Lumanu is a modern talent payments platform designed to eliminate administrative headaches when working with global influencers, creators, freelancers, and other talent. Lumanu acts as a single vendor for managing your marketing freelancers, handling all vendor onboarding, payment processing, and crucial tax compliance across countries. This includes supporting the VAT reclaim process within the European Union. Let's dive into how EU VAT works in this context.

Disclosure: The following is for informational purposes only and should not be considered legal or tax advice. Consult with your tax or legal professional for specific guidance relevant to your business and the EU member states you operate in.

What is EU VAT?

Value Added Tax (VAT) in the European Union is an indirect tax tax applied to most goods and services within the EU. While the principles are similar across member states, VAT rates vary significantly by country. Each EU country sets its own standard VAT rate (typically ranging from 17% to 27%) and may apply reduced rates to specific goods and services.

When a VAT-registered freelancer (like an influencer, affiliate, or creative specialist) in the EU provides services in a country, they must generally charge VAT on their invoices, assuming they meet their country's registration and earning threshold requirements. With influencers this is really important as a large percentage of influencers (estimated at over 50%) are under VAT threshold, this article will cover how to handle this later. When applicable, VAT represents an upfront cost. However, VAT paid by VAT-registered businesses can often be reclaimed, offsetting it against the VAT the business has collected from its own customers and owes to the tax authorities. Input VAT (paid) can offset output VAT (collected and owed).

When a VAT registered freelancer provides services to a business in another EU member state, they will not charge VAT, but the business is required to account for VAT under the reverse charge mechanism (more to come later on this).

Who Can Reclaim EU VAT?

For a business operating within the EU to reclaim VAT on payments made to suppliers (including influencers and freelancers based in the EU), three core conditions generally need to be met:

1. The business must be VAT-registered within an EU member state.

2. The supplier (freelancer/influencer) must be VAT-registered in their respective EU member state and legally required to charge VAT. (See section below on thresholds).

A valid VAT invoice must be provided that complies with the EU VAT Directive and the specific requirements of the member state where the VAT is being reclaimed.

Which Businesses Are EXEMPT from VAT Reclaim in the EU?

Most VAT-registered businesses operating within the EU can reclaim VAT on eligible expenses. However, certain sectors often provide VAT-exempt services, meaning they generally do not charge VAT on their outgoing supplies and consequently cannot reclaim VAT on their incoming purchases (inputs). While specific rules can vary slightly between member states, these industries commonly include:

• Financial services & banking

• Insurance & reinsurance services

• Most healthcare services (public and private)

• Most educational services

• Certain activities by charities & non-profit organizations

• Certain transactions related to land and property rentals

• Most betting & gambling activities

These businesses still have compliance obligations. They must determine the VAT status of the freelancers they engage. If a freelancer is VAT-registered in their EU country, the exempt business usually still pays the invoiced VAT but cannot reclaim it. If the freelancer is not VAT-registered (e.g., under the threshold), no VAT should be charged.

How the EU VAT Reclaim Process Works (Intra-Country Example)

The fundamental process for reclaiming VAT paid to a supplier within the same EU country is similar across member states:

Step 1: Receive a VAT Invoice and Verify Compliance When your business hires an EU-based freelancer, ensure you receive a compliant VAT invoice. EU invoice requirements generally include:

• Supplier's (freelancer's) name, address, and VAT identification number.

• Customer's (your business's) name, address, and VAT identification number.

• A unique sequential invoice number and the date of issue.

• A clear description of the services supplied.

• The taxable amount per rate, the VAT rate applied, and the VAT amount payable.

• The total amount payable.

• (If applicable) Reference to exemption or reverse charge mechanism.

Important: Missing or incorrect information can lead to the rejection of your VAT reclaim request during an audit by the national tax authority.

Step 2: Pay the Invoice (Including Applicable VAT) Pay the full invoice amount, including the correctly charged VAT based on the supplier's country's rate.

Example (Illustrative - Germany): A German company hires a German influencer for €10,000. The influencer is VAT-registered in Germany (standard rate 19%) and invoices €10,000 + €1,900 VAT = €11,900 total. The German company pays the full €11,900.

Step 3: Submit VAT Return to National Tax Authority At the end of the relevant VAT reporting period (e.g., monthly or quarterly, depending on the country), the business includes the VAT paid (input VAT) in its VAT return submitted to its national tax authority (e.g., the Finanzamt in Germany).

Example: The German company includes the €1,900 VAT paid as input tax in its German VAT return.

Step 4: National Tax Authority Refunds or Offsets the VAT After processing the return, the tax authority either refunds the net reclaimable VAT or offsets it against the company's output VAT liability for the period.

Example: The German company effectively reduces its campaign cost back to the net amount of €10,000, assuming full reclaim eligibility.

(Note: Cross-border EU transactions often involve the reverse charge mechanism for B2B services, where the recipient accounts for the VAT, or specific schemes like OSS for certain B2C supplies. Lumanu helps manage these complexities.)

EU VAT Reclaim Mistakes to Avoid

Businesses can miss out on significant VAT refunds due to common errors:

1. Invoices with Missing/Incorrect Supplier VAT Information: VAT can only be reclaimed if the supplier is VAT-registered and provides a valid VAT number for their country. If a freelancer is below the threshold, mistakenly charges VAT, or provides an invalid number, the VAT cannot be reclaimed.

2. Invoices Without Proper VAT Breakdowns: Invoices must clearly itemize the net amount, VAT rate, and VAT amount. A total figure including VAT is insufficient for reclaim purposes.

3. Assuming VAT Registration: Don't assume a freelancer is VAT-registered. Always verify their status, especially considering the varying thresholds across the EU.

Understanding EU Freelancer VAT Registration Thresholds & Exemptions

A critical complexity within the EU is that VAT registration thresholds for small businesses (including freelancers) vary significantly from country to country. A freelancer might be below the threshold in one country but would exceed it with the same turnover in another.

• Below Threshold = No VAT Charged: Freelancers whose annual turnover is below their country's mandatory registration threshold are generally not required to register for or charge VAT.

• Invoice Requirement: When not charging VAT due to being below the threshold, freelancers usually must cite the specific legal reason on their invoice. This often involves referencing the national law article implementing the EU's small business scheme exemption.

Country-Specific VAT Thresholds for Freelancers

Each EU member state sets its own VAT registration thresholds. Freelancers earning below these thresholds are typically not required to register for VAT and should not charge VAT on their invoices. Here are examples from select countries:​

• Germany: €22,000 annual turnover

• France: €34,400 for services

• Italy: €65,000 under the "forfettario" regime

• Spain: No threshold; VAT registration required from the first euro

• Netherlands: €20,000 under the "Kleineondernemersregeling" (KOR)

Freelancers below these thresholds should include a note on their invoices stating their exemption status, such as:​

"VAT exempt under [Country's] small business regulation." ​In France, a micro-entrepreneur might include:​ "TVA non applicable, article 293 B du CGI."

Handling Cross-Border EU Freelancer VAT: The Reverse Charge Mechanism

When your business works with influencers or freelancers based in different EU member states (e.g., a French company hiring a German freelancer), the VAT treatment usually changes due to the Reverse Charge mechanism. Instead of the supplier (the freelancer in another EU country) charging VAT on their invoice, the responsibility for accounting for the VAT shifts to the recipient (your business). Your business essentially acts as both the supplier and the customer for VAT purposes on that specific transaction within your own country's VAT return.

Example: Your VAT-registered company in France hires a VAT-registered influencer based in Germany for services costing €5,000.

1. The German Influencer (Supplier):

   • Issues an invoice for €5,000 without adding German VAT.

   • Must include your company's valid French VAT number on the invoice.

   • Must typically include a note on the invoice stating "Reverse Charge" (or the equivalent in German, e.g., "Steuerschuldnerschaft des Leistungsempfängers").

   • Reports this transaction as a zero-rated intra-community supply on their German VAT return and potentially on an EC Sales List (ESL).

2. Your French Company (Recipient/Buyer):

   • Receives the invoice for €5,000 showing 0% VAT.

   • Calculates the French VAT that would have been due if the service was supplied by a French provider (e.g., 20% French VAT on €5,000 = €1,000).

   • On your French VAT return, you declare this €1,000 as Output VAT (as if you supplied the service) AND simultaneously declare the same €1,000 as Input VAT (as if you paid the VAT on a purchase).

What's the Impact on VAT Reclaim?

For businesses entitled to full VAT recovery (i.e., you don't make VAT-exempt supplies), the Reverse Charge mechanism has a neutral cash flow impact. The Output VAT you declare is immediately cancelled out by the Input VAT you deduct on the same VAT return.

• You don't actually pay the €1,000 VAT to the German freelancer.

• You don't actually pay the €1,000 VAT to the French tax authorities (because the input deduction offsets the output liability).

Correctly applying and reporting the reverse charge is crucial for compliance. It ensures VAT is accounted for in the country where the service is consumed (France, in this example) without requiring the German freelancer to register for VAT in France. The "reclaim" happens implicitly through the input VAT deduction on your return.

Key Compliance Points:

• Valid VAT Numbers: Both parties generally need valid EU VAT numbers verifiable through the VIES system. Since many influencers are not VAT registered (under VAT threshold it is important to NOT reference reverse charge unless they have a valid VAT number).

• Correct Invoicing: The supplier's invoice must correctly omit VAT and reference the Reverse Charge mechanism.

• Accurate Reporting: Your business must correctly declare both the output and input VAT on your local VAT return.

Lumanu's EU VAT, Compliance and Payments Solution

Manually tracking these varying thresholds and ensuring freelancers use the correct invoice citations is a major compliance burden. Lumanu's global tax engine and self-billing invoice system automatically solve for this. Lumanu manages freelancer VAT status verification based on their country and ensure invoices correctly reflect whether VAT is charged or an exemption is cited, tailored to each EU member state's rules.

Common Challenges for EU VAT Reclaim for Brands & Agencies

• Problem: Freelancers Across Multiple EU Countries Not VAT-Registered Due to Varying Thresholds.

  Solution: Verify registration status per country before payment. Lumanu automates this verification.
  
  

• Problem: Incorrect or Non-Compliant Invoices from Different EU Countries.

  Solution: Ensure invoices meet both general EU standards and specific national requirements. Reject non-compliant invoices. Lumanu generates compliant invoices automatically.
  
  

• Problem: Manual VAT Verification Across Multiple Jurisdictions is Time-Consuming and Error-Prone.

  Solution: Use automated tools or platforms like Lumanu designed to handle multi-country VAT compliance efficiently.

How Lumanu Helps Brands & Agencies with EU VAT Compliance and Reclaim

Managing VAT compliance across different EU member states when working with numerous freelancers is complex. Lumanu simplifies this entire process.

Lumanu provides a seamless platform for onboarding, paying, and ensuring tax compliance for freelancers across the EU:

• Handles multi-country vendor onboarding and VAT status verification based on local thresholds and rules.

• Simplifies invoicing: Fund Lumanu with a single payment, and we handle compliant payouts and invoice generation for each freelancer.

• Automatically creates VAT-compliant invoices, including necessary exemption clauses or applying reverse charge rules for cross-border B2B services where applicable, reducing errors and saving time.

• Provides compliant documentation (like self-billing invoices) organized for easy VAT reclaim processing by your finance team.

• Supports detailed reporting for reconciliation by campaign, project, country, and time period.

How Lumanu specifically supports EU VAT reclaim:

• Verifies each freelancer’s VAT registration status in their respective EU country.

• Automates the generation of compliant VAT invoices (or invoices citing exemptions) via self-billing.

• Ensures invoices meet EU and national requirements, reducing errors and reclaim rejections.

• Provides clear, individual invoice documentation for each freelancer payment, making it straightforward for your business to process the reclaim with the relevant tax authority.

• Separates your bulk payment funding from the individual, compliant invoices needed for VAT reclaim, streamlining both processes.

How Lumanu Simplifies the EU Reverse Charge Mechanism:

Navigating cross-border VAT rules like the Reverse Charge adds complexity, especially when dealing with multiple freelancers across various EU countries. Lumanu's platform and tax engine are designed to handle this. When using Lumanu's self-billing capabilities for cross-border EU B2B services:

• Lumanu identifies when Reverse Charge applies based on the locations and VAT statuses of the buyer and freelancer.

• Lumanu automatically generates compliant self-billing invoices that correctly omit VAT and include the necessary Reverse Charge notation.

• This ensures accurate documentation for both parties and simplifies your VAT reporting obligations.

Why Lumanu?

1. Ensure Maximum VAT Recovery Across the EU: Avoid rejected reclaims due to non-compliant invoices from various EU countries. Receive standardized, compliant documentation.

2. Eliminate EU Compliance Risks: Minimize risks of penalties from different national tax authorities. Freelancer VAT status and invoicing rules are handled correctly per country.

3. Save Time & Reduce Admin Burden: Stop chasing freelancers in multiple countries for correct invoices and verifying diverse VAT rules. Focus on your campaigns, not pan-European VAT admin.

4. For specific country level questions, dive into our country level deep dives.

Next Steps: Want to Streamline Influencer Compliance and Payments and Maximize Your EU VAT Recovery?

💬 Let’s Talk! Connect with Lumanu today to learn how we simplify VAT compliance and payments for your influencer marketing, creator campaigns, and other freelance collaborations across the European Union.