VAT Reverse Charge Shopify - For Intra-Community Supplies

What is VAT Reverse Charge?

You invoice €5,000 to a Belgian company. On the invoice it states: “VAT reverse charge” and no VAT amount.

Your colleague asks: “Why didn’t we charge VAT? We’re selling from our country after all?”

The answer: VAT reverse charge.

For intra-community supplies - sales to companies in other EU countries - you may not charge domestic VAT. Instead, VAT is “reversed” to the recipient. The Belgian company handles Belgian VAT themselves.

This is not a choice. It’s mandatory according to EU VAT Directive Article 138.

How Reverse Charge Works

The Principle

Normal sale (within your country):

• You sell product for €100
• You charge 21% VAT = €21
• Customer pays €121
• You pay €21 to tax authorities
• Customer deducts €21 in their VAT return

Intra-community supply (to Belgium):

• You sell product for €100
• You charge 0% VAT
• Customer pays €100
• Customer pays Belgian VAT themselves (21%)
• Customer deducts Belgian VAT in their return

The net effect for the customer is the same (€0 VAT paid). But the VAT goes via Belgium instead of your country.

Why This System Exists

It used to be different. For cross-border sales:

1. You charged domestic VAT
2. Belgian company reclaimed domestic VAT
3. Simultaneously they paid Belgian VAT

This was bureaucratic. Many applications, long waiting times, cash flow problems.

Since 1993 the EU has the reverse charge system. More efficient: VAT is directly handled in the correct country.

When You Must Apply Reverse Charge

Requirements for VAT Reversal

You must apply reverse charge if all conditions apply:

1. Intra-community supply

• From your country to another EU country
• Not: within your country
• Not: to outside EU (that’s export, different rules)

2. B2B transaction

• Recipient is a business
• Not: individual (then yes VAT)

3. Goods (not services)

• Physical products you ship
• Services have different VAT rules

4. Valid VAT number

• Recipient has valid EU VAT number
• You have validated this via VIES database
• You have proof of validation

5. Goods leave your country

• Transport from your country to other EU country
• You can demonstrate this (track & trace, CMR bill of lading)

Practical Examples

Example 1: Apply reverse charge

• Webshop → German company
• Product: Laptops (€10,000)
• Valid VAT number: DE123456789
• Shipping via DHL to Germany
• Invoice: €10,000, VAT reverse charge

Example 2: Don’t apply reverse charge

• Webshop → German individual
• Product: Laptop (€1,000)
• No VAT number (is individual)
• Shipping to Germany
• Invoice: €1,210 incl. 21% VAT

Example 3: Don’t apply reverse charge

• Webshop → German company
• Product: Laptop (€1,000)
• VAT number provided: DE999999999
• Check VIES: Invalid
• Invoice: €1,210 incl. 21% VAT

If one condition doesn’t apply → no reversal, yes VAT.

How to Put This on the Invoice

Mandatory Mentions

On your invoice must be:

Standard invoice data:

• Your company name and VAT number
• Customer company name and VAT number
• Invoice date and invoice number
• Description of goods
• Amount excl. VAT

Plus this text:

“VAT reverse charge - Article 138 EU VAT Directive”

Or shorter:

“Intra-community supply - VAT reverse charge”

Note: No VAT amount. No VAT percentage. Only the text that VAT is reversed.

VAT Reverse Charge in Shopify

Shopify charges VAT by default. Also for EU business customers. You need to arrange this yourself.

Problem: Shopify Doesn’t Know Reverse Charge

What Shopify does:

1. Customer fills in address: Germany
2. Shopify sees: EU country
3. Shopify calculates: 21% domestic VAT
4. Total: €1,210 (product €1,000 + VAT €210)

What should happen:

1. Customer fills in address: Germany
2. Customer enters VAT number: DE123456789
3. System checks: Valid?
4. System applies: 0% VAT (reverse charge)
5. Total: €1,000

Solution 1: Manual afterwards

Process:

1. Customer orders, pays with VAT
2. Customer emails: “I’m business, VAT number is…”
3. You check VIES: valid
4. You create credit note for VAT amount
5. You refund
6. You create separate invoice with “VAT reverse charge”

Disadvantage: Cumbersome, cash flow problem for customer, unprofessional.

Solution 2: EU Tax Exemption App

The Tax Exemption App handles reverse charge automatically at checkout.

How it works:

At checkout:

1. Customer sees VAT validation field
2. Enters VAT number
3. App validates via VIES
4. If valid: VAT becomes 0%, total adjusted
5. Customer pays correct amount (excl. VAT)

On the invoice (via Shopify or your invoice app):

• Amount: €5,000
• VAT: €0 (or hide line)
• Manually add: “VAT reverse charge”

Advantage: Customer pays correct amount directly, no refund needed.

Administrative Obligations

VAT reversal is not only on the invoice. You also have obligations towards tax authorities.

Intra-Community Statement (ICS)

If you regularly sell to EU companies, you must file an ICS statement.

What is ICS?

• Statement of all intra-community supplies
• Per country: total amount per quarter
• Including VAT numbers of recipients

When mandatory?

• As soon as you supply €100,000+ per quarter to EU companies
• Or: as soon as you want (can also be voluntary at lower amounts)

How to file? Via tax authority portal, per quarter.

EU Tax Exemption App exports all data you need for ICS.

VIES Validation Proof

You must be able to demonstrate that you have validated VAT numbers.

During audit tax authority asks:

• Which VAT numbers have you accepted?
• When did you validate them?
• What was the result of VIES check?

Retention period: 7 years

With EU Tax Exemption App:

• Dashboard with all validations
• Per order: number, date, status, customer
• CSV export for inspector
• Automatically saved 7+ years

Risks and Mistakes

Mistake 1: Reverse charge without validation

You trust that the customer has a valid VAT number. You apply reverse charge without checking VIES.

Risk:

• During audit you must provide proof
• No proof = you should have charged VAT
• Back taxes + fine up to 100% of VAT amount

Example:

• Order: €10,000
• VAT (21%): €2,100
• Fine: €2,100
• Total loss: €4,200

Mistake 2: Reverse charge for individuals

You see a German address. You think: “EU country, no VAT.”

Risk:

• Individuals may NOT get reverse charge
• You must charge VAT
• This is tax evasion
• Very high fines

Mistake 3: Wrong text on invoice

You put on invoice: “Exempt from VAT” or “0% VAT”.

Problem: This is not the same as “VAT reverse charge”. With reverse charge it’s not exempt - it’s only handled in another country.

Correct: “VAT reverse charge” or “Intra-community supply - article 138”

Mistake 4: No ICS statement filed

You supply a lot to EU companies but don’t file ICS statement.

Risk:

• Fine: varies by country
• Plus back taxes if VAT reversal is rejected

Frequently Asked Questions

Is VAT reverse charge mandatory or a choice? Mandatory. If all conditions apply, you must apply reverse charge. You may not choose to still charge domestic VAT.

What if the customer doesn’t have a VAT number? Then you’re required to charge domestic VAT. Without valid VAT number no reverse charge.

Must I check every VAT number? Yes. For every intra-community supply you must validate via VIES. This is legally required.

What about dropshipping? If you dropship (you sell, supplier ships), then:

• Your customer (retailer) provides VAT number
• You invoice with VAT reversal
• Your customer invoices with VAT to end customer

Does this also work for services? Services have different VAT rules. For services often also reverse charge applies, but with different conditions. This article is about goods.

Must I mention VAT reversal on packing slip? No, only on the invoice. On the packing slip is the normal amount. Usually on packing slip no amount but only quantities.

Summary

VAT reverse charge is mandatory for intra-community supplies to EU companies with valid VAT number.

Core:

• You don’t charge domestic VAT
• Recipient handles VAT in own country
• On invoice: “VAT reverse charge”
• VIES validation + documentation mandatory

In Shopify:

• Not possible by default
• EU Tax Exemption App solves this
• Automatic validation + VAT exemption
• Documentation for tax authorities

Risks:

• Without VIES validation: back taxes + fine
• Wrong application: up to 100% fine
• No ICS statement: fine

Solution: Automate with Tax Exemption App. Then reverse charge is correctly arranged, documented and compliant.

More guides:

• Complete VAT exemption setup
• When not to charge VAT
• Automatic VAT validation

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Last update: November 2025.