Germany changes the definition of supply of goods with installation
Germany announced changes on the definition of the supply of goods with installation for VAT purposes. These changes may require foreign businesses to register for VAT in Germany.
German scope of supply with installation
In October 2020, the Federal Ministry of Finance in Germany announced changes regarding what exactly fell into the scope of supply of goods with installation. The amended definition clarifies that a supply of goods with installation only occurs when the original supplier processes or finalizes goods that do not belong to them. A transitional period will be in place until January 2021 in which the tax authorities will allow transactions occurring before this date to remain subjected to the old definition.
The new meaning of supply with installation
Old definition
Previously, the tax authorities deemed that a supply of goods with installation occurred even when a supplier used or assembled goods that were owned by that supplier. For example, if a supplier owns a machine, divides this machine into spare parts and assembles such spare parts in the premises of his or her client, this would be considered a supply of goods with installation.
New definition
The modified definition does not deem the above scope sufficient enough to be considered a supply of goods with installation. In the letter, the Ministry of Finance also clarified that the supply of goods with installation will only be considered if the product being manufactured does not belong to the manufacturer, and that the items involved in production are not only ingredients or secondary materials.
Why is supply with installation important?
Germany applies domestic reverse charge on supplies of goods with installation. This means that foreign businesses are not required to register for VAT in Germany when only making these supplies.
Non-established suppliers will be primarily affected by this change, as the scope of reverse charge has been narrowed under the new definition. In this sense, non-established businesses supplying goods that do not fall into the scope of the new definition will be obliged to VAT register in Germany and subsequently charge German VAT to the final customer. You can find more information about reverse charge in Germany here.
Get in touch
Not sure if your transactions fall into the scope of the new definition set by the German Ministry of Finance? One of our advisors would be happy to help you navigate through your business flows.