Reverse Charge
Category: tax
A mechanism where the buyer, not the seller, accounts for VAT on cross-border B2B transactions.
The reverse charge mechanism shifts the responsibility for accounting for VAT from the seller to the buyer. It commonly applies to B2B cross-border transactions within the EU, where the seller invoices without VAT and the buyer self-assesses and reports the VAT in their home country. For e-commerce, reverse charge applies when a non-EU seller provides digital services to an EU business customer.
Examples
- • A UK business invoicing a German business client for consulting applies reverse charge: the invoice states 'Reverse charge: VAT to be accounted for by the recipient' and charges 0% VAT.
- • A US SaaS company selling to an EU business issues an invoice without VAT; the EU business self-assesses under reverse charge in their country.
- • Within the EU, a Spanish seller shipping goods to a VAT-registered French business applies reverse charge, eliminating the need for Spanish seller to register for French VAT.