EU VAT Directive 2006/112/EC explained: Art. 194 – Domestic Reverse Charge for Non-Established entities

Last update: July 3, 2026

Scope note: This article does not cover the application of reverse-charge on specific goods (mobile phones, waste material, construction services, gold, CO₂ certificates, etc.). It focuses exclusively on the “generalised” domestic reverse charge for non-established suppliers under Article 194 of the EU VAT Directive.

1. Why Article 194 matters

The relevant provision in the EU VAT Directive is the consolidated text of the EU VAT Directive 2006/112/EC. Today it is still a “may” provision — Member States have the option to implement it; it is not mandatory. As a result, its application across the EU is a patchwork, which is precisely what the VAT in the Digital Age (ViDA) package will fix from 1 July 2028 (see section 5 below).

2. Summary of the mechanism

Under the EU VAT Directive 2006/112/EC, the supplier is normally the person liable to pay VAT to the authorities. In a number of exceptions, the customer becomes liable and applies the reverse-charge (reporting output and input VAT simultaneously on the same VAT return, typically resulting in a nil cash impact). The EU VAT Directive 2006/112/EC is one of those exceptions: it allows Member States to designate the customer as the person liable for VAT when the taxable supply of goods or services is made by a non-established supplier. The provision is intended to combat fraud and to avoid unnecessary VAT registrations by foreign suppliers.

The rule applies where all of the following conditions are met:

The transaction is a domestic supply of goods or services.
The country of supply has implemented Art. 194 in its national legislation.
The supplier is a non-established entity (whether VAT-registered locally or not, depending on the Member State).
The customer is an established taxable person, or a non-established taxable person that has appointed a fiscal representative, or (depending on the Member State) a taxable person directly registered for VAT locally.
The non-established supplier issues an invoice without VAT, referring to the exemption/liability-shift wording, e.g. “Reverse Charge – Art. 194 of Directive 2006/112/EC” or “Invoice subject to Reverse Charge”.
The customer self-accounts for the VAT in its periodical VAT return.

3. Practical example (France)

If you hold a French VAT number without a permanent establishment in France and you buy goods locally to resell them to a French VAT-registered customer:

You pay French VAT on your purchase (recoverable via your French VAT return).
On your sale, the reverse charge applies. Your invoice bears no VAT and states “Autoliquidation – Article 283-1 du CGI”.
You report the sale in box E2 (“Autres opérations non imposables”) of the CA3 return.
Your French customer self-assesses VAT at 20% (standard rate) as output VAT and simultaneously deducts it as input VAT. Cash impact = nil.

4. Legal text – Article 194

Article 194 (current wording)

Where the taxable supply of goods or services is carried out by a taxable person who is not established in the Member State in which the VAT is due, Member States may provide that the person liable for payment of VAT is the person to whom the goods or services are supplied. Member States shall lay down the conditions for implementation of paragraph 1.

Full consolidated text: EU VAT Directive 2006/112/EC.

5. Impact of ViDA – Article 194 becomes “shall allow” from 1 July 2028

The ViDA package was formally adopted by the ECOFIN Council on 11 March 2025 and published in the Official Journal on 25 March 2025 as Directive (EU) 2025/516, together with Regulation (EU) 2025/517 and Implementing Regulation (EU) 2025/518. See also the European Commission’s overview: VAT in the Digital Age (ViDA).

Under Pillar 3 (Single VAT Registration), Article 194 is amended with effect from 1 July 2028:

The “may” provision becomes a “shall allow” provision. Member States will be obliged to allow the reverse charge whenever the supplier is not established (nor identified) in the Member State of taxation and the customer is identified for VAT there.
The second paragraph (“Member States shall lay down the conditions for implementation”) is deleted, ending the current patchwork of national conditions.
The non-resident supplier can choose whether to use the reverse charge or maintain a local VAT registration (e.g. to expedite input VAT recovery).
All 27 Member States must transpose ViDA by 31 December 2027.

New wording of Article 194 (from 1 July 2028):

“Without prejudice to Articles 195 and 196, where the taxable supply of goods or services is carried out by a taxable person who is not established in the Member State in which the VAT is due, Member States shall allow that the taxable person liable for payment of VAT is the person to whom the goods or services are supplied if that person is already identified in that Member State.”

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EU VAT Directive 2006/112/EC explained: Art. 194 – Domestic Reverse Charge for Non-Established entities

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