Under a standard VAT transaction, the supplier charges VAT, collects it from the customer, and remits it to the tax authority. The reverse charge flips that: the supplier charges no VAT, and the customer self-assesses it instead — declaring it as both output VAT and (to the extent recoverable) input VAT on their own return.
Where it applies
The most common trigger is cross-border B2B services within the EU. Under the general place-of-supply rule for B2B services, the supply is treated as made where the customer is established, not the supplier. A supplier isn't normally VAT-registered in every country its business customers happen to be in, so instead of registering everywhere, it issues the invoice without VAT and the reverse charge shifts the obligation to the customer, who is already VAT-registered locally.
Several jurisdictions also apply a domestic reverse charge to specific sectors historically prone to fraud — construction services and certain electronics are common examples — even for supplies within the same country.
What the supplier must do
- Verify the customer's VAT registration status before treating the supply as B2B (for EU transactions, via VIES) — if the customer's business/VAT status can't be confirmed, standard VAT may need to be charged instead
- Issue the invoice without VAT, with wording that states the reverse charge applies
- Report the supply in the recapitulative statement (EC Sales List) for cross-border EU B2B services, separately from the VAT return itself
What the customer must do
- Self-assess VAT at the rate applicable in their own country, on the value of the supply received
- Declare that self-assessed amount as output VAT in their own return
- Simultaneously recover it as input VAT, to the extent their normal recovery right allows — for a fully taxable business this is usually net-zero in cash terms, but the reporting obligation exists regardless of the cash outcome
Reverse charge is not zero-rating
The two are frequently confused, and they behave differently. Zero-rating means the supplier charges VAT at 0% — there's a VAT-rated supply, just at a nil rate, and no self-assessment obligation falls on the customer. Reverse charge means no VAT is charged by the supplier at all, and the entire output/input VAT mechanics shift onto the customer's own return. Getting this distinction wrong on an invoice or in a VAT return produces genuinely different — and incorrect — figures.
Where this typically goes wrong
- The customer assumes that because no VAT was charged, there's nothing to report — the self-assessment obligation exists regardless of whether the supplier charged VAT
- Applying the reverse charge to a B2C supply, where it generally doesn't apply — the place-of-supply rules for consumers are different
- Not validating the customer's VAT number before invoicing without VAT, and later discovering the recipient wasn't actually a valid taxable business in that jurisdiction
- Missing a partial-exemption position: for a customer that cannot fully recover input VAT, the reverse charge creates a genuine net VAT cost that's easy to overlook if the mechanism is assumed to always net to zero
- Overlooking a sector-specific domestic reverse charge rule that applies even though the supply is entirely within one country