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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 6/1/2013

Germany: VAT essentials 

Essential information regarding VAT as it applies in Germany.


Scope and rates

What supplies are liable to VAT?


Value-added tax (VAT) is due on any supply of goods or services made in Germany, which are taxable supplies made by taxable persons in the course or furtherance of a business carried on by them. Supply includes all forms of supply. It is not restricted to the provision of goods and services by way of sale but can apply equally to other forms of transaction.


Supply does not include anything done other than for a consideration. However, certain actions carried out for no consideration are deemed to be supplies; for example, the giving of business gifts, European Union (EU) dispatches within the same legal entity (such as a corporation), and the private use of business assets.


Certain transactions are not subject to German VAT; for example, cash payments, the assumption of a debt as a form of payment, and genuine compensation payments.


What is the standard rate of VAT?


The standard rate of VAT is 19 percent.


Are there any reduced rates, zero rates, or exemptions?


Yes. There is a reduced rate of 7 percent for certain goods and services, including, for example:


  • food, plants, and animals
  • books and newspapers
  • works of art and collector's items; with effect from 1 January 2014 the reduced rate will apply only to the import of works of art and collectors' items and - subject to further restrictions - to the supply and intra-Community acquisition of works of art. The supply of collectors' items, the rental of works of art and collectors' items and the supply and intra-Community acquisition of works of art in the commercial art trade, which are currently subject to the reduced rate, will therefore in the future excluded from it. An amendment of the special arrangement according to § 25a UStG shall provide some compensation for the commercial art trade for the abolition of the reduced tax rate on the supply of works of art (Administrative Assistance Implementing Act).
  • entrance fees to cultural sites
  • supplies of films for exploitation and presentation, if the films are listed under the Youth Protection Act, or were first shown in public before 1 January 1970
  • supplies made by corporate bodies with exclusively charitable, public , or ecclesiastical aims
  • passenger transport for journeys of not more than 50 kilometers
  • a reduced rate applies for renting out of living and bedrooms which a business maintains for the purpose of short-term accommodation of guests, as well as for short-term letting of camping sites. However, the reduced tax rate does not extend to related services which are not themselves rental services, even if such services are included in the consideration for the rental (in particular the provision of breakfast and parking spaces).

There are two special rates under the farmer's flat rate scheme. A rate of 5.5 percent is applicable to supplies of forestry products which are not the products of saw mills (such as untrimmed timber). A rate of 10.7 percent is applicable to supplies of typical agricultural goods and services, as well as to specific supplies by sawmills.


The list of VAT exemptions with input tax recovery (zero-rated supplies) includes, for example:


  • exports
  • supply, import, repair, and maintenance of ships and aircraft under certain conditions
  • the supply and import of gold to central banks
  • cross-border passenger transport by air
  • the supply of goods and other services by the Deutsche Bundesbahn and its subsidiaries at certain locations such as union stations and specific railway lines to rail administrations resident outside Germany
  • financial services provided to private recipients resident outside the EU (note: included in the list although the place of supply will always be abroad in order to point out the input tax recovery).

The list of VAT exemptions with no input tax recovery (exempt supplies) includes, for example:


  • since 1 July 2010: supply of universal postal services (note: the previous VAT exemption was restricted to specific services rendered by Deutsche Post AG)
  • financial services provided to private and business* recipients resident within the EU
  • supplies of official German face-value stamps (the price must not be higher than the face value)
  • supplies falling under the Real Estate Acquisition Law*
  • supplies which are taxed under the Race Betting and Lottery Law
  • insurance
  • letting of land*(limited)
  • health and welfare
  • education.

Note: it is possible to opt to tax the above supplies highlighted with asterisk (*), as long as the place of the supply is Germany, and the supplies are provided for the recipient's business. In the case of leasing of land, there are additional restrictions. If the place of the supplies is abroad, it would be determined, for the purposes of the right of input VAT deduction, whether the supplier opts to submit himself/herself to taxation according to local VAT Law and whether the same supply - if it were made in Germany - would have entitled to input VAT deduction as well.


What are the other local indirect taxes beside VAT?


Besides VAT there are other taxes in Germany which are classified as “indirect taxes”. Such taxes comprise any other excise duties (taxes on consumption: mineral oil, coal, natural gas, gasoline and certain bio-fuels, alcohol, tobacco, coffee, beer and electricity), especially electricity tax and energy tax and transaction taxes (specially real estate transfer tax and insurance tax).

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Registration

Who is required to register for German VAT?


German Entities 


If a business makes taxable supplies in Germany, it will be required to notify the German tax authorities of the date of commencement of taxable activities. It will receive a fiscal registration number (“.Steuernummer”).


If a business makes intra-Community supplies in Germany, it will be required to notify the German tax authorities of the date of commencement of such activities. It will also receive a VAT identification number (Umsatzsteuer-Identifikationsnummer).


Certain entities are not required to submit periodical VAT returns and are not liable for German VAT such as , for example, non-taxable legal entities and small entrepreneurs. However, if in the preceding year these entities acquired goods in other EU Member States in excess of EUR 12,500 (total amount of consideration paid for acquisitions), which were transported to Germany (acquisition threshold), or if it is anticipated that acquisitions during the current year will exceed this amount, the tax authorities must be notified, and VAT returns must be submitted.


No VAT liability and no filing of monthly/quarterly VAT returns is required if the total of supplies made in the previous year did not exceed EUR 17,500 and the total of supplies in the current year will presumably not exceed EUR 50,000. Total of supplies mainly includes VATable or zero-rated supplies in Germany and no reverse charge transactions.


Non-German Entities


The registration rules which apply to German entities also apply to non-German entities providing taxable supplies in Germany. However, the small entrepreneurs’ exemption does not apply to non-resident taxpayers.


Fiscal representation is only possible for foreign taxable persons who provide exempt supplies in Germany, and who do not need to recover German input VAT.


If a business is not registered for VAT in Germany, but sells and delivers goods to customers in Germany who are not VAT registered (distance sales), where the value of those sales exceeds a threshold of EUR 100,000 in the preceding or in the current year (as of April 2004), it is required to register and to account for VAT in Germany.


Are there penalties for not registering or late registration?


There are no penalties for failing to register for VAT in time. However, a company may incur late payment penalties, late filing penalties and interest on any outstanding VAT.


Is voluntary VAT registration possible for an overseas company?


No. The German VAT Law does not recognize the concept of voluntary registration.


Are there any simplifications that could avoid the need for an overseas company to register for VAT?


If a business makes supplies of goods or services in Germany, it is required to register and account for German VAT. It is, however, possible to avoid registering and accounting for German VAT when making certain supplies. 


In the following examples, the obligation to account for the VAT due will be shifted to the customer, provided that it is registered for German VAT.


Triangulation


If the company is an intermediate supplier to a German buyer of goods which are purchased from a business in another EU Member State and which are delivered from there to Germany, VAT due can be accounted for by the German customer (see Invoices section).


Call-off stock / Consignment stock


There are no simplification procedures officially accepted by German Tax Authorities which would apply to call-off stock or consignment stock located in Germany. Simplification only applies in respect of commissionaire/undisclosed agency structures with a principal located in another EU Member State, and to goods which are delivered from the EU Member State into Germany. Based on the latest German Federal Tax Court jurisprudence, and depending on the purchase contracts, the application of a simplification should be negotiated with the German Tax Authorities on a case-by-case basis.

 

Supply and install


If a business supplies goods and installs or assembles them in Germany, its customers can, in effect, account for any VAT due as a single acquisition of goods (work and material supply - Werklieferung). This does not apply if the supplier is required to register for VAT in Germany for other reasons.


Reverse charge services


These services are covered in more detail in the International Supplies of Goods and Services section. Please note that the reverse charge also applies if the customer is not yet registered for VAT in Germany. In these cases, it will be required to register for VAT in Germany. Bear in mind that these provisions are subject to particular requirements that should checked carefully.


The scope of the reverse charge procedure includes services, work and materials supplies (Werklieferungen) and certain supplies of gas and electricity (since 1 January 2011 extended to cold and heat) of foreign businesses. The scope of the reverse charge procedure also includes supplies within the scope of the Real Estate Transfer Tax Act (Grunderwerbsteuergesetz), as far as the supplier opts for VAT, construction works, and supplies of objects transferred by way of security. Since 1 July 2010 the scope of reverse charge procedure applies to the transfer of greenhouse gas emission rights according to the Greenhouse Gas Emission Trade Law. Since 1 January 2011 the scope of reverse charge procedure also applies to the supply of certain scrap and waste materials, certain cleaning of buildings or parts of it and supply of certain gold.


Since 1 July 2011 the scope of reverse charge procedure is extended to certain transactions in the mobile phone and integrated circuit supply segment. This special measure is based on an authorization granted under Art. 395 of the VAT Directive which is valid until the end of December 2013 at the latest. Given the Commission’s opposition, the authorization will not be extended (COM (2013) 283 final). However, on 21 June 2013 the European Council reached political agreement on measures to combat VAT fraud (see press release 11286/13) which includes a Directive on the reverse charge mechanism covering the above goods, so that the national law may be retained or amended, where necessary. The measure will be temporary and exceptional, and its timeframe will be aligned (i.e. until the end of 2018). It also covers supplies of gas and electricity.


The reverse charge procedure is also introduced for supplies of gas through the natural gas network and of electricity by a business established in Germany to another business which also performs services of this kind. This provision is intended to enter into force only after the authorization is issued under EU law or the VAT Directive is amended – see press release 11286/13 above – i.e. at the beginning of the second month after first publication in the Official Journal of the European Union (Administrative Assistance Implementing Act).


With effect from 1 October 2013 personal transport services with land vehicles belonging to businesses established abroad are no longer subject to the reverse charge procedure (Administrative Assistance Implementing Act).


Does an overseas company need to appoint a fiscal representative?


No. An overseas company can only appoint a fiscal representative if it only provides zero-rated or exempt supplies, and does not claim any input VAT.

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VAT grouping

Is VAT grouping possible?


Yes. VAT grouping is obligatory if there are certain financial, economic and organizational links between companies. According to the German VAT Law, partnerships may be considered parent companies, but not subsidiaries. This restriction might be not in line with EU law (see CJEU, ruling of 25 April 2013 ‒ case C-480/10 ‒ European Commission v. Sweden). If a company belonging to a German VAT group has financial, economic and organizational ties to the other companies in the group, it does not have the option of leaving the group.


Can an overseas company be included in a VAT group?


Generally, foreign companies cannot be included in a VAT group. However, where, for example, a foreign parent company has a subsidiary in Germany and a subsidiary in another EU Member State, which in turn has a branch in Germany, VAT grouping between the branch and the subsidiary is required.

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Returns

How frequently are VAT returns submitted?


Businesses liable to German VAT are required to submit a VAT return for each calendar year. Most registered businesses are required, in addition, to submit VAT returns on a monthly or quarterly basis (depending on the amount of VAT payable) during the year. Please note that when a company starts doing business in Germany, monthly returns must be filed in the first year and second year.


Monthly and quarterly VAT returns must be filed electronically, unless doing so would represent an undue hardship. An undue hardship is, in particular, to be presumed in situations where it would be unreasonable to expect the respective business or employer to comply with the technical requirements called for in the Tax Data Transmission Regulations (Steuerdatenübermittlungsverordnung). In such cases, a written request must be submitted to the appropriate local tax office. From 2011 VAT returns must be filed electronically as well.


Failure to submit a VAT return on time may result in a late-filing penalty, which is at the discretion of the tax authorities. The penalty for late filing can be up to 10 percent of the net VAT liability due for the VAT return period, but not more than EUR 25,000.


Failure to make a VAT payment on time may result in a late-payment penalty. The penalty is 1 percent of the outstanding VAT payment, multiplied by the number of months that the payment is overdue.


Note: payments made with German checks are deemed to be effected only on the third day following receipt of the check by the tax office. Payment by foreign checks is not recommended.


Are there any other returns that need to be submitted?


European Sales List (ESL) 


If a business supplies goods which are shipped from Germany to VAT registered businesses in other EU Member States, it is required to correctly complete ESL forms (recapitulative statements) electronically. Otherwise, there might be an audit to check the formal requirements for the zero-rated supplies. Further, the intermediate supplier's sales in context of intra-Community triangular trade have to be reported in the ESL (see section triangulation simplification). It is mandatory for businesses to also state in their ESL those taxable supplies of services executed in other EU Member States for which the recipient of the service, who is established in another Member State, owes VAT in said Member State. This obligation is limited to those cases where the place of supply is determined by the principal rule for B2B services.


Since 1 July 2010, intra-Community supplies of goods and the intermediate supplier's sales in context of intra-Community triangular trade must be reported on a monthly basis instead of each quarter.


For supply of services (see above) the ESL must generally be submitted each quarter by the supplier. Insofar as a business is required to submit the ESL for the above-mentioned supplies of goods on a monthly basis, the information on the services has to be reported in the ESL for the last month of the calendar quarter. Alternatively, it is possible to opt for submission of the EC Sales on a monthly basis. Businesses that made the abovementioned supplies of goods in the current and in the four previous quarters and where the tax assessment basis did not exceed EUR 50,000 each quarter, may continue to submit the EC Sales List on a quarterly basis.


Since 1 July 2010, the submission deadline is extended from the 10th to the 25th day after expiration of the reporting period. For the submitting of the ESL, permanent deadline extensions cease to be valid. Special provisions regarding the submission of the ESL apply in case of businesses that are exempt from filing VAT returns.


Non-compliance with the obligation to properly file ESLs may result in a penalty of up to EUR 5,000.


Intrastat Supplementary Declarations


VAT registered businesses with a value of dispatches or deliveries to or from other EU Member States, which exceed a certain threshold (EUR 500,000 per calendar year since 1 January 2012) must submit supplementary declarations each month.


ESL forms can be accessed on the German Federal Central Tax Office's web site.


Intrastat forms can be purchased in paper form. Alternatively, the Intrastat declaration can be filed electronically. For more information please see the brief instructions (currently in German only) on www.destatis.de.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


Exchange rates for purchase invoices received by businesses are determined by VAT rates of exchange established monthly by the Federal Ministry for Finance (BMF). The average exchange rates can be accessed on the website of BMF. The month is decisive, where the supplies are performed or advance payments are made (§ 16 (6) sent. 1 German VAT Law (UStG)). The tax office can permit the conversion to the daily exchange rate, as evidenced by the communication of the bank or exchange list (§ 16 (6) sent. 3 UStG).

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VAT recovery

Can a business recover VAT if it is not registered


Yes. Provided that the company does not have its domicile, registered office, place of management or permanent establishment in Germany, it may recover German input VAT outside the normal VAT return procedure. "Permanent establishment" is defined as a fixed establishment.


Businesses established in another EU Member State should make a 2008/9/EC claim to the German Federal Central Tax Office (Bundeszentralamt fuer Steuern) via an electronic portal set up by the EU Member State where you are established. A non-EU business should recover the VAT under the 13th Directive (if reciprocity applies).


The 13th Directive claim forms may be accessed on the German Federal Central Tax Office's web site www.bzst.de.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


For businesses established outside the EU, there are restrictions on the filing of 13th Directive claims in Germany. Generally, reciprocity is required.


A list published by the German Federal Ministry of Finance (dated 22 February 2013) available on www.bundesfinanzministerium.de lists countries with reciprocity in Table 1 (Annex 1) and countries without reciprocity in Table 2 (Annex 2).


Nevertheless, for countries without reciprocity, a 13th Directive claim in Germany is possible in certain situations (such as, as far as the foreign company only makes supplies in Germany where the recipient of the supply is liable to VAT due to reverse charge so that the foreign company is not registered for VAT in Germany). Input VAT deduction for these supplies is possible except for the VAT incurred on the purchase of fuel.


Are there any items that businesses cannot recover VAT on?


Yes.  There are certain items that businesses cannot recover input VAT on. For example:


  • Exempt supplies (without credit): VAT relating to both taxable and exempt supplies must be apportioned.
  • Non-business activities can either mean a “non-commercial activity in the strict sense of the term” (e.g. a non-profit making activity carried out by an association for charitable purposes) or an “activity for purposes other than those of the business” (this includes supplies put to private use by business owners, who fall within the category of individuals rather than legal entities, supplies put to private use by staff employed by the business, or supplies put to private use by shareholders or partners):

  1. VAT exclusively relating to non-business activities is not deductible
  2. VAT relating to both business activities and “non-commercial activities in the strict sense of the term” must be apportioned
  3. Where VAT relates to both business activities and “activities for purposes other than those of the business” taxable persons (at least in case of private use by business owners and staff) may elect to allocate input supplies received wholly to their business, depending on the nature of the supply, whereas VAT will generally be levied on the private use. In making such election, the extent to which the supply relates to non-business activity is immaterial. The only restriction is that more than 10 percent of the supplies must be used for business purposes, as set out in § 15 (1) sent. 2 German VAT Law (UStG).

  • Business entertainment: VAT on gifts in excess of EUR 35 per recipient to non-employees, per year is not recoverable. VAT on meals is fully recoverable, if expenditures are in reasonable limits. Under German Income Tax Law, there are also some additional non-recoverable business entertainment costs which impact input VAT.
  • Purchases falling within the Tour Operators Margin Scheme (c.f. Art. 306 Directive 2006/112/EC): The VAT on goods and services which fall under this scheme cannot be reclaimed.
  • Goods sold under one of the Margin Schemes for Second Hand Goods (c.f. Art. 311 Directive 2006/112/EC): There are a number of schemes which provide for VAT to be levied on the goods' sales margin, but do not allow VAT recovery on the purchase of those goods.
  • Expenses: VAT can be recovered only if charged to a taxable person in relation to its business. Where invoices and bills are addressed to an employee, the VAT is not deductible.

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International supplies of goods and services

How are exports of goods and services treated?


Goods


If a company sells goods to a customer who is registered for VAT in another EU Member State, and the sale involves the removal of those goods from Germany (either by you or your customer) to that Member State, then it does not need to charge VAT, and may zero-rate the supply as an intra-Community shipment Genrally, the supplier must comply with the documentary and accounting proof requirements. Inter alia, the supplier must obtain its customer's VAT identification number and quote it on its invoice together with its own VAT identification number. The invoice must also include a reference to the basis for exemption, such as VAT exempt intra-Community supply of goods.


If a company sells goods to a customer who is not registered for VAT in another EU Member State, and the sale involves the removal of those goods from Germany by the supplier, it will have to charge German VAT. If its sales exceed a certain threshold applicable in such Member State, or if it waives the application of the threshold, it may have to register in the Member State under what is known as the Distance Selling Scheme.


If a business exports goods to a customer (business or private) outside of the EU, and arranges for the goods to be transported, it does not need to charge VAT. The same applies if the customer arranges for the transport of the goods, provided it is to a non-German customer. Generally, the supplier must comply with the documentary and accounting proof requirements.


Repairs to movable tangible property may take the form of a supply of goods (as work and material supply - Werklieferung) or a supply of services (as Werkleistung). If it is not possible to determine with certainty, based on general criteria, the kind of supply, it may be assumed that the transaction involves a supply of goods, where the consideration due in respect of the materials used for the repairs, exceeds 50% of the total consideration due for the repair work overall.


Services


Rules on the place of supply for services have changed considerably with the implementation of the VAT Package in January 2010. The following principal rules apply:


As a rule, supplies of services provided to a business for business purposes (so-called B2B services) are made where the recipient of the service is established. As an exception, if such services are provided to a fixed establishment of the recipient, the place of such fixed establishment is the place of supply.


These rules apply mutatis mutandis for services provided to non-business legal persons who have been issued a VAT identification number. With effect from 30 June 2013 this shall be adapted to the current position of the German Federal Ministry of Finance (BMF) as the rules above shall apply mutas mutandis for services provided to sole non-business legal persons who have been issued a VAT identification number and for services provided to legal persons who engage in both business and non-business activities; an application mutas mutandis is excluded if the service is performed for the private need of the personnel or of a partner in firm (Administrative Assistance Implementing Act).


As a rule, the place of supply of services to customers who do not receive such services for their business (so-called B2C services) is where the business providing the services is established. As an exception, if such services are provided from a fixed establishment of the business providing the service, the place of such fixed establishment is the place of supply.


Apart from these principal rules, there are special rules for certain types of services. In particular, these are the following:


The place of supply of services connected with land is where the land is located.


The place of short-term hiring of a means of transportation (short-term means an uninterrupted period of no more than 30 days and, in the case of vessels, not more than 90 days), is generally where the means of transportation is in fact made available to the customer.


With effect from 30 June 2013 in the case of B2C services the place of long-term hiring of a means of transportation shall be where the customer is resident or domiciled. However, the place of hiring a sports boat to such customer is be the place where the sports boat is actually put at the disposal of the customer, if this service is actually provided by the supplier from his place of business or a fixed establishment situated in that place (Administrative Assistance Implementing Act).


The place of supply of the following services is where the business providing the service physically carries out the service:


  • cultural, artistic, scientific, educational, sporting, entertainment or similar services as well as services in the connection with fairs and exhibitions (in the case of B2C services)
  • generally restaurant and catering services
  • valuations of and work on movable tangible property in the case of B2C services.

Admissions to cultural, artistic, scientific, educational, sporting, entertainment or similar events (in the case of B2B services) are taxable at the place where the event takes place.


The place of supply of services by an intermediary in the case of B2C services is the place where the underlying transaction is supplied.


If the customer is resident outside the EU, the place of supply of certain B2C services is where the customer is resident or domiciled. These include, but are not limited to:


  • use of patents, copyrights, and trademarks
  • advertising
  • legal, tax, technical and management consulting services, financial services
  • use of information and know-how
  • provision of personnel
  • hiring-out of movable property (except for means of transportation)
  • telecommunication services, radio and television broadcasting services
  • electronically supplied services
  • and certain services related to natural gas, electricity, heat and cold distribution systems.

Where the supplier is established outside the EU, the place of supply of electronically supplied services (B2C) to customers inside the EU is the place where the customer is resident or domiciled. The same applies in cases where the service provider has a fixed establishment outside the EU from where the services are supplied.


There are a number of exceptional cases mainly involving suppliers or customers established outside the EU, where the place of supply is the place where the service is used or enjoyed.


The place of supply of passenger transportation is the place where the transportation takes place. Only the distance covered in Germany is subject to German VAT. The same applies to the transportation of goods for B2C purposes, which is not an "intra-Community transportation of goods”. For B2C purposes, the place of supply for tax purposes of the latter is the place of departure.


How are goods dealt with on importation?


When goods are imported into Germany from outside the EU, import VAT and customs duty may be due. This has to be paid or guaranteed before the goods will be released from customs’ control. This import VAT and duty can be paid on your behalf by a freight agent or, alternately, you might apply for a VAT and customs duty deferment account.


How are services which are brought in from abroad treated for VAT purposes?


If a company purchases certain services from outside Germany rendered by a foreign entrepreneur, it will be required to apply the reverse charge procedure. A foreign entrepreneur is a company which does not have its domicile, registered office, place of management or permanent establishment in Germany.


With effect from 30 June 2013 this is amended as a company only domiciled in Germany also qualifies as a foreign entrepreneur if its registered office, place of management or permanent establishment is abroad. (Administrative Assistance Implementing Act).


"Permanent establishment" is defined as a fixed establishment. The reverse charge procedure is also applicable if the supplier has such fixed establishment in Germany but the supply is not performed from this fixed establishment respectively has not intervened within the supply.


Under the reverse charge procedure, businesses are required to account for a notional amount of VAT as output tax on your VAT return covering the period in which the invoice is issued, or the month following the period in which they received the supply (where the invoice is issued later), and they recover this VAT as input tax on the same return. Since 1 July 2010 the output tax for services where the place of supply is determined by the principle rule for B2B services arises at the end of VAT return filing period in which the service is performed. In case of advance payments the output tax arises earlier. In case of permanent supplies the tax arises at the end of each calendar year at the latest.


If a business is able to recover all of the VAT, the reverse charge has no cost effect and is a VAT compliance matter only. However, if the business is partly exempt, there is likely to be a VAT cost, depending on the level of recovery allowed under its partial exemption method.


The reverse charge applies to a range of services (see the rules on the supply of services above). Under the reverse charge procedure, the liability for VAT is transferred to the recipient of a supply of goods or services. This applies, as a rule, if the recipient of the goods or services is a business; however, it also applies to recipients that are public law legal persons. On 1 July 2010 the scope of the reverse charge procedure was extended to other legal persons.


Since 2007, the reverse charge procedure does not apply in the case of services of foreign businesses or foreign performance companies connected to the access authorization for domestic fairs, exhibitions or congresses. Since 1 January 2011 the reverse charge procedure does not apply in the case of catering services of foreign businesses on board ships, aircrafts or trains.

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Invoices

Is a business required to issue tax invoices?


An invoice can be issued, either by the entrepreneur himself or by his customer or, in his name and on his behalf, by a third party.


An entrepreneur is obliged to issue an invoice within the meaning of § 14 UStG for the following supplies of goods and services which he delivers or renders for consideration within the meaning of § 1 (1) No. 1 German VAT Law (UStG) -the invoice must be issued within six months after the performance of the supply:


  • work and material supplies (Werklieferungen) or services subject to VAT in relation to real estate
  • any other supplies besides those named above insofar as he performs a transaction to another entrepreneur for his business or to a legal entity who is a non-entrepreneur.

The obligation to issue an invoice does not exist if a transaction is designated as VAT exempt within the meaning of § 4 No. 8 – 28 UStG.


According to § 14a UStG further obligations to issue invoices arise in special cases:


  • (*) supplies in Germany where the reverse charge procedure is applicable
  • supplies of goods in case of distance selling where the transport ends in Germany
  • intra-Community supplies of goods from Germany

(*) With effect from 30 June 2013 this shall be extended to taxable supplies in other EU member states where the reverse charge procedure is applicable and no self-billing is agreed – performed by German suppliers without intervening of fixed establishments abroad. Vice versa, for such supplies taxable in Germany performed from businesses located in other EU-member states the foreign invoicing rules shall apply (Administrative Assistance Implementing Act).


What do businesses have to show on a tax invoice?


A tax invoice it should contain the following data (§§ 14, 14a German VAT Law (UStG)) – highlighted with asterisk (*) are amendments which entered enter into force on 30 June 2013 (Administrative Assistance Implementing Act):


  • complete name and complete address of the supplier
  • complete name and complete address of the customer
  • supplier's VAT identification number or fiscal registration number (issued by the German tax office and more akin to a UK VAT number). If the supplier chooses to show his/her fiscal registration number on the invoice, it is additionally necessary to print the VAT Identification number on the invoice, where the VAT identification number is required (such as, with intra-EU supplies)
  • date of issue
  • a sequential invoice number: Please note that, for simplification, an invoice already issued can be completed or corrected by issuing a new document which contains the respective amendments only, if this document refers to the invoice number of the original invoice
  • the quantity and nature of the goods/services supplied
  • tax point (date of taxable supply): If the supply was provided, then the invoice has to show the date or month of the supply. If an advance payment is received prior to the date the invoice is issued, then the date of the advance payment must be shown
  • the taxable consideration for each tax rate, and any relevant tax-exemptions
  • unit price (exclusive of any VAT): There is no requirement in Germany to state the unit price. However, it is necessary to state the number of units supplied and the total value. The unit price can be calculated from this information.
  • rates of any discounts (if not included in the unit price, and if applicable)
  • existence of a price reduction agreement, if any
  • the applicable VAT rate, as well as the amount of tax allocable to the consideration
  • VAT identification number, name and address of a fiscal representative, if applicable
  • exempt and zero-rated supplies: The reason why VAT is not charged has to be mentioned on the invoice (a reference to the article of the VAT Law or EU Directive is not required)
  • customer VAT identification number (such as on intra-EU supplies: the tax-exempt intra-EU delivery and the VAT identification numbers of both the supplier and the recipient must be shown on the invoice)
  • in case of taxable supplies in Germany where the reverse charge procedure is applicable: The shifting of tax liability to the recipient (VAT must not be shown on the invoice) – as of 2013 (*) by the mention “Steuerschuldnerschaft des Leistungsempfängers”
  • (*) In case of taxable supplies in other EU member states  where the reverse charge procedure is applicable – performed by German suppliers without intervening of fixed establishments abroad and no self-billing is agreed – the mention “Steuerschuldnerschaft  des Leistungsempfängers” those taxable supplies. Further, in cases of services where the place of supply is determined by the principal rule for B2B services, the VAT identification numbers of both the supplier and the recipient must be shown on the invoice.
  • new means of transport/margin schemes (if applicable)
  • in cases of triangulation: The shifting of the tax liability to the recipient and the VAT identification number of both the supplier and the recipient (VAT must not be shown on the invoice)
  • In case of work and material supplies (“Werklieferungen”) or services subject to VAT in relation to real estate a hint to the record keeping requirements of the customer (B2C transactions)
  • (*) In case of self-billing the mention “Gutschrift”
  • (*)  Where the margin scheme for travel agents (§ 25 UStG)  is applied, the mention “Sonderregelung für Reisebüros”
  • (*) Where one of the special arrangements (§ 25a UStG) applicable to second-hand goods, works of art, collector’s items and antiques is applied, the mention “Gebrauchtgegenstände/Sonderregelung”, “Kunstgegenstände/Sonderregelung” or “Sammlungsstücke und Antiquitäten/Sonderregelung”

There are fewer requirements to be fulfilled as regards invoices for small amounts (up to a gross, VAT inclusive, amount of EUR 150). Please contact the country representative. For certain exempt services (such as, services in the banking or insurance sector) there is no obligation to issue invoices from a VAT point of view.


Can businesses issue invoices electronically?


Yes. With effect from 1 July 2011 the requirements have been simplified. Electronic invoices may be issued, provided the authenticity of the invoice’s origin, the integrity of its content and its legibility pursuant to § 14 (1) sent. 2 German VAT Law (UStG) can be guaranteed. The sole condition is that the recipient gives his consent to the invoice being sent electronically.


Within the meaning § 14 ( 1) sent. 8 UStG, an electronic invoice is one that is made out and received in an electronic format and on the basis of official justification, these include invoices sent by e-mail, through an EDI procedure, as a PDF or text files, by computerized fax or fax server and those transmitted via online file transfer.


Further on, through the enactment of the 2011 Tax Simplification Act, there was an extension of the rights of tax authorities to access data when carrying out a VAT inspection pursuant to Section 27b UStG made .


Is it possible to operate self-billing?


Yes, provided the agreement is reached with customer before doing so.


Can a business issue VAT invoices denominated in a foreign currency?


Yes but for the purpose of tax computation, values denominated in foreign currency and deductible input tax amounts are to be translated using the exchange rates pursuant to § 16 (6) German VAT Law (UStG).

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Transfers of business

Is there a relief from VAT for the sale of a business as a going concern?


Yes. If a company sells its business as a going concern, VAT may not be due. However, certain conditions have to be satisfied. For example, the purchaser should be registered for VAT at the time of the transfer (or immediately register as a consequence of the transfer). In case of an asset deal the purchaser has to intend to use the assets to carry on the business, though it is also permissible to make slight changes. However, it is not permissible to buy the business in order to discontinue it immediately. According to the German Federal Tax Court also a disposal of share can be assessed as a transfer of business and the German Ministry of Finance also a disposal of share can be assessed as a transfer of business under certain conditions.

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Options to tax

Are there any options to tax transactions?


There is an option to tax certain types of transactions (see Scope and Rates).

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Head office and branch transactions

How are transactions between head office and branch treated?


If a  head office makes a charge to its branch, or vice versa, it is not treated as a supply for German VAT purposes. Only the deemed intra-Community supply of goods is to be reported as a tax exempt intra-Community delivery respectively as an intra-Community acquisition.

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Bad debt

Is a business able to claim relief for bad debts?


If it holds conclusive evidence that its customer will not (fully) pay his/her debt, then the supplier is able to claim VAT back on the unpaid element through its VAT return. If it subsequently receives payment for the supply then it  will have to pay back the VAT element to the tax authorities in the same way.

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Anti-avoidance

Is there a general anti-avoidance provision under VAT law?


There is a general anti-avoidance provision under the Tax Procedure Law (AO). Due to CJEU jurisprudence it is in discussion whether and to what extent this provision is  applicable to VAT planning schemes that do not reflect the economic logic of a transaction, which therefore appear artificial, and which are not justified by an economic reason or other justifiable logic other than mere tax saving.

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Penalty regime

What is the penalty and interest regime like?


There are a number of penalties that apply in Germany for compliance failures. Late VAT return filing and late VAT payment penalties have already been addressed above.


If your business does not pay an amount of VAT declared on an invoice, this infringement can be punished with a penalty of up to EUR 50,000 (careless tax evasion). Professional or criminal evasion of VAT revenues can be punished by a fine or with imprisonment.

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Tax authorities

Tax audits


How often do tax audits take place?


The tax authorities are entitled to examine a taxpayer’s tax documents and records to verify whether proper payment has been made by actually visiting the taxpayer’s premises. Statistically, the larger a company is, the more it gets into the visor of the tax authorities (see the final results of the tax audit for the year 2011 published on the website of the German Ministry of Finance (BMF)).


Since January 2012, businesses may be audited more often by way of a so-called “timely audit” (“Zeitnahe Betriebsprüfung”). Moreover, special audits may be carried out in particular to verify correct VAT payment (“Umsatzsteuer-Sonderprüfung”).


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


Yes. There is no special system, like S-AFT, required. If documents are created with the help of a data processing system, in a tax audit the tax authority has the right to access to the stored data and use the data processing system to examine these documents. Further, the tax authority can demand that according to its specifications the business analyzes the data mechanical or provides the documents and records stored on a machine usable medium.


However, in this context, it is worth pointing out that since 2013, the commercial balance sheet, profit and loss statements and tax balance sheets together with the tax deviations for tax purposes are to be electronically transmitted to the local tax office (so-called E-Balance sheet) pursuant to §5b Income Tax Act (EStG) by all companies subject to bookkeeping duties. This transmission must happen by way of a predetermined structured schema (so-called taxonomy) for the balance sheet and the profit and loss statements according to the specific legal form.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


If a company as a taxpayer, entrepreneur, investor, is planning to perform certain transactions, it can apply to the fiscal authorities for a formal advance ruling (chargeable). This ruling gives  legal security regarding the tax assessment of the transactions presented. The applicant must be the party who will be liable to pay tax if the transactions are carried out. If no local tax office is responsible for you at the time of application, as it is applying from overseas, the German Federal Central Tax Office will process the application. Otherwise, the local tax office is responsible.


As of 1 January 2009, the responsibilities for providing binding customs tariff in-formation and non-binding customs tariff information relating to VAT have been completely revised. The addresses of the relevant offices and application forms can now be found at www.zoll.de. The main customs office (Hauptzollamt) in Hanover provides binding tariff information on request. Non-binding customs tariff information relating to VAT, however, must be requested from one of six different offices (depending on type of good) of the centre of commerce and learning of the German Federal financial authorities. If any doubts exist as to whether the intended import of a certain good is subject to the reduced rate of VAT, it is possible to obtain binding tariff information. Where doubts relate to an intended delivery or an intended intra-Community purchase, then only non-binding tariff information relating to VAT is permissible.


Are rulings and decisions issued by the tax authorities publicly available in your country?


No, formal or informal advance rulings concern individual cases and are subject to tax secrecy. In contrast, important nationwide abstract circulars are available through the website of German Federal Ministry of Finance (BMF). Furthermore, the states in Germany publish most of its regional abstract circulars.

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


N/A


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


VAT: The reduced rate of 7 percent covers a wide range of goods and services. Certain rules concerning VAT grouping, transfer of business as a going concern, option for VAT in case of VAT exempt transactions are introduced. The excise duty regulations provide for various tax exemptions and tax concessions.

 

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