EU VAT Reverse Charge

For: business owners who sell to businesses in other EU countries. Covers: the reverse charge mechanism under Article 196 of the EU VAT Directive.

Who this applies to

You are a VAT-registered business in one EU country. You sell goods or services to a VAT-registered business in another EU country. Both parties have valid VAT numbers.

What the rule is

Under the reverse charge mechanism, the seller (you) does not charge VAT. Instead, the buyer accounts for the VAT in their own country. The buyer reports both the input and output VAT on their return, which nets to zero.

You invoice at 0% but include a note on the invoice stating that VAT is reverse-charged under Article 196 of the EU VAT Directive.

The conditions:

• The sale is B2B (both parties are VAT-registered businesses)
• The seller and buyer are in different EU member states
• The buyer has a valid VAT number

If any condition is not met, you charge VAT at your domestic rate.

How to set it up in InvoiceScript

1. Create a reverse charge tax rate in Settings > Invoicing:

   • Name: "BTW verlegd" (or "Reverse charge" or your local language equivalent)
   • Rate: 0
   • UBL tax category: AE (reverse charge)

2. When invoicing a B2B customer in another EU country, select the reverse charge rate on each line item instead of your domestic rate.

3. The invoice PDF shows the 0% tax line with the AE category. Add a note in the invoice notes field (or configure it in your email template) referencing Article 196.

Worked example

Northwind Studio (Amsterdam, NL, NL123456789B01) invoices Globex GmbH (Berlin, DE, DE987654321) for a brand identity project:

The invoice shows:

• Both VAT numbers (NL and DE)
• Tax breakdown: BTW verlegd at 0% on €10,500.00 = €0.00
• Total: €10,500.00
• Note: "VAT reverse-charged, Article 196 EU VAT Directive"

Globex GmbH accounts for 19% German USt on the €10,500.00 in their own VAT return.

When reverse charge does not apply

• B2C sales (to consumers): charge your domestic rate, or the destination country's rate under OSS rules.
• Domestic sales (same country): charge your domestic rate.
• Buyer has no valid VAT number: charge your domestic rate.
• Certain goods and services: specific rules exist for real estate, transport, and digital services. Check with your accountant.

The seller's responsibility

You need to verify that the buyer is a VAT-registered business in another EU country before applying reverse charge. InvoiceScript does not validate VAT numbers against VIES. You can check manually at ec.europa.eu/taxation_customs/vies.

If you apply reverse charge and the buyer's VAT number turns out to be invalid, you may be liable for the uncollected VAT. Keep a record of when you verified the number.

Related pages

• EU VAT
• Tax Basics
• Manage Tax Rates