B2B VAT Exemption

The term 'B2B VAT exemption' is widely used but slightly misleading. In EU VAT law, the transaction is not exempt — it is zero-rated, meaning VAT applies at 0% and both parties can still recover input VAT. What actually happens is that the VAT collection obligation shifts to the buyer via the reverse charge mechanism. From a billing system perspective, the practical effect is: no VAT charged on the invoice.

Requirements to apply B2B zero-rate treatment

• →The supplier must be registered for VAT in an EU member state
• →The customer must hold a valid VAT number registered in a different EU member state
• →The VAT number must be validated via VIES before applying zero-rate — this is legally required, not optional
• →The supply must cross an EU border (both parties cannot be in the same member state)
• →The supply must be of a type eligible for reverse charge (most goods and services qualify)

B2B vs B2C VAT treatment

Developer implementation

• 1.Collect VAT number from the customer at checkout or onboarding
• 2.Call the TaxID API (or VIES directly) to validate the number — do not skip this step
• 3.If valid and in a different EU country: set VAT rate to 0%, apply reverse charge notation
• 4.If invalid or missing: apply your standard VAT rate
• 5.Store the validation result with a timestamp — you need an audit trail
• 6.For recurring billing: re-validate monthly or on every renewal to catch deregistrations

Handling the validation failure case

When VIES returns `service_unavailable` — meaning the national database is temporarily offline — you have two compliant options: (1) block the transaction until you can validate (safest, but poor UX), or (2) allow the transaction at full VAT and issue a credit note + zero-rate invoice once validation succeeds. Many SaaS companies choose option 2 with a 24-hour validation window. Caching the last-known-valid result and allowing a short grace period is also defensible during documented VIES outages.