Reverse Charge in Germany
German reverse charge on non-established companies
According to art 194 of the VAT Directive, Member States may implement an optional reverse charge on supplies made by non-established businesses. Germany has introduced this optional reverse charge for domestic supplies of services and supplies of goods with installation.
Where a non-established supplier provides services or sells goods with installation to a taxable person, domestic reverse charge applies. It is not relevant if the supplier is registered or not. Regarding the customer, it is not relevant if it is established or VAT registered. Even when the customer is not VAT registered, reverse charge applies, hence requiring this customer to register and account for VAT.
To this general rule there are a few number of exceptions:
- Certain passenger traffic services
- Entrance fees for fairs, exhibitions and conferences
- Services rendered by a coordinating company associated with the organization of fairs and exhibitions in Germany
- Local services of food and beverage when they take place onboard a ship, in an aircraft or on a railway
In these cases, the supplier is the only liable person for German VAT, and so the reverse charge mechanism does not apply. The supplier must charge German VAT on the invoice, and for the customer to recover that VAT, he should apply the International Refund Procedure.
In October 2020, the Ministry of Finance narrowed down the definition of supply of goods with installation, clarifying that a 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. You can find more information on the new definition here.
Not established in Germany
(irrelevant if the supplier is registered or not for VAT)
(irrelevant if the customer is established or VAT registered)
All supplies of services – see exceptions
Supplies of goods with installation
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Reverse charge on B2B services in Germany
Article 196 of the VAT Directive requires the reverse charge mechanism on all services subject to the B2B rule introduced in art. 44 of the same Directive. The B2B rule place the transaction where the business customer is located. In case the customer is a private individual, B2C rules place the transaction where the supplier is located.
According to the general B2B rule, any business not established in Germany supplying services to a German registered customer will not charge any VAT and the transaction will be reverse charged by the customer.
There are however a number of exceptions to this rule. Where these exceptions apply, reverse charge is still applicable in Germany:
- Services connected to immoveable property are placed where the property is located
- Passenger transport services will be located where the transport takes places (apportioned if necessary)
- Catering services are located where the catering takes place
- Short term leasing of means of transport are located where the vehicle put at the disposal of the customer
- Access to conferences, fairs and exhibitions is located where the event takes place
The next section covers the use and enjoyment rules, which is an exception to the B2B rule on services.
German reverse charge on specific goods
Domestic reverse charge may also apply on 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 reverse charge applies to the goods and services listed below 1) irrespective of the supplier being established or VAT registered and 2) under the sole condition that the customer is a taxable person. Should the customer be a taxable person not registered for VAT, it will be obliged to register to account for this VAT.
- Supplies of gas and electricity, as well as supplies of heating and air conditioning. Some exceptions apply
- Supplies of scrap metal and base metals (see VAT law appendix for details)
- Supplies of emission rights
- Supplies of goods and services connected with immoveable property
- Supplies of goods as part of the legal proceedings in case of bankruptcy
- Supplies of integrated circuits, mobile phones, tablet computers and games consoles for a remuneration of EUR 5,000 or more
- Cleaning services of immoveable property. Exceptions apply.
Note: The information in this section is currently being reviewed by our network."
German use and enjoyment rules
Member states can introduce another exception to the B2B rule according to the place where the services have been used and enjoyed. This exception may be introduced to avoid double taxation (positive use and enjoyment rules) or avoid non-taxation (negative use and enjoyment rules) or both.
Germany has introduced the positive use and enjoyment, hence deviating the place of supply to the country where the service is actually used when the customer is outside the EU and the service is also carried outside the EU. The following services are included:
- Advertising, consultancy and data processing services
- Banking and financial services
- Transfer of copyrights
- Supply of staff
- Access rights to gas and electricity
- Telecommunication, broadcasting and TV services.