Invoicing EU Business Clients: When Does Reverse Charge Apply?

A Lithuanian company completes a project for a client in another EU country. The fee is agreed, the work is delivered, and the invoice is ready. Should Lithuanian VAT be added?

For many business services, the answer is no. The customer accounts for VAT in its own country under the reverse charge mechanism. But an overseas address alone does not justify removing VAT. The treatment depends on what is supplied, who receives it and where the transaction is taxable.

How reverse charge works

Normally, the supplier charges VAT and accounts for it to the tax authority. Reverse charge transfers that responsibility to the customer.

Under the EU’s cross-border VAT rules, services supplied to a business in another member state are generally taxed where the customer is established. A Lithuanian supplier therefore usually invoices without Lithuanian VAT, while the customer calculates the VAT due locally.

Consider a Lithuanian consultancy charging an Irish VAT-registered business €2,000. Assuming the ordinary business-to-business rules apply, the consultancy invoices €2,000 without Lithuanian VAT. The Irish customer accounts for Irish VAT and may deduct it, subject to its entitlement.

The invoice carries no VAT charge, but the transaction still has VAT consequences.

When the general rule applies

Consultancy, advertising, software development and many other professional services ordinarily follow this approach when supplied to a business acting in that capacity.

The usual arrangement involves a Lithuanian supplier and a customer established in another EU country, with no supplier establishment there participating in the supply. Where a customer has establishments in several countries, the establishment actually receiving the service matters.

Some services follow different place-of-taxation rules. Property-related work, admission to physical events, restaurant services and short-term vehicle hire require separate consideration. A foreign VAT number does not automatically put these transactions under the general rule.

Check the customer before issuing the invoice

Obtain the customer’s legal name, address and VAT number, then validate the number through the EU’s VIES system. Keep a dated record of the result with the contract and invoice.

An invalid result needs investigation. The number may be incorrect, registration may be pending, or it may not yet be activated for intra-EU transactions.

For services, a missing VAT number does not invariably mean the customer is a consumer. Other evidence can sometimes establish business status. However, a company registration number alone should not be treated as sufficient proof that reverse charge applies.

What the invoice should say

A reverse-charge invoice should contain the normal identifying details: an invoice date and unique sequential number, both parties’ names and addresses, their relevant VAT numbers, a clear service description, the supply date where different, and the amount payable.

The European Commission’s VAT invoicing requirements also require the words “Reverse charge” when the customer is liable for the tax.

For an ordinary cross-border B2B service, do not simply label the transaction “0% VAT”. Its treatment arises because the service is taxable outside Lithuania and the customer accounts for VAT. That distinction matters when the invoice enters the accounting records.

Small companies may still need VAT registration

Lithuania’s €45,000 domestic turnover threshold is not a blanket exemption from VAT administration. Supplying services taxable in another EU member state under the general B2B rule can trigger mandatory VAT registration even below that threshold.

Eligible businesses may register while applying Lithuania’s small-business scheme, or SVS, preserving the exemption for qualifying domestic sales. VMI’s SVS guidance explains this distinction.

Registration status also affects VAT returns and i.SAF reporting. Qualifying EU service supplies generally require an FR0564 statement; issuing an invoice without VAT does not remove the reporting obligation.

Goods follow a separate route

Goods dispatched from Lithuania to a VAT-registered customer in another EU country can qualify for a zero-rated intra-Community supply, subject to the relevant conditions, including evidence of transport. The buyer accounts for acquisition VAT.

This produces a similar commercial outcome, but the legal basis differs from reverse charge on services. Using the same invoice wording indiscriminately can obscure that difference.

Before sending the invoice, establish the customer’s status, classify the supply and confirm where it is taxable. Those decisions determine the VAT treatment; the wording on the invoice records the result.