If you sell or purchase digital services at an international level, you will undoubtedly have come across the concept of reverse charge. It is a key value-added tax (VAT) system for managing cross-border transactions within the European Union, and one of the areas where businesses are most prone to making billing or accounting errors.

This article provides a clear and practical analysis of the reverse charge framework, when it applies in Italy, what it means for online offerings, how to issue its invoice, and the risks and penalties for noncompliance.

We pay particular attention to specific cases involving system tools, software-as-a-service (SaaS), hosting, digital consulting, and marketplaces, to understand the impact of the reverse charge on businesses operating online in Italy.

What’s in this article?

• What is the reverse charge mechanism?
  
• When is the reverse charge mechanism applied in Italy?
  
• Specific cases for digital services
  
• How is an invoice issued under the reverse charge mechanism?
  
• How the reverse charge mechanism differs from the OSS regime
  
• Risks and penalties for noncompliance
  
• How Stripe Tax can help
  

What is the reverse charge mechanism?

Reverse charge is a VAT arrangement that transfers the obligation to apply and pay the tax from the supplier to the customer. In an ordinary situation, the seller calculates the VAT, adds it to the bill, and remits it to the government. With the reverse charge mechanism, however, the supplier does not indicate VAT on the invoice; the recipient, if taxable, will calculate, declare, and pay it under Italian guidelines.

The rationale is straightforward: the rules demand the customer to account for the levy in the country where the service is actually consumed, preventing distortions and supporting smoother cross-border trade. For that reason, the reverse charge process plays a central role for digital services acquired from providers not established in Italy—such as software, SaaS, hosting, or online consulting—since those vendors do not need to register for VAT in the country.

Operationally, reverse charge requires the client to supplement the bill received (when the supplier is EU-based) or issue a self-billed e-invoice (when the supplier is non-EU-based). Self-billing means creating a fiscal document in which the customer applies the VAT due in place of the provider, bringing the transaction fully within Italy’s VAT scope.

Businesses record the calculated VAT in both the purchase and sales registers. In most situations, this double step produces a neutral economic effect, as the business enters the tax as both a credit and output VAT within the same settlement. The process documents the activity properly and ensures full compliance with VAT regulations.

When is the reverse charge mechanism applied in Italy?

To determine who falls within the reverse charge mechanism, it is necessary to distinguish between different regulatory situations. The sections below explain the main cases:

Intracommunity transactions

Reverse charge also applies when an Italian taxable entity purchases goods or services from a supplier established in another EU member state. In such situations, the provider issues an invoice without VAT, and the local customer supplements the document by applying the national rate.

Withdrawals from VAT warehouses

Article 50-bis, paragraph 6 of Italian Legislative Decree No. 331/1993 establishes the framework that applies when goods leave a VAT warehouse: no VAT arises when the goods enter the facility; instead, it becomes due only at the time of removal, and the party withdrawing the goods accounts for it via reverse charge. In simple terms, a VAT warehouse is an authorized storage facility where goods can be placed and held without the immediate application of it. This system avoids advance fiscal payments and simplifies the financial management of intracommunity transactions. Transactions carried out in Italy by nonresidents In this case, the transactions are carried out in Italy by nonresidents with respect to assessable entities established in the country (Article 17 of Italian Presidential Decree No. 633/1972). This is most common in web-based offerings. If a locally incorporated company purchases a service from an EU or non-EU operator, the supplier omits VAT: the resident customer must self-bill and record the activity as a reverse charge.

Specific transaction categories under Italian law

Beyond online offerings, scenarios such as subcontracting in the construction sector, gold bullion, cleaning, demolition, system installation, and other services—mainly covered by Article 17, paragraph 6 of Italian Presidential Decree No. 633/1972—require reverse charge between domestic operators as well. For this article, however, we will focus on digital services and cross-border activities.

Specific cases for digital services

In digital services, reverse charge is widespread because many providers operate from other EU or non-EU countries. As a result, many Italian companies handle invoices without VAT and calculate the tax due in Italy on a regular basis. There are four primary cases:

Digital software and licenses

When an Italian company purchases software, perpetual licenses, or subscriptions to online tools from a foreign vendor, the policies treat the service as supplied there if the recipient qualifies as a taxable person. The provider, therefore, does not charge VAT; instead, the customer applies it under the reverse charge mechanism. The same treatment covers locally installed applications and online solutions.

SaaS services

SaaS is among the most common scenarios. Whether we are talking about customer relationship management (CRM), project management platforms, or marketing automation software, access to a cloud service provided by a nonresident operator generates a taxable transaction in Italy. The locally incorporated company must therefore integrate the EU invoice or proceed with self-billing if the provider is outside the EU.

Hosting, servers, and cloud computing

International providers frequently supply hosting services, dedicated servers, and cloud computing. Because these offerings are supplied to a taxable person, the customer accounts for the levy in their own country. Companies that rely on global online infrastructure, therefore, regularly apply the reverse charge method.

Digital consulting and online professional services

Many businesses use foreign consultants for software development, UX/UI design, cybersecurity, digital marketing, online training, or data analysis. All of these fall within the scope of general offerings provided to taxable persons and are subject to the territoriality guideline. If the client is in Italy, it applies VAT via reverse charge.

Marketplaces and digital platforms

Another area in which reverse charge is widespread concerns services purchased from foreign marketplaces and digital platforms. These include, for example, subscriptions to sales tools, advertising, commissions charged by marketplaces, or additional capabilities provided by international platforms.

When the environment is not established in Italy, and the user qualifies as a taxable entity, the same rule applies as for other online offerings: the supplier issues the invoice without VAT, and the Italian customer supplements it or issues a self-billed document, using the tax mandated by local law. This applies both to marketplaces and platforms that manage exchanges (such as those that sell products or bookings) and to those that offer ancillary support, such as promotion, positioning, analytical tools, or intermediation services. In all these instances, the reverse charge mechanism ensures that VAT is paid correctly in the country, including when the provider operates from another region.

How is an invoice issued under the reverse charge mechanism?

When the transaction falls within the reverse charge mechanism, the supplier must omit VAT and issue an e-invoice that meets specific formal requirements. The aim is to make it clear that the tax debtor is not the provider, but the taxable recipient receiving the service. The main guidelines a supplier has to follow to issue an invoice correctly under the process are listed below:

Do not include VAT on the invoice

The supplier does not apply the levy, so there is no need to indicate the rate, amount, or the total including VAT. They issue the invoice showing the taxable figure.

Enter an explicit reference to the reverse charge mechanism

The invoice must contain a statement clarifying that the customer pays the tax. Common compliant wording includes:

• Transaction not subject to reverse charge VAT pursuant to Article 17 of Italian Presidential Decree No. 633/1972
  
• Reverse charge VAT paid by the recipient (Article 196 of Directive 2006/112/EC)
  

Legislation does not impose a certain formula, but the reference has to be unambiguous.

Indicate all required invoice items

The invoice must contain the standard information required by Article 21 of Italian Presidential Decree No. 633/1972:

• Complete supplier and customer details
  
• Invoice number and date
  
• Description of the service
  
• Taxable amount
  
• Any contractual references
  

Plus, when the customer is in the EU, the invoice must include:

• A valid EU VAT number (verified via VIES [VAT Information Exchange System])
  
• Wording stating that the transaction falls within the territorial remit of the purchaser (Article 44, Council Directive of 28/11/2006 No. 112)
  

Verify the customer’s tax status

The supplier must check that the customer is:

• A VAT taxable entity
  
• Identified by a valid VAT number (for EU customers, through the VIES system)
  

If the recipient is not a taxable person, the reverse charge mechanism is inapplicable.

Retain supporting documentation

The supplier must retain:

• VIES verification (for EU customers)
  
• Contracts or orders
  
• Proof of the activity carried out
  
• Any correspondence that shows where the customer uses the service
  

How often is VAT paid?

VAT accounted for via the reverse charge method is included in the periodic settlement (monthly or quarterly), offsetting debt and credit in a single entry.

How the reverse charge mechanism differs from the OSS regime

Many entrepreneurs confuse reverse charge with the One Stop Shop (OSS) regime. Let us see why they are two entirely different tools:

Reverse charge

• It is applicable to business-to-business (B2B) purchases from foreign suppliers
  
• VAT is self-billed by the customer
  
• It serves to determine the territoriality of services correctly
  

OSS regime

• It is a regime intended for business-to-consumer (B2C) sales of digital services
  
• It allows a company to pay VAT owed in various EU countries through an OSS
  
• It does not concern purchases or B2B services
  

If your company sells online courses, programs, hosting, or SaaS to private clients, the OSS regime will likely apply. If, on the other hand, you purchase digital offerings from foreign suppliers, the online-services reverse charge framework applies. Clear differentiation between reverse charge and OSS helps ensure the right treatment for each scenario.

Risks and penalties for noncompliance

Penalties tied to errors or omissions in the reverse charge process are now governed exclusively by Article 6, Italian Legislative Decree No. 471/1997, paragraphs 9-bis, 9-bis.1, 9-bis.2, and 9-bis.3, as amended by Italian Legislative Decree No. 158/2015. Different types of irregularities can arise; the sections below explain the main scenarios.

Noncompliance with reverse charge obligations

These cases are governed by Article 6, paragraph 9-bis, and arise when the customer fails to integrate the EU invoice or does not proceed with self-billing for non-EU suppliers.

• Penalty ranging from €500 to €10,000
  
• The penalty is payable by the transferee/purchaser, i.e., the party who needs to have paid the VAT through the reverse charge mechanism
  

If the accounts do not show the activities, the authorities increase the administrative penalty to between 5% and 10% of the taxable total, with a minimum of €1,000.

Tax paid via the standard procedure rather than through the reverse charge mechanism

Here, the reverse charge method needed to apply to the transaction, but the taxpayer accounted for the levy under the standard procedure (Article 6, paragraph 9-bis 1). The penalties are as follows:

• The transferee or purchaser is not required to remit the tax, but is subject to an administrative penalty ranging between €250 and €10,000
  
• The transferor or provider is jointly and severally liable for payment of the penalty
  

Tax paid through the reverse charge mechanism instead of via the standard procedure

The standard procedure needs to apply to the transaction, but the taxpayer accounted for the levy via the reverse charge mechanism (Article 6, paragraph 9-bis 2).

• The transferor or provider is not required to remit the tax, but is subject to an administrative penalty ranging between €250 and €10,000
  
• The transferee or purchaser is jointly and severally liable for payment of the penalty
  

Incorrect use of the reverse charge for exempt or nontaxable transactions

In this case, reverse charge was applied incorrectly to transactions that are exempt, nontaxable, tax-exempt, or nonexistent for the transferee or the purchaser (Article 6, paragraph 9-bis 3).

• Neutralization of tax effects for VAT purposes
  
• Penalty ranging from 5% to 10% of the taxable amount (with a minimum of €1,000) solely in instances of nonexistent transactions
  
• The transferee or purchaser is required to pay the penalty (depending on who applied the reverse charge mechanism for exempt, nontaxable, or otherwise tax-exempt transactions)
  

Overview of penalties for noncompliance in the application of the reverse charge mechanism

How Stripe Tax can help

Proper management of reverse charge demands close attention, as a simple formal error can trigger penalties or lead to complex adjustments. In addition, many companies selling digital offerings must apply the reverse charge mechanism to cross-border purchases while also tracking where VAT registration or sales tax collection obligations arise when operating in multiple countries. Coordinating these rules correctly, including territoriality, e-invoicing obligations also for foreign customers, tax rates, thresholds, and compliance requirements, can easily become challenging if managed manually.

For this reason, adopting solutions that automate tax calculation, lower the risk of errors, and maintain compliance as legislation evolves is important. This is precisely where Stripe Tax comes into play.

Stripe Tax reduces the complexity of tax compliance procedures so you can focus on growing your business. Tax helps you track your obligations and alerts you when you exceed a sales tax registration threshold according to your Stripe payment activity. It also automatically calculates and collects sales tax, VAT, and GST on physical and digital goods and services in the United States and in more than 100 countries.

Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard or using our powerful API.

With Stripe Tax you can:

• Understand where to register and collect taxes: Find out where you need to collect taxes based on your Stripe transactions. Once you have registered, it only takes a few seconds to activate tax collection in a new state or country. You can start collecting taxes by adding a line of code to your existing Stripe integration or with a simple click in the Stripe Dashboard.
  
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Learn more about Stripe Tax or get started today.