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Law, tax and regulation

Reverse charge

Also called reverse charge VAT, reverse-charge mechanism, omvendt betalingspligt.

Short answer

Reverse charge means that the buyer – not the seller – calculates and reports the VAT on a transaction. For affiliates it applies when commission is invoiced to a business in another EU country: the invoice carries no VAT from the seller's country, and the buyer accounts for the VAT in its own country.

Definition of Reverse charge.

Normally the seller charges VAT and pays it to the tax authority. Under reverse charge the responsibility is turned around: the seller invoices without VAT, and the buyer calculates and reports the VAT itself in its own country. For services sold between businesses across EU borders this is the main rule – the place of supply is where the buyer is established (in Danish law, section 16(1) of the VAT Act).

For a Danish affiliate the situation arises when commission is invoiced to a network or an advertiser in another EU country. The invoice is issued without Danish VAT and must include both parties' VAT numbers and the text 'reverse charge' (in Danish, 'omvendt betalingspligt'). In Denmark the sale is reported in box B – services of the VAT return and in the EU sales without VAT system, and the buyer's VAT number is validated in VIES, the EU's VAT number register.

The rule also works the other way. If a Danish business buys ads or software from a foreign supplier, the business itself calculates 25 % Danish VAT on the purchase and declares it as output VAT – and deducts the same amount as input VAT if the purchase is used in VAT-liable activity. The net effect is zero, but the entry is required by law. In Denmark, reverse charge also applies to domestic trade in certain goods, for example mobile phones and scrap metal.

The trap for businesses below the VAT threshold

In Denmark, a business with less than DKK 50,000 in annual turnover can choose not to register for VAT on its sales – but if it buys services abroad under reverse charge, such as ads or software subscriptions, it must as a rule still register and account for Danish VAT on those purchases. The VAT cannot be deducted when the business is not VAT-registered for its sales, so it becomes a real extra cost of 25 %.

Reverse charge vs. VAT-exempt sale

AspectReverse chargeVAT-exempt sale
The VATmoves to the buyer, who accounts for it in its own countryis not charged at any stage
Invoice wording'reverse charge' plus both VAT numbersa reference to the exemption, in Denmark e.g. section 13 of the VAT Act
Seller's right to deductkept in fullas a rule lost for the exempt activity
In affiliate marketingcommission invoiced to a business in another EU countryrare – commission is a VAT-liable service

Commission to foreign businesses is reverse charge – not VAT exemption. The difference decides both the invoice wording and the right to deduct.

How it goes wrong

  • 01

    The VAT number was never validated

    An invoice without VAT requires the buyer to be a VAT-registered business. Look up the number in VIES and keep the documentation. If the number cannot be validated, the invoice should as a rule carry Danish VAT.

  • 02

    No VAT does not mean no reporting

    In Denmark, reverse-charge sales must be included in box B of the VAT return and in EU sales without VAT – every period. Missing reports trigger reminders and fees, even though no VAT is owed on the sale.

  • 03

    Foreign purchases are not booked

    Ads and tools bought from foreign suppliers must have VAT accounted for in Denmark, even though the net effect is zero for a VAT-registered business. The omission is usually only discovered at an audit.

Frequently asked questions

Should I add VAT to the invoice to a foreign affiliate network?

No, not when the buyer is a business in another EU country with a valid VAT number. The invoice is issued without Danish VAT with the text 'reverse charge', and the buyer accounts for the VAT in its own country. If you sell to a business outside the EU, the invoice is also without Danish VAT.

What must a reverse-charge invoice say?

The invoice must include your own and the buyer's VAT number, the amount without a VAT line and the text 'reverse charge' (in Danish, 'omvendt betalingspligt'). The amount is stated in the agreed currency, and the VAT on the invoice is zero.

How do I handle reverse-charge purchases in my accounts?

In Denmark you calculate 25 % Danish VAT on the purchase yourself and declare the amount as output VAT in the field for purchases of services from abroad. If the purchase is for VAT-liable activity, you deduct the same amount as input VAT, so the net effect is zero. Both entries must be included in the VAT return.

Does reverse charge apply when I sell to private individuals?

No. Reverse charge only applies between businesses. If you sell services to private consumers in other EU countries, other place-of-supply rules apply, and VAT must as a rule be charged.

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