How can you Best Work with EU-based Clients
Working with clients across the world can be difficult, depending on where exactly they’re located, whether there’s a tax treaty in place, and what sort of foreign exchange and transfer options you have as a business.
Things are much easier if your international clients are still based within the EU, as you can take advantage of the reverse charge system.
The reverse charge procedure helps to simplify purchases and sales with VAT within the EU, by regulating the transfer of sales tax between sellers and customers who are based in different EU countries.
When is the reverse charge procedure applied?
The purpose of the reverse charge rule is to simplify free trade within the EU, and it’s been in place for almost 20 years.
For example, as a freelancer in Germany, you are permitted to service a client in another EU country. If that EU country is also subject to VAT, the reverse charge rule applies. It stipulates that it’s the buyer – your client – who is obliged to pay VAT on the goods or services received, and not you. Therefore, you don’t need to charge VAT on your invoices to those clients.
The reverse charge rule, however, does not apply when your customer is a private person. A private person pays VAT on the sale of goods or services that you provide. It also doesn’t apply if you’re a small business owner, since the sale of your goods or services is not subject to VAT at all.
Consider these examples of how reverse charge works in practice:
Let’s say that you, a self-employed individual in Ireland, teach a training course for a French company. You do not charge sales tax on the invoice that you issue to your French client. You state the reverse charge procedure as the reason that VAT is not shown. Your French client will then report, pay, and deduct VAT on your services in their country as part of their VAT reporting procedure.
You buy a monitor for your computer from a company in Poland, which is delivered to you in Ireland. You pay the sales tax for it, but you can claim it back as an expense in your VAT return – if it is considered a business expense.
What must be included in an invoice for reverse charge to be applicable?
In order to send a legally compliant invoice as a freelancer, your invoices must include specific information about you, your client, and the service or product you delivered.
In order to effectively apply the reverse charge rule, your invoice must include your VAT ID number, as well as a clear statement referring to the reverse charge procedure somewhere on the invoice. This ensures that your customer can declare and reclaim the VAT when they complete their own reports. The clearest way to do this is to simply state “Reverse charge”.