Glossary
Reverse charge VAT: meaning and examples
Reverse charge VAT shifts the duty to account for VAT from the seller to the buyer. Learn how it works, when it applies and what to put on the invoice.
Updated · By PayToMe Editorial
Reverse charge VAT is a rule under which the buyer, not the seller, accounts for value added tax on a sale. The seller issues an invoice without VAT, and the buyer reports the VAT due on their own VAT return.
How it works
Normally a VAT-registered seller adds VAT to the invoice, collects it and pays it to the tax authority. Under the reverse charge, that responsibility moves to the customer. It is used for many cross-border business-to-business sales of services within the European Union, and in some countries for certain domestic sectors, such as construction services in the UK. Rules differ by country, so check your own tax authority’s guidance.
For the seller, the steps are typically:
- Confirm the buyer is a VAT-registered business. Collect and check their VAT number.
- Check that the reverse charge applies to your type of sale and the countries involved.
- Issue the invoice without VAT. Show the net amount, both VAT numbers and a note such as “Reverse charge: VAT to be accounted for by the recipient”.
- Report the sale in the way your tax authority requires, which can include a separate listing of cross-border sales.
The buyer then enters the VAT in their return as both tax due and, if they are allowed to, tax they can recover. For many buyers the net effect is zero, but the paperwork has to be correct. See VAT invoice requirements for what an invoice must show, and read about e-invoicing if your country requires structured invoices.
Example
A Berlin design studio bills a VAT-registered company in another EU country EUR 5,000 for services. Assume the reverse charge applies and the buyer’s local rate is 20%. This is illustrative only.
| Item | Normal VAT | Reverse charge |
|---|---|---|
| Net price | EUR 5,000 | EUR 5,000 |
| VAT on the invoice | EUR 1,000 | EUR 0 |
| Total the buyer pays the seller | EUR 6,000 | EUR 5,000 |
| VAT reported by | Seller | Buyer, EUR 1,000 |
The seller invoices EUR 5,000, the buyer pays EUR 5,000 and accounts for the EUR 1,000 on their return. Build the invoice with the free invoice generator, which handles several currencies, or test rates in the sales tax calculator.
Related terms
- VAT: the tax that the reverse charge shifts to the buyer.
- VAT number: the registration number you check and show.
- E-invoicing: structured digital invoices required in some countries.