Due to globalisation and the associated increase in world trade, cross-border VAT matters are becoming more and more important.
This also and especially applies to imports and exports between Germany and third countries, such as Russia.
Third countries in the context of VAT law are territories that are not part of the domestic territories of EU member states.
In this article, we will first look at VAT problems in the import and export of goods between German companies and companies from third countries using Russia as an example.
1) Deliveries to companies in Russia
In principle, German companies can invoice goods that are exported to a third country tax-free as an export delivery.
The tax exemption in this context also includes customary ancillary services that are provided in connection with the tax-free export delivery, e.g. transport costs, packaging and insurance costs, preparation of expert opinions, etc.
The following simple example illustrates the legal regulation:
Entrepreneur D from Germany sells a machine to Russian entrepreneur R, which the latter uses in his company in Russia.
D has the machine transported to Russia by a freight forwarder. Pursuant to Section 3 (1) UStG, the sale of the machine is a supply that is carried out in Germany pursuant to Section 3 (6) UStG.
According to § 1 para. 1 no. 1 UStG, the delivery is therefore taxable in Germany.
As D has the machine transported to a third country in accordance with Section 1 (2a) sentence 3 UStG, this is an export supply in accordance with Section 6 (1) no. 1 UStG, which is tax-free in Germany in accordance with Section 4 no. 1 a. UStG.
a.) Material requirements
§ Section 6 (1) UStG as the central standard for VAT exemption differentiates between whether the goods are transported to the third country by the supplier or by the customer.
aa.) Transport by the supplier
If the goods are dispatched or transported by the supplier, it is a prerequisite that the delivered goods reach the third country, regardless of where the customer is located.
bb.) Transport by the customer
If the goods are collected (dispatched or transported) by the customer, the goods must be delivered to a third country and the customer must be based abroad.
b.) Required evidence
Proof must be submitted to the relevant tax authority as double proof (proof of receipt and proof of bookkeeping).
aa.) Documentary evidence
A distinction must be made between the transport case and the dispatch case in the context of the documentary evidence.
(1.) Transport case
Pursuant to Section 3 (7) UStG, a case of transport exists if the supplier or the customer moves the goods themselves.
In these cases, it must therefore always be assumed that the goods are transported using the supplier's or customer's own vehicles.
In the case of transport, proof should always be provided in the form of a receipt containing the following information:
- Name and address of the entrepreneur.
- Customary designation and quantity of the exported item.
- Place and date of export.
- Export confirmation from the border customs office of a Member State supervising the exit of the goods from the Community territory.
(2.) Dispatch case
A shipment is always deemed to have taken place if the trader has shipped the object of the
delivery to the customer by an independent agent (e.g. by a forwarding agent or by the post office).
A case of dispatch is also deemed to exist if the purchaser (customer) has the goods collected by an independent third party commissioned by him.
(carriage forward).
In the case of dispatch, proof should always be provided in the form of a dispatch note or other standard commercial document.
Shipping documents are consignment notes (e.g. railway consignment note, air waybill), bills of lading, postal delivery notes, etc.
Other supporting documents include, for example, the certificate from the forwarding agent if it contains the following information:
- Name and address of the exhibitor and the date of the exhibition.
- Name and address of the contractor and of the client if the client is not the contractor.
- Customary designation and quantity of the exported item.
- Place and date of export or place and date of dispatch to the third country territory.
- Consignee and destination in third country territory.
- Assurance by the issuer that the information in the document is based on data that can be verified in the Community territory.
- Signature of the exhibitor.
(3.) Customs (alternative) exit endorsement as documentary evidence/special cases
The "exit endorsement" issued by the German customs office of export and the "alternative exit endorsement" in conjunction with the alternative proof are also recognised both in the case of transport and dispatch.
This evidence is sent to the exporter as part of the electronic export procedure (as a pdf document).
It should be noted that, in addition to the regulations outlined above, there are numerous special cases that need to be checked in order to be able to provide proper proof of receipt.
bb.) Book evidence
In addition to the documentary evidence, the supplier must also provide clear and easily verifiable accounting evidence.
For this purpose, the following data must be recorded continuously and promptly:
- Customary designation and quantity of the delivery item
- Name and address of the customer or client
- Day of delivery
- Agreed remuneration
- Nature and extent of any processing or treatment prior to export
- The export
- If the goods are supplied by the entrepreneur himself and the customer is not a foreign customer, an additional record must be kept:
- Transport or dispatch by the entrepreneur himself.
- The destination.
As long as all evidence has not been provided in full, the supply may not be treated as tax-free.
2) Imports from Russia to Germany
Imports from Russia to Germany are also subject to VAT.
a.) General procedure
If goods are imported into Germany from third countries such as Russia, all imports are subject to import VAT in accordance with Section 1 (1) No. 4 UStG.
The import VAT paid in the amount of 19% or 7% can be deducted as input tax.
The person liable for import VAT is generally the person who has the power of disposal over the goods at the point of border crossing.
Since vicarious agents (forwarders, carriers, commercial agents) generally have no power of disposal over the goods upon import, the debtor is therefore the party who commissioned the vicarious agent.
The import sales tax must be paid to the responsible border customs office.
In addition, the import sales tax can be paid monthly into the tax account held at the tax office.
b.) Tax exemption
Under certain circumstances, an exemption provision may apply to the import of goods.
The individual tax exemptions are regulated in § 5 UStG.
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.
If you need legal advice, feel free to call us at 0221 – 80187670 or email us at info@mth-partner.de.