EU-wide trade via Germany: When does the reverse charge procedure apply?

The Reverse charge procedure (reverse charge mechanism) is a special regulation in VAT law that is used in particular for cross-border transactions within the EU. It means that it is not the Performing party (seller)but the Beneficiary (buyer) pays the sales tax in his country.

1 When does the reverse charge procedure apply in Germany?

The reverse charge procedure applies in Germany for certain transactions, in particular:

- Intra-Community B2B deliveries (sale of goods between companies in different EU countries)
- Intra-Community services (e.g. consulting, software development, marketing)
– Certain sales in Germany if the recipient of the service is liable to pay VAT in Germany
– Supplies and services from foreign companies to German companies

Important:

• The reverse charge procedure only applies to B2B transactions between two companies subject to VAT.
• The beneficiary must have a have a valid sales tax identification number (VAT ID).

2. reverse charge for deliveries of goods within the EU

The reverse charge procedure applies to intra-Community suppliesif:
- The seller a Company in an EU country is.
- The buyer a Company in another EU country with valid VAT ID is.
- The goods are physically transported from one EU country to another.

How is the invoice issued?

• The seller shall provide a Net invoice (without sales tax) from.
• Reference to the reverse charge procedure (e.g. "tax liability of the recipient of the service").
• Buyer must charge & pay VAT in his country.

Example:
A company in Germany sells goods to a company in France.

• The seller in Germany issues an invoice without 19 % German sales tax from.
• The buyer in France must calculate the French VAT & report it to the tax office.

3. reverse charge for services within the EU

With cross-border services the reverse charge procedure applies if:
– Service is provided to a company in another EU country.
- The service recipient is an entrepreneur with a valid VAT ID.
– Services fall under the "general clause" of Art. 44 of the VAT System Directive (VAT Directive).

Which services are affected?

• Consulting services (e.g. legal advice, management consulting)
• Marketing & advertising services
• Software & IT services
• Agency services
• Leasing of machines
• Electronic services (e.g. cloud software)

How is the invoice issued?

• The service provider shall provide a Net invoice (without sales tax) from.
• Reference to reverse charge, e.g: "Tax liability of the recipient of the service" in accordance with § 13b UStG.
• The recipient must calculate & report the VAT in his country.

Example:
A Spanish marketing company provides a service for a German company.

• The Spanish company issues an invoice without sales tax from.
• The German company must use the German 19 % Value added tax calculate yourself & report to the tax office.

4. reverse charge for foreign companies in Germany

If a Foreign company without registered office in Germany provides a service, the reverse charge procedure applies if:
- The receiver a Companies in Germany is.
- The benefit would be taxable in Germany.
- The Service provider not based in Germany is.

Examples of services for which reverse charge applies in Germany:

• Construction services for German companies (§ 13b para. 2 no. 4 UStG)
• Supply of gas & electricity
• Telecommunications services
• Certain assemblies & work deliveries
• Digital services from non-EU providers (e.g. Google Ads, Facebook advertising)

Important for foreign dealers:

• If you you store physical goods in Germany or sell them to German customersapplies no reverse charge - you must register for VAT in Germany!
• If you digital services to German private customers sell, the OSS procedure (one-stop store).

5. reverse charge for marketplace sellers (Amazon, eBay, Shopify)

If you are a foreign online retailer via Amazon FBA or eBay goods to Germany, the following applies no reverse charge. Instead, you must:
– Apply for a German VAT ID.
– Calculate & pay the 19 % sales tax yourself.
- If you have sell a marketplacea Certificate according to § 22f UStG submit.

Exception: If you are a EU dealers via the OSS procedure (one-stop store), you can process German VAT via your home country.

6 When does reverse charge not apply?

• No reverse charge for sales to private customers (B2C)
• No reverse charge for storage in Germany (e.g. Amazon FBA)
• No reverse charge for domestic German transactions

7. reporting & accounting for the reverse charge procedure

For the seller:

• Issue invoice without VAT
• Reverse charge in the Advance sales tax return enter (line 41 ELSTER)
• Intra-Community supply in the Summary declaration (ZM) specify

For the buyer:

• Calculate VAT in your own tax return & pay it to the tax office
• If entitled to deduct input tax → the tax can be deducted directly as Deduct input tax

Tip: If you regularly do international businessa Automated tax solution such as Taxdoo, Avalara or Hellotax help.

When do you have to apply the reverse charge procedure?

– Intra-Community supplies & services (B2B within the EU)
– Services provided by foreign companies to German companies
– Certain construction & telecommunications services in Germany
– Digital services from non-EU companies to German companies

No reverse charge for sales to private customers (B2C)
No reverse charge if you store & sell goods in Germany (Amazon FBA, Shopify, eBay)

• No reverse charge for sales to private customers (B2C)

• No reverse charge if you store & sell goods in Germany (Amazon FBA, Shopify, eBay)

Do you have a specific question about reverse charge for your business model?