The question almost every US payer asks
You hire a contractor in London, Berlin, or Bangalore. The invoice arrives, and there is no VAT line on it. Or there is a note saying the supply is outside the scope of VAT. You pause, because you have heard that Europe taxes almost everything at 20 percent or so, and you wonder whether you are supposed to be paying VAT on top of the invoice, or whether the contractor forgot to add it.
The short answer is reassuring. A US company does not pay US VAT on a foreign contractor’s invoice, because the United States does not have a VAT at all. And foreign VAT, the kind your contractor’s country charges, is the contractor’s side of the transaction, not yours. For most cross-border business services, that foreign VAT is out of scope anyway, which is exactly why the invoice arrives without a VAT line.
This guide walks the verified mechanism, with the OECD and EU Commission citations attached. One note before we start. This is general information, not tax or legal advice. VAT rules differ by country, and your contractor should confirm their own position with their local tax authority or adviser.
There is no US VAT to pay
Start with the part that is entirely on your side of the border. The United States does not operate a federal value-added tax.
The Tax Foundation, drawing on OECD data, states it plainly:
“The United States is the only country in the OECD without a value-added tax (VAT). Instead, most US state governments and many local governments apply a retail sales tax on the final sale of products and excise taxes on the production of goods such as cigarettes and alcohol.”
Source: Tax Foundation, OECD Tax Revenue by Country, published May 22, 2025.
Two consequences follow. First, there is no US VAT rate that anyone, foreign or domestic, can charge your company on a service. The US raises consumption tax revenue through state and local sales taxes, which is not how a typical contractor engagement is taxed. Second, because there is no US VAT regime, there is nothing for you to register under and no VAT return for you to file as a US payer.
Foreign VAT is the contractor’s side, not yours
That leaves the contractor’s own country. Many countries do have a VAT, often called VAT, GST, or in Germany the Umsatzsteuer. The natural worry is that the contractor’s country will tax the service and pass that tax to you.
For cross-border business services, that usually does not happen, and the reason is the place-of-supply rule. VAT systems decide which country gets to tax a service by asking where the supply is treated as made. For services sold between businesses, the answer is generally the customer’s location.
The EU Commission states the general B2B rule directly:
“For supplies of services between businesses (known as B2B supplies), the place of taxation is the place where the customer is established (Article 44 VAT Directive).”
Source: European Commission, Where to tax.
Apply that to your situation. When an EU contractor invoices your US company for a business service, the customer is established in the United States. The place of supply is therefore outside the EU, and the EU Commission notes that services sold to customers outside the EU are normally not subject to EU VAT (see the Commission’s VAT overview). The contractor issues the invoice without a domestic VAT line, and you pay the invoice amount with no VAT added.
This is the same mechanism, country by country, behind the no-VAT invoices US payers see from across the EU and from many other VAT jurisdictions that follow the customer-location rule for B2B services.
What the reverse charge is, and why it usually does not touch you
When people read about cross-border VAT, they often run into the term reverse charge and assume it creates an obligation for the buyer. It is worth understanding what it actually is, because for a US payer it generally produces no action at all.
The reverse charge is a mechanism where the customer, rather than the supplier, accounts for the VAT on a transaction. The EU Commission describes the customer becoming liable for the VAT in defined cases, including where the supplier is not established in the customer’s country:
“When the supplier is a taxable person who is not established in the EU country where the tax is due, a very broad option is given to EU countries to designate the customer, rather than the supplier, as the person liable to pay the VAT on a supply.”
Source: European Commission, Persons liable for VAT (Article 194, VAT Directive).
Read carefully where this lives. The reverse charge operates inside a VAT system. It is how, for example, a business in one EU country self-accounts for VAT on a service it buys from a supplier in another EU country, so the cross-border supply is still captured without the foreign supplier registering everywhere.
Your US company is not inside that system. The United States has no VAT, so there is no US VAT return on which to reverse-charge anything, and the US is a third country relative to the EU VAT area. The practical result is the one you already see. The contractor treats the supply as outside the scope of its domestic VAT, issues an invoice with no VAT line, and there is nothing for you to self-assess. The reverse charge is not a US payer obligation.
A simple way to read the invoice
| What you might see on the invoice | What it usually means for a US payer |
|---|---|
| No VAT line at all | The contractor is treating the B2B supply to your US company as outside the scope of their domestic VAT under the place-of-supply rule |
| A note such as “outside the scope of VAT” or “reverse charge” | The contractor is signalling the same out-of-scope treatment. You generally take no VAT action as a US buyer |
| A domestic VAT line is charged | Less common for a standard cross-border B2B service. Ask the contractor which rule they are applying before you pay |
The first two rows cover the overwhelming majority of standard contractor invoices. The third row is the one to query, not because you owe US VAT, you do not, but because it suggests the contractor may be applying a rule you want to understand.
How this looks country by country
The mechanism is easier to trust when you see it land in a specific country. Two of our country guides walk the local VAT treatment in detail.
In the United Kingdom, the standard VAT rate is 20 percent, but the place-of-supply rules put a B2B service to a US customer outside the scope of UK VAT, so the contractor invoices without it. Our guide to paying UK contractors from a US company covers the place-of-supply rule, the VAT treatment, and the rest of the UK stack.
In Germany, the VAT (Umsatzsteuer) rate is 19 percent, and the reverse-charge place-of-supply rules again put a B2B service to a US customer outside the scope of German VAT, with the same no-VAT-line result on the invoice. Our guide to paying German contractors from a US company walks the German specifics.
Both guides reach the same destination this article describes. No US VAT, because there is no US VAT, and no foreign VAT on the invoice, because the cross-border B2B service is out of scope in the contractor’s country.
Keep this separate from US tax and reporting
It helps to keep VAT in its own box. VAT is a consumption tax that lives entirely in the contractor’s country, and the US does not run one. That is a different question from US income tax sourcing and information reporting, which do involve you as the payer.
Your US-side homework on a foreign contractor is about documentation, such as collecting a Form W-8BEN to establish the contractor’s foreign status, and understanding whether any payment is US-source. That analysis is driven by where the work is performed, and we cover it in US-source vs foreign-source contractor income, along with when a tax treaty matters in income tax treaty terms. None of that is VAT. VAT and US income tax reporting are separate systems, and conflating them is what creates the confusion in the first place.
Confirm the contractor’s own position
The reassuring headline holds for the standard case. No US VAT, and usually no foreign VAT line on a cross-border B2B service invoice. But VAT rules vary by country, registration thresholds differ, and some supplies are treated differently from a plain professional service. The contractor is the party inside their own VAT system, so the contractor is the one who should confirm how their local rules apply, ideally with their tax authority or a local adviser.
If a VAT line does appear when you did not expect one, the right move is a quick question to the contractor about which rule they are applying, not a payment on autopilot.
When a platform handles the paperwork
A US founder paying one foreign contractor can read an invoice and confirm the VAT treatment by hand. A US team paying contractors across several countries is reading invoices in different formats, confirming out-of-scope notes, collecting W-8BEN forms, and tracking US-side reporting, and that is where the manual approach starts to leak.
Omnivoo Contract Management handles the contractor relationship end to end for a flat $49 per finalized contract. We collect the right tax form, run the KYC, draft and manage the contract, and pay your contractors in 150+ countries. Transaction fees are passed through at cost, with no FX markup and no subscription.
Want the answer for your specific setup? See how Omnivoo Contract Management handles foreign contractors end to end, or talk to our team.
This article is general information, not tax or legal advice. VAT treatment depends on the contractor’s country and circumstances, so confirm the specifics with a qualified tax professional before you pay.