Reverse charge

The reverse charge shifts responsibility for VAT from the supplier to the customer. The supplier invoices without VAT, and the customer calculates the VAT and reports it on its own return as output tax. If the purchase is used for taxable business activities, the customer claims the same amount back as input tax, so the two usually cancel out.

Why it exists

Without the reverse charge, a supplier selling services to businesses in many countries would need to register for VAT in each one. The reverse charge lets the tax be accounted for in the customer's country, by a business already registered there. It also blocks certain frauds in which a supplier collects VAT and disappears without paying it.

Where it applies

• Cross-border B2B services: in the EU and UK, most services supplied to a business customer abroad fall under the reverse charge.
• Domestic reverse charges: some countries apply it within their borders to fraud-prone sectors, such as construction services in the UK or certain goods like mobile phones.

The Canadian equivalent

Canada uses self-assessment for some imports: a business that imports services or intangibles from a non-resident supplier who did not charge GST/HST may have to self-assess the tax. Registrants using the import fully in commercial activities can usually claim it back as an input tax credit at the same time.