Reverse charge on EU B2B invoices: what wholesale merchants get wrong

A wholesale order comes in from a shop in Belgium. You are in Germany. Do you charge 19% VAT, 21%, or none at all?

The answer is none — but only if four conditions hold, and only if the invoice says the right thing. Get it wrong and the tax office does not chase your Belgian customer for the money. It chases you.

This is the single most common area where wholesale merchants issue technically defective invoices, usually without ever finding out. Here is how it actually works.

Three situations, three different invoices

Every B2B sale you make falls into one of three buckets, and each produces a different invoice:

• Domestic. Your customer is in your own country. Charge your normal VAT rate. Nothing unusual.
• Another EU member state. Your customer is a VAT-registered business elsewhere in the EU. No VAT is charged. The buyer accounts for it themselves at their own rate.
• Outside the EU. An export. No VAT, but the rules and the paperwork are different again — customs documentation rather than a VAT identification number.

The middle case is the one this article is about, and it is the one most often handled loosely.

Goods and services are not the same mechanism

People use "reverse charge" as shorthand for both. Technically it is two different rules, and the invoice wording differs.

Services

This is reverse charge proper. Under the general place-of-supply rule for B2B services, the supply is taxed where the customer is established, and under Article 196 of the VAT Directive the customer accounts for the VAT. Article 226(11a) requires the invoice to carry the words "Reverse charge".

Goods

Physically shipping goods to another member state is not reverse charge at all. It is an exempt intra-Community supply under Article 138, matched by an intra-Community acquisition that your customer declares at home. The economic outcome is the same — you charge no VAT, they account for it — but the legal basis and the wording on the invoice are different.

For most Shopify wholesale merchants shipping physical product, this is the relevant case. A serviceable invoice note:

• Goods: "VAT-exempt intra-Community supply — Article 138 Directive 2006/112/EC"
• Services: "Reverse charge — VAT to be accounted for by the recipient under Article 196 Directive 2006/112/EC"

Nobody will reject an invoice for choosing slightly different phrasing, as long as the exemption and its reason are stated. An invoice with no note at all, showing zero VAT and no explanation, is defective.

The four conditions for zero-rating goods

All four have to hold. Miss one and you owe the VAT yourself.

1. Your customer is a taxable person in another member state and has given you a valid VAT identification number issued by that state.
2. You validated that number in the European Commission's VIES system, and kept evidence of the check.
3. The goods physically left your country and you can prove it — shipping documents, a carrier confirmation, in Germany a Gelangensbestätigung.
4. You reported the sale in your EC Sales List, correctly and on time.

Points 2 and 4 used to be treated as formalities. Since the EU "quick fixes" took effect on 1 January 2020 they are substantive conditions: a valid, verified VAT number and a correct EC Sales List entry are preconditions for the exemption, not paperwork you can tidy up later.

What has to appear on the invoice

On top of the usual mandatory content, a cross-border EU B2B invoice needs:

• Your own VAT identification number
• Your customer's VAT identification number
• Zero VAT shown explicitly, not simply omitted
• The exemption note — the intra-Community supply or reverse charge wording above

One detail worth saying plainly: the note has to be in a language your customer's tax authority will accept, and it has to match the rest of the document. An English invoice carrying a German reverse-charge sentence is not wrong in substance, but it looks careless, and carelessness is what auditors follow.

Five mistakes that show up again and again

• Treating a consumer as a business. No valid VAT number means no exemption. A private buyer in France pays your domestic VAT, or falls under the One-Stop Shop distance selling rules — which are a B2C mechanism and have nothing to do with reverse charge. Mixing the two is common.
• Zero-rating a domestic sale. If your customer is in your own country, their VAT number is irrelevant. Charge domestic VAT. This catches merchants whose systems key off "has a VAT number" rather than "is in a different country".
• Shipping to a different country than the invoice address. The exemption follows where the goods physically go. An Italian company buying goods you deliver within your own country is a domestic supply, whatever the invoice header says.
• No proof of transport. The most common audit finding. The invoice is perfect, the VAT number is valid, and nobody kept the delivery evidence.
• Forgetting the EC Sales List. Since 2020 this is not a late filing to be tidied up. It is a condition of the exemption.

What Shopify does and does not handle

Shopify's tax engine can be configured to zero-rate B2B orders where the company has a valid, exempt tax registration, and Shopify B2B does hold tax registration details on the company record. That covers the calculation.

What it does not do is produce the document. Shopify will not put your VAT number and your customer's on a piece of paper next to an Article 138 note, because Shopify does not issue invoices at all. Nor does it validate VAT numbers against VIES for you, or file your EC Sales List. Those remain yours — the first belongs on whatever issues your invoices, the second in your own process, the third with your accountant.

A short checklist

1. Collect the customer's VAT number when you set up the company
2. Validate it in VIES and save the confirmation
3. Re-validate periodically, at least once a year
4. Zero-rate only when the customer is in a different member state and the goods actually go there
5. Print both VAT numbers and the exemption note on the invoice
6. Keep the transport evidence with the order
7. File the EC Sales List on time

Seven steps, and four of them happen once per customer rather than once per order. It is far less work than the first cross-border VAT assessment you would otherwise receive.