Even if you are based in Germany as a freelancer, you may want to sell some of your products or services abroad. Likewise, you might be purchasing products or services yourself from outside of Germany. In this guide I will address how to handle the VAT (or “Value added tax”) elements related to these transactions.
If you do not yet have a tax number and a VAT identification number (“Umsatzsteuer-Identifikationsnummer”) in Germany and need information on how to do this, then I recommend my article “A guide to VAT for freelancers in Germany” which will give you all the information you need.
Contents: A guide to VAT abroad for freelancers in Germany
- 1. Selling Products or Services Outside of Germany but within the EU
- 2. Using the “Reverse Charge” Procedure
- 3. Summary Report (“Zusammenfassende Meldung”)
- 4. Digital Services
- 5. Selling Products or Services Outside of Germany and outside the EU
- 10. Final Remarks on the guide to VAT abroad for freelancers in Germany.
1. Selling Products or Services Outside of Germany but within the EU
There are different ways of handling the VAT depending on whether it is a private person or a business. A business must have a VAT identification number to be treated as such.
1.1 Private Person
- The customer receives an invoice from you with the normal German VAT included. You should include such sales in your VAT return in the normal way. (There is a limit to the amount of sales you can make into any one country using this procedure. The limits vary from country to country but are relatively high. The UK for example is GBP 81,000 or France is EURO 100,000. If you exceed these amounts then you must account for the VAT directly with the tax authorities in that country.)
- If you deliver the goods or services to the customer in Germany then you should treat the VAT just like any other sale there. This is regardless of whether he comes from somewhere outside of Germany.
- There is an exception to this relating to the sale of digital services and I have addressed this separately below.
Provided the business also has a VAT identification number, the invoice to the customer should not contain VAT. You should account for the VAT in this case using the “Reverse Charge” procedure.
2. Using the “Reverse Charge” Procedure
“Reverse Charge” means that your customer accounts for the VAT on the invoice in his country. You invoice the customer without VAT. He accounts for it in his VAT return and pays it to his tax authorities. (Since it is a business purchase for him, he is able to deduct the – same amount of – VAT from the amount he has to pay. So, for him, the purchase does not include an amount of money for VAT).
You must include a comment on the invoice stating that VAT is being accounted for using the Reverse Charge Procedure. This comment is: “Reverse Charge” or “Steuerschuldnerschaft des Leistungsempfängers” and is obligatory.
You must also include both your own VAT identification number and that of the customer.
It is your obligation, as the seller, to ensure that the VAT identification number is valid. You are able to check the validity online, for example [HERE ].
When you purchase goods or services from a business supplier outside of Germany (but from within the EU), then you must also account for the VAT on those invoices. You should include the data on your normal monthly or quarterly VAT return. It will have no net impact on your VAT payment or refund. You must pay to the tax office the sales (output) VAT of your supplier and at the same time you can deduct the same amount as your (input) VAT.
3. Summary Report (“Zusammenfassende Meldung”)
If you provide goods or services within the EU using the Reverse Charge Procedure, then you must also submit an additional quarterly return. This is called the Summary Report (“Zusammenfassende Meldung”).
In this report you must list all transactions with EU countries. The data also includes the VAT identification numbers. This enables the tax authorities in each country to match the transactions. This ensures that the relevant countries can collect the appropriate amount of VAT.
You must submit the Summary Report electronically to the Central Federal Tax Office. The data included must agree with the data on the VAT monthly or quarterly returns.
The portal of the Central Federal Tax Office provides information on submitting the summary report electronically.
4. Digital Services
If you are providing e-services (“electronically supplied services”) to end-customers such as e-books and any other products which can be automatically downloaded from your website, there is a difference in the way that VAT is charged. (End-customers are not businesses with their own VAT identification number):
In this instance you should include VAT on the invoice – but at the rate that applies in the country in which the customer lives.
4.1 MOSS (“Mini-One-Stop-Shop”)
In order to ensure that businesses do not have to register with multiple tax offices, a central clearing office procedure has been set up called MOSS (“Mini-One-Stop-Shop”).
You can register to use MOSS by applying online via the Central Federal Tax Office.
Every quarter you must submit a separate VAT return via MOSS and pay any VAT that you have collected from your customers outside Germany. The central tax office then pays the VAT to the appropriate countries.
4.2 Digital Services provided by Small Traders
Small Traders are not obliged to account for VAT in Germany. However, if they provide digital services to other countries within the EU then they must charge VAT on their invoices and register with MOSS in the same way. There are no minimum limits for this.
5. Selling Products or Services Outside of Germany and outside the EU
5.1 Sale of Products or services outside the EU
You do not need to charge VAT if you are delivering the products or services outside the EU. You must include a statement on the invoice to the effect that it is a tax free export (for example: “Steuerfreie Ausfuhrlieferung/Tax free export”).
If you have purchased materials or services from within Germany to make these sales, then you are still allowed to deduct the (input) VAT from your suppliers when making your monthly or quarterly VAT return.
Although no VAT must be charged on the sales, it is still necessary to record the total VAT-free sales in your monthly or quarterly VAT return. There is a special field for this data.
Different countries outside the EU may also charge a type of VAT within their jurisdictions. Sometimes, as in Switzerland, for example, this is based on the Reverse Charge procedure. Whilst you are not responsible for the VAT in these countries, it may be important for you to research these sorts of taxes as it will effect the final total value that the customer has to pay for your services or products.
5.2 Import VAT (“Einfuhrumsatzsteuer”)
If you import goods into Germany from outside the EU, then they are liable to Import VAT (“Einfuhrumsatzsteuer”). This tax is charged and calculated by the customs authorities in Germany, based on the value of the goods. Other elements are also included, such as any duties and the transport cost of the goods to the border in Germany.
The import VAT is charged at the same rate as VAT in Germany. This will therefore usually be 19% (or 7% for items at the reduced rate). There is, however, a tax exemption for goods under EURO 22.
You can deduct the import VAT from the VAT you have to pay in your monthly or quarterly return. The amount must be entered on a separate line in the return so it is important that you keep records enabling you to identify the amount easily.
10. Final Remarks on the guide to VAT abroad for freelancers in Germany.
Even if you only make a few sales outside of Germany, you are nevertheless obliged to account for them correctly. The laws and regulations relating to VAT with and outside of the EU are complex and I have only given a summary of the most relevant points for the majority of freelancers and small businesses.
As a final word – I would strongly advise you to consult a tax advisor (“Steuerberater”) if you have issues concerning VAT or any other tax related topics. She or he can advise you on your own specific business and tax issues and also represent you as far as any dealings with the tax office are concerned. It is without doubt of great value to have someone you trust to advise you on tax issues as and when necessary.
Photo via Visualhunt.com
As a freelancer or small business in Germany, VAT is something which you cannot avoid. I have addressed all the issues related to obtaining a tax number and dealing with VAT returns on a regular basis in a separate blog article: “A Guide to VAT for freelancers in Germany.”]