Reverse Charge

Reverse charge, exempt and zero-rated are three different things

All three produce a sale with no tax on it, which is why they get confused. They mean different things.

A reverse charge sale is taxable. The tax is simply due from the buyer instead of the seller. An exempt sale is outside the tax, either because the product is exempt or because the customer is, such as some charities and government bodies. A zero-rated sale is taxable at a rate of zero. Stripe notes the practical difference for sellers between the last two: exempt products typically do not let the seller reclaim input VAT on related costs, while zero-rated products usually do.

Stripe records which one applied. In its tax calculations and exports, the taxability_reason field reads reverse_charge, customer_exempt, product_exempt or zero_rated, among other values. When someone asks why an invoice has no tax, that field is the answer to look up first.

When Stripe Tax applies it

For the EU, Stripe says that if your customer is eligible and "provides their European VAT number in Stripe, we treat their transactions as a reverse charge and don't calculate tax for them." If the customer gives a domestic tax number instead, the reverse charge does not apply and the sale is treated as business-to-consumer.

Stripe also states two limits. It does not support domestic reverse charge, which some EU countries apply to certain sales between businesses in the same country: "Stripe supports reverse charge only for cross-border sales." And it does not check each country's extra conditions. "Stripe assumes that all services sold to customers with a business tax ID are eligible for reverse charge."

The tax ID check is about format, not registration. Stripe says Stripe Tax "applies the reverse charge or zero rate according to applicable laws when the tax ID has the required number format, regardless of the government verification result." A number that looks right but was never issued still produces a reverse charge sale, so verifying the customer's registration remains your job.

You can also force it. Stripe lets you set a customer's tax status to reverse charge in the Dashboard or the API, "even if you haven't collected a tax ID," and when set, "reverse charge applies regardless of jurisdiction or other conditions."

Goods are usually zero-rated, not reverse charged

Within the EU, Stripe handles goods sold to a VAT-registered business in another member state differently from services. It "applies the zero rate if the customer provides their VAT ID number." The result looks similar on the invoice, with no VAT charged, but the taxability reason is zero_rated, not reverse_charge.

That distinction matters when you prepare returns or answer an auditor, because the two are reported differently. If your exports show a mix of both for the same customer, check whether the lines are goods or services before assuming something is wrong.

Outside the EU: the UK and Canada

The same idea applies in other places Stripe Tax covers. For the UK, Stripe says a remote seller of digital services does not charge VAT "on sales to business customers who provide their VAT identification number," and that a seller with only UK business customers does not need to register, because those sales are subject to reverse charge and are not taxable transactions for UK VAT purposes. For UK businesses selling to UK businesses, Stripe "typically calculates VAT, even if your customer provides their GB VAT identification number," because reverse charges do not apply to most domestic B2B sales.

For Canada, a seller on the simplified GST/HST regime does not charge GST/HST to business customers who provide their GST/HST registration number, "because these services are subject to reverse charge." Provincial sales tax works differently: Stripe notes that remote sellers registered for PST or RST in British Columbia, Manitoba or Saskatchewan collect it from business and individual customers alike.

What it does to the price and the invoice

With tax-exclusive prices, a reverse charge simply removes the tax line. A 100 EUR subscription costs the business customer 100 EUR instead of 100 EUR plus VAT.

With tax-inclusive prices, the result depends on how tax is calculated. Under Stripe Tax, Stripe says the reverse charge "doesn't affect the total amount paid by the customer. A tax-inclusive price remains unchanged." The customer still pays 100, and all of it is your revenue, where a taxed sale at the same price would have split into revenue and VAT. Under Stripe's manual tax rates, the opposite happens: Stripe backs the tax out, so with a 10 percent inclusive rate the customer pays 90.91 instead of 100. The same price list can produce different revenue depending on which tax setup produced the invoice.

On the document itself, Stripe prints the words "Reverse charge" on invoice and receipt PDFs when the customer's tax exempt status is set to reverse. The reverse charge sale still exists in Stripe's tax exports, so it is available when a return asks for the value of reverse charge supplies.