Concept Definition
What is the reverse charge mechanism?
The reverse charge mechanism shifts VAT liability from the supplier to the buyer. The supplier issues an invoice with 0% VAT and a reverse charge notation. The buyer self-assesses and reports the VAT. It applies to cross-border B2B services within the EU, certain domestic high-risk goods, and construction services in some jurisdictions.
What must a reverse charge invoice include?
A reverse charge invoice must clearly indicate that the buyer is liable for VAT. Required elements include:
- Zero VAT rate (0%) on the invoice
- Notation: 'Reverse charge' or reference to the applicable legal provision
- Both buyer and seller VAT numbers must be present
- In UBL/CII: TaxCategory code AE (Vat Reverse Charge) is used
Frequently Asked Questions
- Does reverse charge apply to all cross-border EU invoices?
- Reverse charge applies to cross-border B2B supplies of services within the EU under the general place of supply rules (Article 44 of the VAT Directive). It does not automatically apply to goods. For goods, intra-EU supply rules apply separately.
- Can reverse charge be verified automatically?
- Yes. Automated VAT validation checks buyer VAT number validity via VIES, confirms the supply type triggers reverse charge, and sets the invoice VAT rate to zero with the AE tax category code. This is a standard feature of e-invoicing platforms.