Due to the internationalisation of business transactions, numerous legal VAT issues need to be clarified, and not only in the international movement of goods.
VAT issues also arise in the case of cross-border services such as consultancy or expert services.
On 12 February 2008, the EU Council issued two directives amending the Value Added Tax System Directive (VAT Directive), which are to be transposed into national law by the German legislator in the Annual Tax Act 2009 (JStG 2009) of 19 December 2008 with effect from 1 January 2010.
These directives amend the local provisions for other services, extend the reverse charge procedure and the information in the recapitulative statement to include intra-Community other services and reorganise the input tax refund procedure.
1) Basic rule Business to business ("B2B")
The newly introduced amendments generally follow the place-of-receipt principle, so that cross-border services provided by an entrepreneur to an entrepreneur based abroad for the latter's business are generally subject to VAT in the country from which the recipient operates its business.
2) Basic rule Business to Consumer ("B2C")
If, on the other hand, other services are provided to non-entrepreneurs from 2010 onwards, it remains the case that the service is provided at the place from which the (supplying) entrepreneur operates his business (3a para. 1 UStG new version).
3) General exceptions
General exceptions in both the B2B and B2C sectors exist for
- Property-related services (location pursuant to Section 3a (3) no. 1 UStG new version)
- Short-term rental of means of transport (place of delivery pursuant to Section 3a (3) no. 2 UStG new version)
- Cultural, scientific, teaching, sporting and similar services Services (venue according to § 3a para. 3 no. 3 UStG new version)
- Restaurant and catering services (place of supply pursuant to Section 3a (3) no. 3 UStG new version)
- Passenger transport services (routes pursuant to Section 3b (1) UStG new version)
4) EU and third country
Due to the harmonised VAT system, the rules described above generally apply to services provided within the EU.
In the case of services outside the EU, the taxability of the transaction and the tax liability are determined by the national tax regulations of the third country concerned of the recipient of the service.
This also applies to the exceptions described above, as there is generally no mandatory transfer of the tax liability to the recipient of the service in accordance with the reverse charge procedure.
It is therefore essential to consult the tax regulations applicable in the third country.
5) Invoicing
The changes described above also have an impact on invoicing:
a.) Business to Business ("B2B")
The German entrepreneur who provides a service to an entrepreneur in a third country is not liable for VAT (reverse charge procedure) and is therefore not permitted to show VAT on the invoice.
The invoice recipient must be informed that the tax liability has shifted to them and they must state their VAT ID number and that of the recipient.
The German entrepreneur who provides a service to an entrepreneur in a third country must check whether the transaction is taxable in the country and who is liable for the VAT.
If the transaction is taxable according to the local regulations and he is also the debtor of the VAT, he must show the foreign VAT in the invoice.
b.) Business to Consumer ("B2C")
As mentioned above, the place of business principle continues to apply to services provided to non-entrepreneurs.
The service is therefore generally subject to German VAT, which is owed by the entrepreneur providing the service.
Accordingly, entrepreneurs based in Germany must show German VAT on their invoices and pay this to the tax office.
If the place of performance is abroad due to a special rule, the supplier must show the foreign VAT in the invoice, which he must calculate according to the tax regulations applicable abroad and pay abroad.
Important Note: The content of this article has been prepared to the best of our knowledge and belief. However, due to the complexity and constant evolution of the subject matter, we must exclude liability and warranty. Important Notice: The content of this article has been created to the best of our knowledge and understanding. However, due to the complexity and constant changes in the subject matter, we must exclude any liability and warranty.
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