The EU Reverse Charge Mechanism, Explained
The reverse charge shifts the obligation to account for VAT from a VAT-registered seller to a VAT-registered business customer, on qualifying B2B transactions between EU member states. It removes the seller’s need to register for VAT in the buyer’s country — and it is grounded in specific articles of Council Directive 2006/112/EC: Articles 44 and 196 for services, and Article 138(2)(c) for goods.
Article 44 and Article 196: the legal backbone
Under Article 44 of Directive 2006/112/EC, the general B2B place-of-supply rule treats a service as supplied where the business customer is established — not where the supplier is based. Article 196 then makes the customer, rather than the supplier, the person liable to pay that VAT. Together, these two articles are what most people mean when they talk about the “B2B reverse charge” on services.
In practice: if a UK consultancy supplies services to a VAT-registered business in France, French VAT law — implementing Articles 44 and 196 — puts the obligation to self-account for VAT on the French customer. The UK supplier issues an invoice with no VAT charged, referencing the reverse charge, instead of registering for French VAT.
Article 138(2)(c): the reverse charge for goods
Article 138(2)(c) exempts an intra-Community transfer of goods from VAT in the country of dispatch, provided the goods physically move to another EU member state and the receiving business holds a valid VAT registration there. The legal basis differs from the services rule, but the mechanism is the same: the burden of accounting for VAT shifts to the registered recipient.
Before applying either exemption, the seller must verify the customer’s VAT number on VIES and include the mandatory wording on the invoice:
For services: “VAT Exempt intra-community supply of services – Article 44 and 196 Directive 2006/112/EC”
For goods: “VAT exempt intra-Community transfer – article 138, 2, c) Directive 2006/112/EC”
Reverse charge does not end the paperwork
An EC Sales List (recapitulative statement) must still be prepared, detailing which EU B2B customers benefited from the reverse charge and the value of each supply. On the other side of the transaction, the recipient reports both their purchase (input VAT) and the supplier’s sale (output VAT) on their own local VAT return — so the two entries reconcile across borders.
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Common questions, plain answers
Does the reverse charge apply to B2C sales?
No. The reverse charge under Articles 44 and 196 applies to B2B transactions between VAT-registered businesses only. For B2C EU sales, the supplier normally charges VAT directly — via the One Stop Shop or a local registration.
What if my customer’s VAT number isn’t valid?
If VIES cannot confirm the customer’s VAT number, the reverse charge exemption should not be applied. Charge VAT under the normal domestic rules, or hold the invoice until the number is confirmed — our VAT number checker above verifies both EU and UK numbers in seconds.
Is reverse charge the same as zero-rating?
No. Reverse charge shifts the accounting obligation to the buyer, who declares both input and output VAT on their own return. Zero-rating typically only removes output VAT for the seller, without creating a matching self-assessment obligation for the buyer.
If the buyer accounts for the VAT, do I still need to file anything?
Yes. You still need to issue a compliant invoice carrying the mandatory reverse-charge wording, and file an EC Sales List listing the customer and value of each reverse-charged supply.
Does reverse charge apply the same way to goods and services?
The legal basis differs — Articles 44 and 196 for services, Article 138(2)(c) for the intra-Community transfer of goods — but the practical effect is similar: the registered EU business customer accounts for the VAT instead of the seller.
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