What Is the EU VAT Reverse Charge?
Normally, when you sell something, you charge VAT and send it to your tax authority. The reverse charge flips this: the seller issues an invoice with no VAT, and the buyer accounts for the VAT themselves in their own country.
This mechanism exists to simplify cross-border B2B trade within the EU. Without it, a German company buying software from a French company would have to deal with French VAT registration, French tax filings, and then reclaim the VAT through a foreign refund process. The reverse charge eliminates all that.
Instead, the German buyer reports the VAT on their own German tax return. They charge themselves the VAT and immediately deduct it (if they are entitled to full deduction). For most businesses, the net effect is zero, but the transaction still needs to be reported correctly.
The key point for sellers: you do not charge VAT on the invoice, but you must include specific information to make the invoice legally valid under the reverse charge rules.
When Does Reverse Charge Apply?
The reverse charge applies when all three conditions are met:
- B2B transaction - the customer is a business, not a consumer. You verify this by checking their VAT registration number.
- Cross-border within the EU - the seller and buyer are in different EU member states. If both are in the same country, normal domestic VAT rules apply.
- Valid VAT ID - the customer has provided a valid, active VAT identification number that you have verified through the EU VIES system.
Here are the most common scenarios for Stripe users:
| Scenario | VAT treatment |
|---|---|
| You (DE) sell to a business (FR) with valid VAT ID | Reverse charge - 0% VAT |
| You (DE) sell to a business (FR) without VAT ID | Charge your domestic VAT rate |
| You (DE) sell to a consumer (FR) | Charge destination country VAT (FR rate) |
| You (DE) sell to a business (DE) | Charge domestic VAT (DE rate) |
| You (DE) sell to a business outside EU (US) | No EU VAT (out of scope) |
Need to check a VAT rate? Use our VAT calculator to look up rates for any EU country.
How Stripe Handles VAT
Stripe offers two approaches to VAT, and neither fully automates the reverse charge out of the box:
Stripe Tax
Stripe Tax can automatically calculate and collect taxes on transactions. It supports reverse charge detection in some scenarios, but:
- It adds 0.5% per transaction on top of processing fees
- It requires you to register tax obligations per country in the Stripe Dashboard
- The reverse charge notation on invoices may not match the exact wording required by your tax authority
- VAT ID validation is not always automatic - you may still need to verify IDs manually
Manual tax configuration
Without Stripe Tax, you manage VAT yourself. This means:
- Setting the customer's
tax_exemptstatus toreversein the Stripe API or Dashboard - Adding the customer's VAT ID to their Stripe customer record
- Configuring your tax rates to show 0% for reverse charge customers
- Manually adding the "Reverse charge" note to invoices
Both approaches require you to understand the rules and verify that your invoices contain all the legally required information. Getting it wrong means your customer cannot use the reverse charge and may have to chase a foreign VAT refund instead.
What Must Appear on a Reverse Charge Invoice
Under EU VAT Directive Article 226, a reverse charge invoice must include everything a normal VAT invoice requires, plus specific reverse charge elements. Here is the complete checklist:
Standard invoice fields
- Unique, sequential invoice number
- Date of issue
- Seller's name, address, and VAT identification number
- Buyer's name, address, and VAT identification number
- Description of goods or services
- Quantity and unit price (net amount)
- Total amount excluding VAT
Reverse charge specific requirements
- No VAT amount charged - the invoice shows 0% VAT or no VAT line at all
- Reverse charge notation - a clear statement such as "Reverse charge", "VAT reverse charge applies", or "VAT to be accounted for by the recipient pursuant to Article 196 of Council Directive 2006/112/EC"
- Both VAT IDs displayed - your VAT number and the customer's VAT number must both appear on the invoice
The exact wording of the reverse charge notation varies by country. Most tax authorities accept "Reverse charge" in English, but some prefer the local language equivalent. When in doubt, use the Article 196 reference as it is universally recognized.
How to Add Reverse Charge to Stripe Invoices
There are two approaches depending on whether you use Stripe's built-in invoicing or generate invoices externally with a tool like Stripdo.
Option A: Stripe Dashboard / API
- Add the customer's VAT ID - go to the customer in Stripe Dashboard → Tax IDs → add their EU VAT number (format: XX123456789)
- Set tax exempt status - on the same customer page, set Tax status to "Reverse charge". Via the API, set
tax_exempt: "reverse" - Create the invoice - when you create an invoice for this customer, Stripe will apply 0% tax if you have Stripe Tax enabled. Without Stripe Tax, assign a 0% tax rate manually.
- Add the reverse charge note - in the invoice memo or footer, add "Reverse charge - VAT to be accounted for by the recipient". Stripe does not add this automatically in all configurations.
- Verify before sending - check that both VAT IDs appear, VAT is 0%, and the reverse charge notation is visible.
Option B: Automatic with Stripdo
- Connect your Stripe account to Stripdo
- Set up your seller profile - add your VAT number and business details
- Mark customers as VAT-exempt - set the reverse charge flag on customers with valid EU VAT IDs
- Invoices generate automatically - every payment from a reverse-charge customer produces an invoice with 0% VAT, the "Reverse charge" notation, and both VAT IDs displayed
Cost: $39/year flat. Unlimited invoices, no per-invoice fees.
Effort: One-time setup. Every invoice after that is automatic.
Reverse charge invoices, handled automatically
Stripdo adds the correct VAT treatment to every invoice. $39/year flat.
Common Mistakes to Avoid
1. Missing VAT IDs on the invoice
Both your VAT number and the customer's VAT number must appear on the invoice. Without both, the invoice does not qualify for the reverse charge and the buyer's tax authority may reject it.
2. No reverse charge notation
Showing 0% VAT is not enough. The invoice must explicitly state that the reverse charge applies. Without the notation, the buyer cannot prove to their tax authority why no VAT was charged.
3. Not validating the VAT ID
A customer giving you a VAT number is not enough. You must verify it through the VIES database. If the number is invalid or inactive, you cannot apply the reverse charge and must charge your domestic VAT rate instead.
4. Applying reverse charge to B2C sales
The reverse charge is strictly B2B. If the buyer is a consumer (no VAT registration), you must charge VAT at the destination country's rate. Mixing up B2B and B2C is one of the most common and costly VAT errors.
5. Applying reverse charge for domestic sales
If you and your customer are in the same EU country, normal domestic VAT rules apply. The reverse charge is only for cross-border transactions between different EU member states (with limited exceptions for specific goods like electronics or construction services).
6. Forgetting to report reverse charge sales
Even though you charge 0% VAT, reverse charge sales must be reported in your VAT return and often in an EC Sales List (also called a recapitulative statement). Omitting them can trigger penalties during an audit.
Frequently Asked Questions
What is the EU VAT reverse charge mechanism?
The reverse charge shifts the obligation to account for VAT from the supplier to the customer. Instead of the seller charging VAT on the invoice, the buyer self-assesses and reports the VAT in their own country. It applies to most B2B cross-border sales of services (and certain goods) within the EU.
When should I apply reverse charge on a Stripe invoice?
Apply reverse charge when you sell services B2B to a customer in a different EU country and the customer has provided a valid VAT ID. You must verify the VAT ID through the EU VIES system before issuing the invoice without VAT.
Does Stripe automatically handle reverse charge?
Stripe Tax can detect some reverse charge scenarios, but it has limitations. It may not always add the required 'Reverse charge' notation or validate VAT IDs. Many businesses need to manually configure tax-exempt settings or use a tool like Stripdo that handles reverse charge display on invoices automatically.
What must appear on a reverse charge invoice?
A reverse charge invoice must show: (1) your VAT ID, (2) the customer's VAT ID, (3) a 0% or no-VAT line for the taxable amount, (4) a clear notation such as 'Reverse charge - VAT to be accounted for by the recipient' or the equivalent in any EU language, and (5) all standard invoice fields like sequential number, date, and line items.
Do I need to validate my customer's VAT ID?
Yes. To apply the reverse charge, you must verify the customer's VAT number is valid and active through the EU VIES database (ec.europa.eu/taxation_customs/vies). If the VAT ID is invalid, you must charge VAT at your country's rate. Keep proof of validation for your records.
What happens if I charge VAT when reverse charge should apply?
If you incorrectly charge VAT on a cross-border B2B sale, your customer cannot reclaim the VAT in their country through the reverse charge mechanism. They would need to request a refund from your country's tax authority, which is slow and complicated. It is better to get it right on the invoice.
Does reverse charge apply to B2C sales?
No. The reverse charge only applies to B2B transactions where the customer is a VAT-registered business. For B2C sales to consumers in other EU countries, you must charge VAT at the rate of the customer's country (destination principle) and may need to register for the OSS (One-Stop Shop) scheme.
How does Stripdo handle reverse charge on invoices?
Stripdo automatically displays the correct VAT treatment on invoices based on your settings. When a customer is marked as VAT-exempt (reverse charge), invoices show 0% VAT with the proper 'Reverse charge' notation, both VAT IDs, and all required fields. No manual formatting needed.
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