Reverse charge on VAT: Mechanism, rules and Possible Scenarios

This article explains the meaning of reverse charge and the different scenarios where this mechanism applies.

14 May, 2020

When to apply reverse charge?

If your business has two VAT numbers, one in Germany and another one in France, you may ask yourself why do you charge VAT in Germany but not in France for two supplies that are similar in both countries. The answer is in the VAT reverse charge rules, which countries can implement differently in each case.

As a general rule, businesses charge VAT on supplies and deduct VAT on purchases. The reverse charge mechanism is a deviation from this rule where the supplier does not charge VAT on the invoice and the customer pays and deducts VAT simultaneously through the VAT return. The client will pay the net amount to the supplier, however, when completing the VAT return, he will manually calculate the VAT on the reverse charge invoice and report that amount as input VAT and as output VAT, hence having a nil effect for the customer’s and supplier’s cash flow. In some instances, full deduction is not allowed according to partial exemption rules.

This mechanism applies in different kinds of transactions, both domestic and intra-Community. Below is a list of the possible scenarios where reverse charge applies.

Intra-Community VAT reverse charge

Normally, a business making an intra-Community acquisition of goods is liable to pay the tax under the reverse charge mechanism. The outgoing side of this transaction is called intra-Community supply, which is zero-rated provided all conditions are met.

Regarding services, where the supplier is not-established in the country of the customer and the services fall in the general B2B rule (see article 44 of the VAT Directive), the VAT registered customer is liable to pay the tax (see article 196 of the VAT Directive). This mechanism may even apply where the supplier has a permanent establishment in the country of the customer provided such permanent establishment did not intervene in the transaction.


If you are a French business buying goods from a German supplier for a total value of €10,000, you will receive an invoice without VAT. Assuming the standard VAT rates applies, you will then calculate the VAT amount at 20% and report €2,000 as output VAT and again €2,000 as input VAT . Regarding invoice requirements, the invoice received must include your VAT number next to your name and address, it should also include a reference to the exemption such as Exempt intra-Community supply – Article 138 (1) of Directive 2006/112/EC.

Domestic reverse charge for non-established suppliers

Member States can impose reverse charge on domestic supplies of goods and services where the supplier is not established and the transaction is located in the country of the supplier. This regime is optional for member states and, besides the lack of establishment for the supplier which is mandatory in every country, each jurisdiction is free to impose additional conditions.

The freedom to impose conditions complicates things for foreign companies. See below some examples of conditions on domestic reverse charge for non-established suppliers. As you can see in these three examples, countries can decide on the applicable conditions for the customer, which often determines the final VAT treatment:

  • Belgium

    • Supplier requirements

      Not established in Belgium

      (irrelevant if the supplier is  registered or not for VAT)

    • Customer requirements

      Taxable person with a  permanent establishment in  Belgium; or

      Registered via fiscal  representative

    • Scope

      All supplies of goods

      Supplies of services located  in  Belgium (exceptions to the  B2B  rule).

  • France

    • Supplier requirements

      Not established in France

      (irrelevant if the supplier is  registered or not for VAT)

    • Customer requirements

      VAT registered

      (irrelevant if the customer is  established or not)

    • Scope

      All supplies of goods

      Supplies of services located  in  France (exceptions to the  B2B  rule).

  • Spain

    • Supplier requirements

      Not established in Spain

      (irrelevant if the supplier is  registered or not for VAT)

    • Customer requirements

      Taxable person

      (irrelevant if the customer is  established or VAT  registered)

    • Scope

      All supplies of goods

      Supplies of services located  in  Spain (exceptions to the  B2B  rule).


If you have a VAT number without a permanent establishment in France and buy goods locally to subsequently sell them to a French VAT registered customer, you will be charged VAT on your purchase, however, the reverse charge applies on your sale. Your invoice will not include VAT, instead, you must state the following reference in the invoice: Reverse charge – Art 194 of Directive 2006/112/EC. You will then report this sale in your VAT return as a zero rated supply (box 7A of your French VAT return). Your final customer will have to manually calculate the VAT amount at the applicable VAT rate (French standard VAT rate is 20%) and report this amount as due and as deductible in the VAT return. The cash effect will be nil.

Domestic VAT reverse charge on specific goods and services

This reverse charge also applies on domestic supplies, however, in this case it is not required that the supplier is not established. The difference here is that only a number of goods and services are subject to this type of reverse charge.

The Directive allows this reverse charge on 1) natural gas, electricity, heat and cooling (article 195 of the VAT Directive); 2) certain supplies connected with immoveable property (see full list in article 199 of the VAT Directive); 3) transactions with investment gold (article 352 of the VAT Directive); and 4) goods or services sensitive to fraud, including allowances to emit greenhouse gases, mobile phones, integrated devices, cereals and raw metals. This last type of reverse charge (number 4 in our list), must be allowed by the European Commission as a derogation to the general rule.

The conditions are also different for each type of goods in each country. Some member states may require both parties to be established, some would only require a registration of the customer, finally, this reverse charge would only apply in certain countries if the supplier is not established. As way of example, our website provides the rules in the United KingdomGermanyBelgiumFrance or Spain.

VAT reverse charge on triangular transactions

In a triangular transaction, a supplier in country A invoices a customer in country B, who subsequently invoices another customer in country C (invoice flow). The goods, however, are shipped directly from country A to country C (goods flow). Where the conditions for simplification are met, party B does not have to register in country C, instead, party C will be liable to pay the VAT under the reverse charge mechanism. This is an EU wide rule applicable in all Member States, but there are a few exceptions where party B is already registered in country A or country C.

Reverse charge on postponed import VAT and suspensive regimes

As a general rule, import VAT must be paid when the goods enter the European Union, but some countries allow simplifications deferring the payment of import VAT. The postponed accounting of import VAT allows the reverse charge mechanism on import VAT amounts. This means that, instead of paying VAT at the border and deducting it later in the VAT return, the importer will pay and deduct the VAT at the same time in the VAT return, with the corresponding nil cash flow impact (unless partial exemption applies).

Similarly, where goods enter into a suspension regime such as VAT or customs warehouses, the first customer after the goods leave the suspension regime may be liable to pay the tax under the reverse charge mechanism.

This type of reverse charge is foreseen in Article 202 of the VAT Directive. The conditions for deferral of import VAT and postponed import VAT accounting are included in our VAT manuals, see for example UK , Spain, France, Germany or Belgium.

At Marosa, we have large experience in EU VAT consultancy projects involving any of the above scenarios. We can also help you with your VAT reporting obligations in any European country. Please contact us for to get free VAT help with your European VAT issues or a quote for handling your VAT obligations.

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