Reverse charge

What it means

Reverse charge means that VAT is accounted for by the customer rather than the supplier. The supplier issues the invoice without tax and with a reverse charge note; the customer declares and deducts the tax in its own return.

It applies in two groups of cases. Domestically to specified supplies, typically in construction and for certain goods; cross-border to services and supplies where the place of supply is in the customer’s country.

Reverse charge is not an exempt supply, even though the invoice shows no tax in both cases. Under reverse charge the supply is taxable and the customer simply declares the tax instead of the supplier. Under exemption no tax is due at all, and the supplier also loses the right to deduct input tax on its related purchases.

How it works in practice

Both parties must be taxable persons identified for the tax, so the customer’s VAT ID is always verified. The invoice must carry the words indicating reverse charge, or it is incomplete.

The transaction is reported in the return and the control statement on both sides. For the business the result is neutral, but administratively this is not "an invoice without VAT" - it is a supply taxed at the customer.

A typical case: a construction s. r. o. orders masonry work on a site from a subcontractor. If both are VAT payers and the work counts as construction work under the classification, the subcontractor invoices without tax and the main contractor declares it. On new contracts we check with the client in advance whether the supply falls under the regime, because the line between construction work and other services is not always obvious.

What to watch out for

Charging tax where reverse charge applies is an error with a double effect: the customer may not deduct it while the supplier has already paid it over. The fix is a correcting document and amended filings, not a quiet agreement.

Reverse charge is not neutral for everyone. A customer without full deduction rights, for example under proportional deduction or when using the supply for exempt activity, declares the whole tax but deducts only part of it. The difference is a real cost and belongs in the job budget from the start, not at filing time.