Value Added Tax – with International Business
This page will discuss if and when VAT is to be billed when the customer is not in Germany but abroad – inside EU. As is typical in German tax law there is a pretty straightforward rule but also many exceptions… The legal question in discussion here is: “Where is the location of the service or sale?” Germany (= subject to VAT)? Abroad (= tax free or not taxable).
N.B. These rules are applicable for any and all services or sales completed from January 2010 and on. The following rules show the implementation of European into national law. The Directive 2008/9/EC has replaced the previous so-called 8. EU Directive. The main goal is to simplify, of course, and modernize the existing taxation schemes. For the interim situation please see below.
What is this fuss all about where my customer is located?
It goes back to the basic rule, when a service or sale is subject to VAT. The rule is that a business provides a service for a consideration or sells something to someone else in Germany (§1 I no. 1 UStG). When you do business outside of Germany then your remuneration will not be subject to VAT. Until the end of 2009, however, you could change the location for some intracommunity sales to abroad in order to make German sales cheaper because VAT would not be added to the bill.
Is there a difference between billing B2B and B2C?
Until the end of 2009, there was a big difference but afterwards not anymore. Now for services and sales alike business customers and private clients abroad will make the location of the service resp. sale out of Germany (§3a I UStG).
Heck, I don’t have such. Where do I get a VAT-ID? How long will it take and how much does this ID cost?
You will get it at the Bundeszentralamt für Steuern (Federal Central Office for Taxes). Click on this sentence to be lead to the application for a VAT-ID! When you already have a normal tax number (when you have several then the one for VAT is needed). This service is free of cost and will take about a week. Anyhow your tax consultant will normally also take care of this issue.
Does billing B2B still trigger the so-called reverse charge taxation?
While the location of delivery is still with the recipient, this triggers with business inside Europe the reverse charge taxation. Next to that, you are now also to submit summary reports (zusammenfassende Meldungen) every quarter year when the recipient owes the VAT.
How are invoices of non-German businesses to be treated?
Whenever a foreign business bills you for their service and you therefore owe the VAT here in Germany, this business is obliged to also show your VAT-ID – next to theirs. Your VAT-ID will also be required for his summary report.
I just understood that the foreign business needs my VAT-ID for this summary report. How does this affect me? Am I to mirror his turnover with a corresponding zusammenfassende Meldung?
Yes! You are to submit every quarter year such summarizing report. This is to be done exclusively electronically. The European tax authorities will be enabled with these reports to check if the VAT for this one service or sale has been correctly and completely paid.