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How does VAT apply to my invoices?
How does VAT apply to my invoices?
Darja avatar
Written by Darja
Updated over a month ago

As a business owner, you may question how VAT and invoicing work. In this article, we will break down the different scenarios and clarify what to expect when it comes to invoicing for your business.

Standard Lithuanian VAT rate - 21%

Standard Estonian VAT rate - 22% (from 1 July 2025 - 24%)


Why do we invoice from separate entities?

Because Montonio products are registered under different entities.


VAT and Montonio’s products

Country of business registration

Montonio UAB

MontonioUAB

Montonio UAB

Montonio OÜ

Montonio OÜ

Bank Payments

Cards/Blik/Bank Payment Refunds

Subscriptions

BNPL (Buy now, pay later)

Shipping

LT

VAT-registered

Added

VAT exempt

Added

VAT exempt

Reverse charge*

LT

Non-registered

Added

VAT exempt

Added

VAT exempt

Estonian VAT added

LV

VAT-registered

Reverse charge

VAT exempt

Reverse charge

VAT exempt

Reverse charge

LV

Non-registered

Lithuanian VAT added

VAT exempt

Lithuanian VAT added

VAT exempt

Estonian VAT added

EE

VAT-registered

Reverse charge*

VAT exempt

Reverse charge

VAT exempt

Added

EE

Non-registered

Lithuanian VAT added

VAT exempt

Lithuanian VAT added

VAT exempt

Added

EU country

VAT-registered

Reverse charge*

VAT exempt

Reverse charge*

VAT exempt

Reverse charge*

EU country

Non-registered

Lithuanian VAT added

VAT exempt

Lithuanian VAT added

VAT exempt

Estonian VAT added

Non-EU country

VAT-registered

0% VAT

0% VAT

0% VAT

0% VAT

0% VAT

Non-EU country

Non-registered

0% VAT

0% VAT

0% VAT

0% VAT

0% VAT

Reverse charge*

The reverse charge mechanism is a special VAT rule where the responsibility for reporting and paying VAT shifts from the seller to the buyer. It's typically used in cross-border transactions (explained above) within the EU and in certain domestic transactions to prevent VAT fraud or simplify reporting.

How it works?

  1. Normal VAT situation:

    • The seller (e.g., Montonio) charges VAT on the invoice and pays it to the tax authorities.

    • The buyer (e.g., merchant) can reclaim that VAT as input VAT if they are VAT-registered.

  2. Reverse charge situation:

    • The seller (e.g., Montonio) does not charge VAT on the invoice. Instead, they indicate that the transaction is subject to the reverse charge.

    • The buyer (e.g., merchant) must account for the VAT in their country. They report both the output VAT (as if they had sold the goods/services) and, if applicable, the input VAT (which they can reclaim).


What is the difference between VAT-exempt and 0% VAT?

The main difference between VAT-exempt and 0% VAT (zero-rated) lies in how VAT is applied and whether businesses can reclaim VAT on their expenses.

  • VAT-exempt: No VAT is charged on the product or service, and the business cannot reclaim VAT on any related expenses.

  • 0% VAT (zero-rated): No VAT is charged to the customer, but the service is still considered a taxable supply. This means the business can reclaim VAT on expenses related to providing the service.


What if I am not a VAT payer (don’t have VAT number) and I see VAT applied on the invoice?

If the invoice is issued domestically (e.g., invoice issued by LT entity to LT merchant):

  • VAT is correctly applied, as non-VAT-registered businesses or individuals are treated as final consumers. Domestic suppliers are required to charge VAT at the standard rate.

  • You cannot reclaim the VAT unless you become VAT-registered. The VAT charged is part of the final price of the service or goods.

If the invoice is from another EU country:

  • VAT is correctly applied, as non-VAT-registered customers are treated as consumers for VAT purposes.

  • We will charge standard domestic VAT rate on the invoice.

  • You cannot reclaim the VAT, as you are not a VAT payer.


What if I am a VAT payer (have VAT number) and I see VAT applied on the invoice?

If the invoice is issued domestically (e.g., invoice issued by LT entity to LT merchant):

  • VAT is correctly applied, as domestic transactions between VAT-registered entities still require VAT to be charged. You can later reclaim the VAT as input VAT on your VAT return.

If the invoice is from another EU country:

  • VAT should not be applied - the reverse charge mechanism (information above) typically applies, meaning no VAT should be charged by the supplier.


If you have additional questions and need our help, feel free to contact our support team via the chat in the bottom right corner.

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