If you do business across borders in Europe, and you send invoices across borders. No VAT line. No tax collected. And yet, everything is perfectly compliant, this is Reverse VAT. If you operate in Europe, Reverse VAT (also called reverse charge) isn’t an edge case, it’s a core mechanism that keeps cross-border B2B trade moving without turning VAT into a mess. It often sounds complex, but the logic behind it is simple once you see who’s responsible for what.
How Reverse VAT works in practice
Under the reverse charge mechanism, the invoice is issued without VAT. The total amount is simply the net price of the goods or services. However, VAT doesn’t disappear. The buyer must declare the VAT themselves on their VAT return. To do this, they report the VAT twice: once as output VAT (as if they had sold the service) and once as input VAT (as if they had paid it). In most cases, these two amounts cancel each other out. The result is usually no VAT to pay, but the transaction is still fully declared and traceable.
When does Reverse VAT apply?
Reverse VAT most commonly applies to cross-border B2B transactions within the EU, such as when a company sells services to a VAT-registered business in another member state. It is also used when purchasing services from suppliers based abroad, including outside the EU. In some countries, it can apply to specific domestic activities, such as construction or certain regulated goods. In all cases, the invoice must clearly state that Reverse VAT applies, and VAT must not be included in the total.
What this means for sellers
If you are the seller and Reverse VAT applies, you issue an invoice with no VAT charged. The invoice total equals the net amount, but you are still required to explain why VAT is not applied. This is usually done by selecting the appropriate tax rule in your accounting system and adding a legal mention such as “VAT reverse charge”. This justification is essential for compliance and is often enforced by accounting software.
What this means for buyers
If you are the buyer receiving a reverse-VAT invoice, you won’t see any VAT on the document. However, you are responsible for self-assessing the VAT. Your accounting system will record VAT as both payable and deductible at the same time, ensuring that the transaction appears correctly in your VAT return. Even though no VAT is paid, the declaration is mandatory.
Booking invoices with reverse VAT in Chift’s API
When booking sales or purchase invoices via the Create Sales/Purchase Entry endpoint in Chift’s Accounting API, on the buyer side, the supplier does not charge VAT, so the invoice shows a VAT amount of zero. The buyer applies a reverse VAT tax code, which tells Chift that VAT must be self-assessed. Using the applicable VAT rate, Chift automatically records both output VAT and input VAT in the accounting system. These two entries cancel each other out, meaning no VAT is paid; but everything is correctly declared in the VAT return. On the seller side, the process is simpler. The seller issues an invoice without VAT, using a reverse VAT or exonerated tax code to justify why VAT is not charged. The invoice total remains the net amount, with no VAT included. In both cases, Chift handles the accounting logic behind the scenes, ensuring accurate VAT reporting and full compliance without adding complexity to your workflow.
You can read more about reverse charge on Chift’s technical documentation.
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