Updated
GL-R-04
Glossary · Taxes and residency
Reverse charge - the buyer, not the seller, accounts for VAT on the deal
Reverse charge — a VAT mechanism where the tax is paid by the buyer rather than the seller, in cross-border B2B transactions.
01 / In 30 seconds
The short answer
- What it is
- Reverse charge — VAT is accounted for by the buyer, not the seller
- Where
- In cross-border B2B transactions, often within the EU
- Why
- To simplify VAT and avoid the seller registering abroad
- Bottom line
- The buyer charges and deducts the VAT themselves
- How to use it
- Issue invoices and keep records correctly
02 / In plain words
What Reverse Charge means
The reverse charge is a mechanism under which the obligation to calculate and account for VAT is shifted from the seller to the buyer. Normally the seller charges VAT and pays it to the state; under the reverse charge the buyer does so — they charge VAT on the goods or services acquired in their own country and, if entitled, deduct it at the same time.
The mechanism applies above all to cross-border transactions between businesses (B2B), especially within the EU. It solves a practical problem: without it a foreign seller would have to register as a VAT payer in the buyer’s country. The reverse charge removes this — the seller issues an invoice without VAT, marked as reverse charge, and the buyer deals with the tax under the rules of their own country.
For a business working with foreign counterparties it is important to apply this mechanism correctly: to issue invoices properly (without VAT, stating that the reverse charge applies) and to reflect transactions correctly in the accounts and returns. Mistakes lead to problems with the tax authority. When planning international activity, we take the reverse charge rules into account so that cross-border transactions go through correctly and without unnecessary tax burden.
A case from practice
A company buys services from a supplier in another EU country. Under the rules the reverse charge applies: the supplier issues an invoice without VAT, and the buyer charges and deducts the tax themselves in their own country. We help issue the invoices and keep the records properly so that the transaction goes through correctly.
Where the reverse charge applies
- Cross-border B2B services
- Transactions between companies within the EU
- Buying services from a foreign supplier
- International trade in services
- Avoiding VAT registration abroad
- Correct accounting for cross-border VAT
03 / What it covers
What matters about the reverse charge
How it works
- The buyer accounts for VAT
- The seller — without VAT
- A reverse charge note
Where
- Cross-border B2B
- Often within the EU
- Services
Why
- It simplifies VAT
- No registration abroad
- Simpler for the seller
Keep in mind
- Correct invoices
- Correct accounting
- Reporting
04 / How it works
How to apply the mechanism
Determine whether the reverse charge applies
A B2B deal, the parties' countries, the place of supply.
Issue an invoice without VAT
The seller adds the reverse charge note and the buyer's VAT number.
The buyer charges the VAT
The buyer accounts for the tax at its own country's rate.
Reflect it in the accounts and returns
VAT is charged and deducted in the same return.
A correct transaction
The tax is recorded correctly and the tax authority has no questions.
05 / Key facts
What you need to know
01What it is
VAT shifts to the buyer
The buyer accounts for VAT in its own country and, if entitled, deducts it straight away.
02Where it applies
Cross-border B2B deals
Mainly between businesses within the EU, for example when buying services from a foreign supplier.
03Why
No foreign registration for the seller
The foreign seller does not need to register for VAT in the buyer's country.
04The invoice
No VAT, with a note
The seller invoices without VAT and states that reverse charge applies. The buyer reports the tax in its returns.
Common mistakes
Charging VAT where reverse charge applies
Check the buyer's status and the place of supply before invoicing.
Leaving the note off the invoice
State on the invoice that reverse charge applies, with the buyer's VAT number.
Applying the mechanism to a private customer
Different VAT rules apply to sales to private individuals.
Not recording the transaction at the buyer
Account for and deduct the VAT in the buyer's return for the same period.
06 / Expert advice
How to prepare in advance
For cross-border B2B transactions, it is determined in advance whether the reverse charge applies, and correct documentation is set up: invoices without VAT marked as reverse charge, and correct recording in the buyer’s accounts and returns. Differences in the rules between countries are taken into account. Then cross-border VAT is administered correctly, without double tax or problems with the tax authority.
What we do for you. We take the reverse charge rules into account in your international activity: we help determine where it applies, issue invoices properly and account for cross-border VAT. That way transactions with foreign counterparties go through correctly, without unnecessary tax burden or reporting problems.
Dmitry NagyTax consultant, international taxation and compliance (ex-Big4)
07 / Questions
Frequently asked questions
The reverse charge is a mechanism under which VAT is calculated and accounted for by the buyer rather than the seller. The buyer charges the tax in their own country and, if entitled, deducts it.
Above all in cross-border transactions between businesses (B2B), especially within the EU — for example, when buying services from a foreign supplier.
It spares a foreign seller from having to register as a VAT payer in the buyer’s country. The seller issues an invoice without VAT, and the buyer deals with the tax.
The seller issues an invoice without VAT, marked as reverse charge, and the buyer reflects the tax in their accounts under the rules of their own country.
Mistakes — charging VAT where the reverse charge is required, or the other way round — lead to problems with the tax authority. That is why it matters to determine correctly whether it applies.
There are common principles, especially in the EU, but the details differ by country. We take the rules of the particular jurisdictions into account when documenting transactions.
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