Reverse Charge VAT Explained, With Invoice Examples
When the buyer accounts for VAT instead of the supplier, the self-assessment entries that usually net to zero, what the invoice must say, and the domestic cases.
Reverse charge shifts responsibility for VAT from the seller to the buyer. The supplier issues an invoice with no VAT on it; the customer calculates the VAT themselves, declares it as output tax, and — if entitled to full recovery — reclaims the same amount as input tax in the same return.
The usual result is a wash: two equal entries that cancel. Which raises a fair question — why bother?
Because it removes the opportunity to disappear with the money. If a foreign supplier charged your VAT, they would have to register, collect it and remit it to your tax authority. Reverse charge means they never touch it. The mechanism exists to make cross-border trade workable and, in its domestic form, to shut down fraud in sectors where sellers vanished with collected VAT.
The cross-border case
You are a Lithuanian company buying 1,000 € of consulting from a German firm. Both are VAT-registered businesses, so under the general B2B place-of-supply rule the service is taxed where the customer is established — Lithuania.
The German supplier's invoice shows 1,000 €, no VAT, and carries the mention "Reverse charge". They cannot charge German VAT (the supply is not taxed there) and will not charge Lithuanian VAT (they are not registered there, and need not be).
You then account for it. Two entries at your domestic 21% rate:
| Account | Debit | Credit |
|---|---|---|
| 6209 Administrative expenses | 1,000 | |
| 4430 Trade payables | 1,000 |
and the self-assessment:
| Account | Debit | Credit |
|---|---|---|
| 2441 VAT receivable (input) | 210 | |
| 4492 VAT payable (output) | 210 |
Net cash effect: zero. But both amounts must appear in the VAT return — output VAT in one box, input VAT in another. Skipping the entry entirely because "it nets off" is a reporting error even though the tax due is unchanged.
The exception that matters: if you cannot fully recover input VAT — an exempt business, a partial-recovery ratio, or a purchase for non-business use — the reverse charge produces a real cost. The output side is always due in full; only the input side is restricted. This is where reverse charge stops being an accounting formality.
Where it applies
Cross-border, within the EU:
- B2B services under the general rule — the default for consulting, software, marketing, professional services supplied to a business in another member state.
- Intra-Community acquisitions of goods — the buyer self-assesses acquisition VAT, the mirror of the seller's zero-rated intra-Community supply.
- Supplies by non-established suppliers, where the member state applies the mechanism rather than requiring registration.
Domestic, as an anti-fraud measure. Member states may apply reverse charge to specified domestic sectors, and the lists differ by country: construction services, scrap metal and waste, electronics such as mobile phones and integrated circuits above a threshold, emission allowances, gas and electricity to traders, and certain agricultural products. Germany's §13b list and Lithuania's construction-sector rules are examples — but you must check the national list, because a supply reverse-charged in one member state may be normally taxed in another.
From outside the EU, services bought from non-EU suppliers are generally reverse-charged by the EU business customer under the same logic.
What the invoice must say
The supplier's invoice must carry the literal mention "Reverse charge" — Article 226(11a) of the VAT Directive requires those words, not a description of the mechanism. National law fixes the language: Lithuanian invoices use „Atvirkštinis apmokestinimas".
The invoice must also show the customer's VAT identification number, since that is what evidences the customer's status and their liability for the tax. A reverse-charge invoice without the customer's VAT number is defective, and the supplier who issued it may find the zero-rating challenged.
A supplier not established in the member state of taxation may omit the taxable amount per rate, the rate and the VAT amount, describing the supply by quantity and nature instead — the required invoice fields article covers the full list.
Common mistakes
- Charging VAT anyway. A supplier who adds their own VAT to a reverse-charge supply has charged tax that the customer cannot reclaim in their own country. The fix is a credit note and a corrected invoice, not a refund claim.
- Not verifying the customer's VAT number. The whole mechanism rests on the customer being a taxable person. That is what VIES validation is for, and an invalid number at the time of supply can turn a zero-rated invoice into a domestic taxable one, with the VAT payable by you.
- Omitting it from the return because it nets. The amounts are reportable in both directions.
- Assuming it applies to consumers. Reverse charge is B2B. A private customer cannot self-assess, so B2C cross-border sales follow entirely different rules — usually OSS.
- Assuming domestic lists match. They do not, and construction is the classic trap for a company working across borders.
How Nordlet handles it
The VAT engine resolves reverse_charge from the parties and the supply: a services supply to a VAT-registered business in another member state, with a valid VAT number, produces a zero-rate line under that scheme rather than a domestic rate.
That scheme then drives everything downstream. The invoice carries the required mention and the customer's VAT number, in the correct language, on the PDF and in the structured e-invoice formats. The VAT return packs map the scheme into the right boxes — in Lithuania's FR0600 and in the German UStVA, reverse-charge supplies made and received land in distinct fields, because tax authorities want both sides visible.
Two honest notes. Domestic sector-specific reverse charge (construction, scrap, electronics) is not resolved automatically — the engine handles the cross-border cases, so a domestic reverse-charge supply needs the scheme set explicitly on the invoice. And the self-assessment entry on purchases is derived at return time from the supplier's country and the absence of VAT rather than from a dedicated purchase-side scheme field, so the country packs flag those lines for review rather than silently assuming a rate.
FAQ
What does reverse charge mean on an invoice?
That the customer, not the supplier, must account for the VAT. The invoice shows no VAT and must carry the literal words "Reverse charge"; the customer declares the tax in their own return and usually reclaims it in the same return.
Who pays the VAT under reverse charge?
Nobody transfers cash in the typical case — the customer declares the VAT as both output and input tax, netting to zero. The mechanism assigns responsibility rather than creating a payment, unless the customer cannot fully recover input VAT.
Do I need the customer's VAT number for reverse charge?
Yes. The customer's VAT identification number is a mandatory particular on the invoice and is the evidence that they are a taxable person liable for the tax. Validate it before invoicing, not after.
Does reverse charge apply to sales to consumers?
No. It is a business-to-business mechanism — a private individual cannot self-assess VAT. Cross-border B2C supplies generally fall under OSS or the distance-selling rules instead.
Is domestic reverse charge the same as cross-border?
The mechanics are identical, the reasons differ. Cross-border reverse charge avoids forcing foreign suppliers to register; domestic reverse charge is an anti-fraud measure applied to specific sectors, and the affected sectors vary by member state.