step, not an afterthought.

Goods follow different rules again, keyed to where the goods physically move. The reverse charge concepts overlap, but do not assume a rule you learned for services transfers cleanly to physical products.

The classic case is cross-border business-to-business services within the EU. Under the VAT Directive the customer accounts for the tax, the supplier invoices without VAT, and the customer records both output and input tax in their return. For a fully taxable customer these offset, so no money moves — but the transaction is still reported by both sides.

Two other cases matter. Services received from outside the EU are commonly brought into charge the same way, so an EU business buying from a US supplier self-accounts for VAT on the purchase. And several countries apply a domestic reverse charge within specific sectors — construction is the widest example — where both parties are in the same country but the tax still shifts to the buyer to combat fraud in those supply chains.

The condition running through all of it is that the customer is a taxable person acting as such. A private consumer never reverse charges, and a business buying for genuinely private purposes generally does not either.

To zero-rate an intra-EU supply and shift the tax, you need evidence that your customer is VAT-registered in another member state. The EU operates VIES, a validation service connected to all member states’ registries in real time, and a successful check is the evidence auditors expect.

The consequence of skipping it is the sharpest edge in this whole topic. If you apply the reverse charge against a number that turns out to be invalid, the tax you did not charge can become your liability. You cannot recover it from a customer who has moved on, so it comes out of margin.

Treat validation as part of onboarding rather than a formality. Check the number through VIES before the first invoice, capture the date and the confirmation reference rather than just the answer, re-check periodically for ongoing relationships since registrations get cancelled, and keep the evidence in the customer file. A screenshot with a date beats a memory of having checked.

A reverse charge invoice is defined as much by what it omits as what it states. There is no VAT line and no VAT amount, because you are not charging any. What must be present is the customer’s VAT identification number and an explicit statement that the reverse charge applies.

The wording matters more than it looks. VAT rules require the invoice to say "Reverse charge" or carry a reference to the provision under which the tax shifts. An invoice that simply shows no VAT with no explanation looks like an error or an omission — and a customer’s finance team will either reject it or, worse, treat it as a domestic supply and get their own return wrong.

Practically, a compliant line reads something like "Reverse charge: VAT to be accounted for by the recipient under Article 196 of Directive 2006/112/EC", alongside both parties’ VAT numbers. Keep your own number on the invoice too — the customer needs it to support their entry.

Applying the reverse charge when you should have charged VAT is the expensive error. The tax was due, you did not collect it, and the authority will generally look to you. Correcting it late means either absorbing the tax or going back to a customer who has no obligation to help.

Charging VAT when the reverse charge should have applied is less dangerous but still messy. Your customer cannot reclaim tax that should never have been charged, so they will ask for a credit note and a corrected invoice — and they are right to.

The pattern worth internalising is that both errors are avoided at the same moment: before issuing the first invoice, establish whether the customer is a business, where they belong, and whether their registration is valid. Every downstream question follows from those three answers.