What Is VAT? A Plain-English Guide for Freelancers

VAT (Value Added Tax) is a consumption tax added to the price of goods and services at each stage of production or distribution. The end consumer pays the full amount. Businesses along the way just collect it and pass it on to the government.

That’s it. Everything else is details.

How VAT Works

Think of a simple chain. A sawmill sells timber to a furniture maker for €100 + €20 VAT (at 20%). The furniture maker builds a desk and sells it to a retailer for €300 + €60 VAT. The retailer sells the desk to a customer for €500 + €100 VAT.

At each step, the business only owes the government the difference between the VAT it charged and the VAT it paid. The furniture maker charged €60 but already paid €20, so they send €40 to the tax office. The retailer charged €100, paid €60, sends €40.

The customer at the end pays the full €100 in VAT. Nobody in the chain is out of pocket — they just forwarded money through. That’s the “value added” part: each business only pays tax on the value they added.

VAT Rates Across Europe

Every EU country sets its own standard VAT rate within EU rules. The minimum is 15%, but most countries sit between 19% and 25%. Here are some you’ll run into as a freelancer:

• Germany — 19%
• France — 20%
• Ireland — 23%
• Poland — 23%
• Hungary — 27% (the highest in the EU)
• Luxembourg — 16% (the lowest in the EU)

Most countries also have one or two reduced rates for essentials like food, books, or medical supplies. These rarely matter for freelance services, but they do affect product-based businesses.

Need the current rate for a specific country? The VAT Atlas has the full breakdown.

Do Freelancers Need to Charge VAT?

It depends on where you’re based and how much you earn.

Most EU countries have a VAT registration threshold — a revenue limit below which you don’t need to register. In Germany, it’s €22,000/year (Kleinunternehmerregelung). In France, €36,800 for services. In the Netherlands, there’s a small business exemption (KOR) up to €20,000.

Once you cross that threshold, you must register for VAT, charge it on every invoice, file periodic VAT returns, and send the collected tax to your local tax authority.

Some freelancers register voluntarily before hitting the threshold. Why? Because registration lets you reclaim VAT on business expenses — your laptop, software subscriptions, coworking space. If your costs are high, the refunds can outweigh the administrative hassle.

One exception: if your country has no threshold (or a very low one), you’re required to register from your first euro of revenue. Check your local tax authority’s website for the exact rules.

VAT on Cross-Border Services

This is where freelancers trip up the most.

Selling to a Business (B2B)

When you sell services to a VAT-registered business in another EU country, you generally don’t charge VAT. Instead, the reverse charge mechanism applies: your client handles the VAT in their own country. You issue an invoice with €0 VAT, include both VAT numbers, and add a note like “Reverse charge: VAT to be accounted for by the recipient.”

Example: You’re a Polish designer (23% VAT) creating a brand identity for a German agency. You invoice €2,000 with no VAT. The German agency self-assesses 19% German VAT on their return. You report the sale on your EC Sales List.

Selling to a Consumer (B2C)

Selling to private individuals in other EU countries is different. You charge the VAT rate of the customer’s country, not yours. This kicks in once your cross-border B2C sales exceed €10,000/year EU-wide (the OSS threshold).

Below that threshold, you just charge your home country’s rate. Above it, you either register for VAT in every country where you have customers (painful) or use the One Stop Shop (OSS) system to file and pay everything through a single portal.

Use the VAT Calculator to quickly figure out the right amount for any EU country.

VAT on Your Invoices

A VAT invoice has specific mandatory fields. Miss one and your client may not be able to reclaim the VAT, which makes you annoying to work with. Here’s what you need:

• Your business name and address
• Your VAT number (verify it’s active with the VAT Number Validator)
• Client’s name and address
• Client’s VAT number (for B2B cross-border invoices)
• Invoice number (sequential, unique)
• Invoice date and supply date
• Net amount (before VAT)
• VAT rate and VAT amount
• Gross total
• Reverse charge note (if applicable)

Some countries have additional requirements. Poland requires split payment annotations for certain services. Italy needs electronic invoicing via SDI. Germany requires the tax identification number or VAT ID.

The Invoice Generator handles the formatting and required fields automatically, so you don’t have to memorize this list.

Get Your VAT Right

VAT isn’t complicated once you understand the basics. Register when you hit the threshold, charge the right rate, put the right fields on your invoices, and file your returns on time. That’s the whole game.

For the math, use the VAT Calculator. For rate lookups, check the VAT Atlas. For invoices that include everything they should, try the Invoice Generator.