VAT rates

The Applicable VAT field on a client tells Legalsense which VAT treatment to use when you invoice that client. VAT rules for cross-border services depend on where the client is established and whether they're a private individual or a business, so Legalsense can't apply the same rate to every client. Instead, you tell it which situation applies, and Legalsense calculates and labels VAT on invoices accordingly.

Getting this setting right matters beyond the invoice itself. It determines whether you charge VAT at all, what you report in your VAT return, and whether you're required to state the client's VAT number on the invoice. Choosing the wrong option can mean charging VAT you shouldn't, failing to charge VAT you should have, or misreporting the transaction to your tax authority.

Why the VAT treatment depends on the client

For most legal services, VAT is governed by "place of supply" rules: the country where the service counts as having taken place for tax purposes. For a domestic client, this is straightforward: you charge your own country's VAT. For a client abroad, place-of-supply rules can shift where VAT is owed, so Legalsense needs to know which situation applies before it can calculate the invoice correctly.

Three situations cover most cases:

• The client is domestic, or is a private individual anywhere without a VAT identification number. You charge your own country's VAT as usual.
• The client is a business (or VAT-registered organization) in another EU country. VAT is generally due in the client's country instead of yours, so you don't charge VAT yourself.
• The client is a business outside the EU. Where VAT is charged depends on the specific situation, so you need to check this yourself.

These three situations map directly to the three main options in the Applicable VAT field, which is why Legalsense asks you to set it per client rather than applying one rate across the board.

Setting the Applicable VAT field

When you create or edit a client, the Applicable VAT field offers these main options:

• Default
• Intra-community (EU)
• Outside of the EU

Applicable VAT field on a client, showing the available options.

Note: Depending on how your environment is set up, you may see additional options, such as Exempt from VAT. The names of the options can also differ slightly per environment. Contact Legalsense Support if you need an option that isn't available.

Legalsense copies the Applicable VAT setting and the VAT number to each new invoice. To use a different setting for one invoice, change it on the draft invoice in the invoice address window.

Default

Use Default for domestic clients, and for any client who is a private individual, meaning they don't have a VAT identification number, regardless of where they're based. In both cases the service is generally taxed in your own country, so you charge your own country's VAT.

Default is pre-selected on every new client, so if you don't choose a different option, Legalsense applies your own country's VAT, using the VAT rate set on each invoice line. This makes Default the right starting point for the majority of clients: you only need to switch to one of the other options when a client is a foreign business or VAT-registered organization.

With Default, the VAT number field must be empty or contain a VAT number from your own country.

Intra-community (EU)

Use Intra-community (EU) when you provide services to a business, or another VAT-registered organization, in another EU country. Select this option and enter the client's VAT number. Legalsense only checks that the number has the right format for an EU country. It doesn't check whether the number actually exists, so verify it yourself using the ⧉ VIES VAT validation tool.

Whether you actually charge VAT depends on whether you're providing the service to an individual or a business:

• If your client is a private individual (again, meaning they don't have a VAT identification number), the service is generally taxed in your own country, so you charge your own country's VAT. In this case, choose Default under Applicable VAT instead.
• If your client is an entrepreneur, the service is generally taxed in the client's country instead, and the client calculates and pays the VAT there. This is known as intra-community supply. "Entrepreneur" here also includes an organization that isn't formally an entrepreneur but does have a VAT identification number. Check your tax authority's website for further guidance.

When VAT is payable in the client's country, you reverse-charge the VAT: you don't charge VAT yourself, and the invoice must state that the VAT is reverse charged instead of showing an amount. Legalsense prints the client's VAT number on the invoice. Whether the invoice also prints the text Subject to reverse charge depends on your invoice layout, so check an invoice and contact Legalsense Support if the text is missing.

Important: Reverse-charged VAT is not the same as applying a 0% VAT rate. A 0% rate still means you charged VAT, just at a zero rate; reverse charging means the client accounts for the VAT, not you.

Because the client handles the VAT on their end, you must state the client's VAT number on the invoice, and in your VAT return, you report the service under the statement of intra-Community supplies. Legalsense doesn't let you finalize an invoice with this option if the VAT number is missing.

Outside of the EU

Use Outside of the EU if you supply services to businesses outside the EU, including countries such as Norway, Iceland, Liechtenstein, Switzerland, and the United Kingdom. This option exists because EU intra-community VAT rules don't apply here. Which country's VAT rules govern the transaction instead depends on the service and the countries involved.

With this option, Legalsense charges 0% VAT on the invoice and doesn't print an additional VAT statement. The VAT number field accepts VAT numbers from outside the EU, but not EU VAT numbers.

Check carefully in which country VAT is charged, yours or the other country's, since this determines how you handle it on the invoice and in your VAT return. Because the rules vary by country and by type of service, consult your tax authority or accountant if you're unsure.

Choosing the right option

If you're unsure which option applies to a client, treating them as Default charges your own country's VAT, which is the safer assumption for a client you haven't yet confirmed is a foreign business. Once you've confirmed their VAT status, update the client record so future invoices use the correct treatment.

Changing the setting for many clients at once

1. Go to the contact list and filter on Is debtor. Legalsense can only change the setting for contacts that are debtors.
2. Select the contacts you want to change.
3. In the bulk actions, choose the new option under Applicable VAT.

Legalsense shows The applicable VAT of the selected contacts has been successfully updated. when it's done. You can't choose Intra-community (EU) in bulk, because each client needs their own VAT number.

Troubleshooting

Legalsense rejects the VAT number

The option is not available for a firm

If your environment has multiple firms, each option must be set up for the firm that sends the invoice. If Legalsense shows Chosen VAT scheme is not configured for firm followed by the firm name, contact Legalsense Support to set up the option for that firm.

You can't finalize an invoice

If Legalsense shows Finalizing ICP invoice without VAT number is not possible., the invoice uses Intra-community (EU) but has no VAT number. Add the VAT number to the client, or to the draft invoice in the invoice address window, and finalize the invoice again.