VAT Reverse Charge in Germany

What does VAT reverse-charge actually mean? And when does it apply? We take up the topic again.

Reverse-charge is a mechanism that applies to non-established businesses in Germany. This mechanism, based on Article 194 of the VAT Directive, allows VAT liability to pass from the supplier to the recipient of the supply. In Germany, this scheme is applied to domestic supplies of services and goods with installation.

To illustrate this, let's take a simple example:

A company from the USA, let's call it “US Tech”, sells and installs specialised IT equipment to a German company, which we will call “DE Corp”. Normally, it would be the responsibility of “US Tech” to calculate the VAT on the sale and installation of the equipment and pay it to the German tax office.

However, with the VAT reversal, this changes. “US Tech” issues an invoice to “DE Corp” without VAT. Instead, it is now the responsibility of “DE Corp” to report and pay the VAT directly to the German tax office. This mechanism is called “reverse-charge” because the responsibility for VAT is reversed from the supplier to the recipient.

This procedure facilitates trade between companies from different countries, as the foreign supplier does not have to be registered for VAT in every country in which it does business. At the same time, it ensures that VAT is collected correctly.

Exceptions and requirements

However, there are exceptions to this rule, including certain passenger transport services and entrance fees to trade fairs and exhibitions. In these cases, the supplier is the only person liable for German VAT.

The requirements for applying the VAT reverse-charge are clearly defined. The supplier does not have to be resident in Germany and the customer must be a taxable person, regardless of whether he is resident or registered for VAT in Germany.

VAT reversal on B2B services

VAT inversion also applies to B2B services in Germany. Under the general B2B rule, any business that is not resident in Germany and provides services to a customer registered in Germany will not charge VAT and the transaction will be reverse charged by the customer.

Rules for use and enjoyment

The use and enjoyment rules may differ from the place of supply rules, depending on the country where the service is actually consumed. Germany has introduced positive use and enjoyment, which deviates the place of supply to the country where the service is actually consumed if the customer is outside the EU and the service is also provided outside the EU.

VAT reverse-charge on certain goods

The domestic VAT reverse-charge may also apply to certain goods with different conditions in each case. This regime is often introduced on products that are more likely to be used for carousel fraud purposes. German domestic VAT inversion applies to the goods and services regardless of whether the supplier is resident or VAT registered, and on the sole condition that the customer is a taxable person.

Originally published on?eClear.com