What is the reverse charge mechanism?


In order to facilitate trade between the European Union (EU) countries, the EU created the Reverse Charge mechanism.  The Reverse Charge moves the responsibility for the recording of a VAT transaction from the VAT registered seller to the VAT registered buyer for the good or service sold between 2 EU based businesses.  
This removes the burden of VAT for the business customer and eliminates the need for the seller to VAT register in the business customer’s country.  When a transaction is subject to Reverse Charge, the seller will issue an invoice containing the customer’s valid VAT number (this can be checked on the EC VIES Website and the obligatory wording:
1. For services:  “VAT Exempt intra-community supply of services – Article 44 and 196 Directive 2006/112/EC”
2. For goods:  “VAT exempt intra-Community transfer – article 138, 2, c) Directive 2006/112/EC”
An EC Sales List will also need to be completed which details which EU B2B customers the Reverse Charge was applied to. 
The recipient of the goods or services reports both their purchase (input VAT) and the supplier’s sale (output VAT) in their local VAT return.
Understanding the Reverse Charge Mechanism is key to simplifying cross-border EU trade and avoiding VAT pitfalls.
Need help navigating intra-EU VAT rules or filing EC Sales Lists? Our VAT experts are here to support your business.
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Ensuring Compliance and Maximizing Refunds

Struggling to understand how the Reverse Charge Mechanism applies to your EU transactions? Whether you’re expanding across borders, dealing with VAT audits, or simply want to ensure full compliance – our VAT Consultancy & Audit team is here to help.
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Take the hassle out of getting a VAT refund on purchases you’ve made in the EU. We’ll handle the paperwork for any 13th directive VAT reclaims you want to make. 

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Import One Stop Shop isn’t the only EU VAT scheme we handle. If your goods are in the EU when they’re sold or you’re providing services, we get you registered for Union or Non-Union One Stop Shop.  

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Hook your store into our compliance platform and our API will automatically pull your sales data. Then all you have to do is approve the monthly return we’ll prepare for you. 

Still have some questions?

Don’t worry. We have wide collections of eBooks, blogs, webinars to help you understand VAT and take your business to next level. Explore our Content Hub to know more.

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