Guide

Reverse charge invoices. Explained simply.

Selling services across EU borders? The reverse charge mechanism shifts VAT responsibility to your client. Here is how it works and what your invoice needs.

What is the reverse charge mechanism?

When you sell services to a business in another EU country, you normally would not charge VAT. Instead, your client accounts for the VAT in their own country. This is called the reverse charge mechanism. It prevents businesses from having to register for VAT in every EU country they sell to. The rule applies to most B2B cross-border services within the EU. You issue the invoice without VAT, your client self-assesses it, and both of you report it in your VAT returns.

How the reverse charge works, step by step

1

You sell a service to a business in another EU country

The reverse charge applies when both parties are VAT-registered businesses and the service is performed across EU borders. It covers most B2B services, from consulting to software development.

2

You invoice without VAT

Your invoice shows the net amount only. No VAT is charged. You include a note that the reverse charge mechanism applies, along with both your VAT ID and your client's VAT ID.

3

Your client self-assesses VAT in their country

Your client calculates the VAT that would apply in their country and reports it as both input and output tax. The net effect is usually zero for them, but the reporting is mandatory.

4

Both parties report in their VAT returns

You report the sale as a reverse charge transaction in your VAT return. Your client reports the purchase and the self-assessed VAT in theirs. Both sides need proper documentation.

What must appear on a reverse charge invoice

  • A clear "Reverse Charge" note stating that the client is liable for VAT
  • Your VAT identification number
  • Your client's VAT identification number
  • The net amount only, with no VAT charged
  • A reference to Article 196 of the EU VAT Directive

Questions

Does reverse charge apply to goods as well?

Cross-border sales of goods within the EU follow different rules called intra-community supply. The reverse charge mechanism mainly covers services. Some domestic transactions also use reverse charge for specific sectors.

What if my client is not VAT-registered?

The reverse charge does not apply to sales to consumers or non-VAT-registered businesses. In that case, you may need to charge VAT or register for VAT in the client's country, depending on the type of service.

How do I verify my client's VAT number?

Use the EU VIES system to check whether a VAT number is valid. You should verify the number before issuing the invoice. Keep the verification result as proof.

Does Billstride handle reverse charge invoices?

Yes. Billstride detects when the reverse charge applies based on your location and your client's location. The VAT note, references, and formatting are added automatically.

What happens if I charge VAT by mistake?

If you charge VAT on a transaction that should use the reverse charge, your client cannot deduct it in their country. You would need to issue a corrected invoice without VAT.

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