VAT between the UK and Germany

As Germany and the UK are fellow states of the EC, there are complicated VAT rules affecting business carried out between the 2 countries. This post outlines the main issues as they apply to a small UK business.

‘Germany’ in this context excludes the island of Heligoland and the town of Busingen.

German VAT is called ‘Mehrwertsteuer’, or ‘MwSt’. It is also sometimes known as ‘Umsatzsteuer’, or ‘UmSt’.

Exporting goods to Germany

A VAT-registered UK business does not need to charge VAT on goods exported to Germany, provided it obtains the German customer’s MwSt registration number (including the DE prefix) and shows it on the invoice. It must also keep documentary proof of export.

The UK business is still able to reclaim any UK VAT on the goods which it is exporting, subject to the normal rules about reclaiming input VAT.

If the German customer is not registered for MwSt, and the UK business is not registered for MwSt, then UK VAT must be charged. No VAT is chargeable on goods which would normally be zero-rated or exempt when supplied in the UK (for example, books, children’s clothing and some food items).

Every year the UK business should check whether its level of sales to unregistered customers in Germany requires it to register for MwSt under the distance selling rules. Broadly, these require a UK business to register for MwSt, and then charge MwSt instead of UK VAT, if its sales of goods to customers in Germany who are not registered for MwSt are over €100,000 in a calendar year. Such a registration is also optional at lower levels of sales, but as rates of German MwSt have recently increased from 16% to 19%, which is typically higher than the UK VAT equivalent, this is unlikely to be favourable.

Importing goods from Germany

A UK business importing goods from Germany should give the German supplier its UK VAT registration number so that German MwSt does not get charged. If MwSt is charged, the UK business cannot reclaim it on their UK VAT return or by a direct claim to the German tax authorities.

When a UK VAT-registered business imports goods from Germany from a German MwSt-registered business, the UK business should pay UK VAT on the import by including VAT in box 2 of its regular UK VAT return, at the appropriate UK VAT rate. It may then reclaim that same amount by including it as input VAT in box 4 of the same VAT return, subject to the normal rules about recovering input VAT. The reason for this apparently circular exercise is to avoid VAT distortions between buying goods in the UK and importing them from Germany.

Special VAT rules for the movement of goods

Different rules may apply in certain less-common situations:

Transfers of own goods between the UK and Germany within the same legal entity;
Temporary movement of goods;
Installed or assembled goods;
Movements of goods for process, repair etc;
Triangular business transactions;
Supplies to privileged persons in other EC states;
Call-off stocks;
Consignment stocks;
Excise goods;
Goods supplied on sale or return;
Samples;
Goods sent for testing;
Mobile phones and computer chips.

VAT on services

UK VAT may need to be charged on services performed in Germany or to clients based in Germany, depending on the type of service supplied. This is a complex area, but broadly, assuming the supplier belongs in the UK and the customer belongs in Germany, UK VAT will need to be charged on most services unless one of the following exceptions applies.

UK VAT does not need to be charged on services relating to land or property situated in Germany. This includes estate agency, conveyancing, architects, surveying, construction, property maintenance and repair work, hotel accommodation (unless a tour operator), defined exhibition stands, and property management services.

Football crowd in Germany UK VAT does not need to be charged on most services related to a live event or physical activity carried out in Germany. This includes cultural, artistic, sporting, scientific, educational, training, entertainment, exhibition, conference and valuation services. It also includes actors, singers and interpreters.

UK VAT does not need to be charged on passenger transport carried out in Germany.

UK VAT does not need to be charged on most ‘intangible’ or ‘intellectual’ services received for business purposes by a customer who belongs in Germany. This includes copyright, royalties, licences, other intellectual rights, advertising, consultants, engineers, lawyers, accountants, data processing, written translation, computer programming, software maintenance, web design, sound engineers and technicians, the supply of staff, banking and insurance. If the service relates to land or property situated in the UK, VAT still needs to be charged. If the service is not being received for business purposes by the customer, UK VAT has to be charged. The customer does not need to be registered for VAT for the service to qualify as being for business purposes, but some evidence of the business purpose should be obtained.

With all these services, it is important to look at the precise nature of the underlying service being provided. A business cannot turn one type of service into another by simply changing the description on the invoice.

Other types of services

Different rules may apply to certain less-common services:

Tour operators;
Letting on hire of a means of transport;
Letting on hire of goods;
Valuation or other work carried out on another person’s goods for export from the EC;
Intermediary services (generally agencies or brokers working for a commission);
Training services supplied to overseas governments;
Freight transport;
Telecommunications services;
Radio and television broadcasting services;
Electronically supplied services.

Additional services rules

The UK business is still able to reclaim any UK VAT on expenses which it incurs in providing a service which is deemed to be outside the UK, providing that the service would be taxable if it was made in the UK, and subject to the normal rules about reclaiming input VAT.

If a VAT-registered UK business receives a service from a German supplier, and the place of the service according to the above rules is in the UK, the UK business may need to ‘reverse charge’ that service (see section 16, VAT Notice 741). If the UK business is not registered for VAT, and the service is ‘intangible’ or ‘intellectual’, the value of that service will be included in the turnover of that business in determining whether it needs to register for UK VAT.

Any service which is not subject to UK VAT under the above rules may be within the scope of German MwSt. A UK business providing a service within the scope of MwSt should consider whether it needs to register for MwSt, and then charge and account for it, according to German tax law. This is beyond the scope of this post, but more detailed information can be found here.

Reclaiming German MwSt

German sausages A VAT-registered UK business which buys goods (which are not for export) or services in Germany may be able to reclaim any German MwSt paid, by using a special refund scheme. This is available to a UK business which is not registered in Germany for MwSt, which has no physical presence in Germany and does not make any supplies there. The claim is made in German using the specified form, and sent to the appropriate tax office in Germany together with original supporting invoices and a UK VAT66 certificate. More about reclaiming German VAT

The main contact office for information about German MwSt is:

Bundesministerium der Finanzen
Referat Burgerangelegenheiten
11016 Berlin
Deutschland

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Posted on 3 November 2008. To see related posts, try these links...
Categories: Overseas, VAT
Tags: Germany, VAT

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27 Comments (oldest first)

1. vincent barker says:

I am a uk vat registered business
I am renting commercial property in Berlin.
Some landlords in Germany will deduct the vat at source because i am vat registered in the UK.
Some won’t.
For the landlords who won’t is there any way i can reclaim the vat from the uk or german system?
13 November 2008
2. admin says:

If you are renting commercial property in Berlin, then you should look at whether you need to register for VAT in Germany.

This may enable you to reclaim any German VAT which you are charged.
14 November 2008
3. Dave says:

UK non vat registered business. Just had my webserver & several domains transferred from Lycos to Strato - a German company. They have charged vat at 19% on each item.
Shouldn’t the vat rate prevailing in the UK apply here?
The server may be based in Germany but the service will be used in the UK. Or have I got this wrong?
23 December 2008
4. admin says:

As you are receiving the service for business purposes, the place of supply is the UK. German VAT should not apply.

You should provide the German company with evidence that you are in business, and refer them to the VAT on E-Commerce Directive that came into effect in 2003.
24 December 2008
5. lemonade says:

The applicable VAT rate is where the service is supplied. Note carefully, this is service, not goods. In the case of goods, it is the location where the goods are delivered.

If you have webhosting ON GERMAN SERVERS located in Germany, connected to the internet in Germany, then the German Mwst applies. If you had goods shipped to you, then the case is different.

Also there is no VAT on rental contracts. I am surprised at the ealier poster saying they rent commercial property in Germany and they are subject to German Mwst. The case is different if it is NOT a formal rental contract, but, eg. you “rent” storage space or rent a room in a business centre. In these cases you dont actually have a formal rental contract and have no “tenant” rights. What you have is a service contract for the use of space and services, e.g. reception, etc.
31 December 2008
6. shaan hussain says:

Hi.

I am a uk vat registered company, about to be located in germany, I will be working for an investment bank as a consultant. Can I charge the company or the agency in UK VAT?

Thanks
28 January 2009
7. admin says:

If the service being charged is a business one, then whether you have to charge UK or German VAT depends on where your customer belongs. The rules on this are complicated, but they are explained in Section 3 of VAT Notice 741 (link above).
1 February 2009
8. Lina says:

HI, I’m a student from Asia and now as an exchange student in Germany. I just ordered some goods from a British company. It’s with a TAX FREE sign on the website. Should I still pay the import tax on the German side? And how much is it? I ordered a bracelet and wallets.
Thanks a lot if you can help.
2 February 2009
9. Webby says:

If a contractor is working in Germany, has a registered GmBH and is providing services in Germany his VAT is German based - right?

But now, this contractor is sending his German Invoice with 19% VAT added for consultancy services to me, a UK based Ltd Company for payment based on the services he has provided on my behalf to a German client.

Can you shed some light on where and who is liable for the VAT for this?
12 February 2009
10. admin says:

Webby, it looks like you could have agency issues here. It is important to establish whether your contractor is acting as your agent in Germany. This would be determined by the details of the commercial arrangement that you have with him.

If he IS your agent (generally, he acts on your instructions and on your behalf, rather than being free to act independently to advance his own business interests), then the registered office address of his German GmbH becomes a fixed establishment of yours in Germany. In this case, he is correct to charge you German VAT at 19%, and you should look at whether you need to register for German MwSt. This would enable you to reclaim the 19%, as you cannot reclaim it on your UK VAT return.

If he is NOT your agent (generally, you have a contract with the German client, and separately you have a contract for services with the contractor who is able to act independently), the charge is outside the scope of German VAT. German VAT should not be added to his invoice. You will then need to ‘reverse charge’ that invoice on your UK VAT return (too long to explain here, see section 16 of VAT Notice 741).
13 February 2009
11. Derek says:

Hi
I am a UK VAT registered company and have not ever supplied goods abroad before. I am a going to be a distributor for a Taiwan based company and will need to purchase from them and supply to Butzbach Germany.

I will be charged UK import tax which is vat that I presume I can claim back; but when I sell to Germany do I have to charge UK VAT? I read some of the above posts about Germany, but was unsure as this may just be a 1 off for me.

Thanks in advance for any advice you can give.

Derek
15 February 2009
12. admin says:

Derek,

On importing the goods, you will pay UK VAT, for which you should get some documentation. You can use this to reclaim the VAT on your UK VAT return. You may also pay other customs duties, depending on what you import and its value. You will probably not be able to reclaim these.

When you sell to Germany, the situation is explained under the “Exporting goods to Germany” heading at the top of this page.
16 February 2009
13. JayJay says:

Hi,

We are a VAT registered UK company, we supplied legal services from the UK to a German based VAT registered company in relation to the sale of shares of a UK company. We charged VAT on our invoice.

The have asked we credit the invoice and redo it less the VAT (they have now supplied me with a valid VAT #)

What is correct?

Thanks
JayJay
11 May 2009
14. Mike Sitton says:

I’ve been advised that Germany operates differently to the rest of the EU wrt VAT on services received. Previously I’ve simply provided my UK VAT registration number when receiving services (not goods) from EU countries and that has resulted in me not being charged VAT. Is it true that Germany operates differently to this ruling?
18 September 2009
15. Kirsty says:

Hiya! Just found your blog. Great info - although I think everything I’ve read on this page I’ve just found out on the Business Link website.
I’m a sole trader selling baby carriers within the UK, and also to EU countries. My anticipated sales are quite low (under £1000 per EU country per year - I’m just a stay at home mum!!). I seem to think this will be under the VAT threshold in all member states - but I know presuming can be a bad thing :-S
MY pressing question is… I’m not VAT registered, as I have a small turnover. Will I need to charge VAT on my sales to other EU countries? HELP!
Kirsty
3 November 2009
16. admin says:

No, you will not need to charge VAT.
4 November 2009
17. Ian says:

Does a UK registered organisation holding its annual conference in Germany have to register for VAT in Germany?
2 December 2009
18. admin says:

It depends on exactly what is happening at the annual conference. Are any supplies being made?
19 December 2009
19. Ray Wood says:

We are a UK Company, and we supplied product to a German Customer in the UK. We invoiced the German Company, but didn’t include VAT. We are being told this is incorrect. Can you confirm please?
22 December 2009
20. admin says:

You do have to include VAT, as presumably you do not hold proof that the product has been exported from the UK. The nationality of the customer is irrelevant.
22 December 2009
21. Janna says:

We are a UK Company and we export outside EU a blend from ingredients delivered from Germany. The Germans invoiced us and didn’t include VAT. We are invoicing our overseas client and are not including VAT as well. Is it correct?
7 February 2010
22. admin says:

As long as you keep proof that the goods have left the UK for a destination outside the EU, you do not need to charge UK VAT.
7 February 2010
23. christine says:

We are a UK company. We had a German customer who failed to pay so we took them to Court. The German court ruled that the UK company had to be vat registered and invoices reissued with VAT.
In the meantime the German customer reclaimed the VAT element of the invoices but still hasn’t paid us the VAT. The German VAT authorities are now threatening foreclosure unless we pay the VAT, which we have never received!!!!! As a company we can’t afford to pay this money to the German VAT authorities and are in the process of taking the customer back to court to collect the VAT. What jurisdiction do the German Authorities have over the UK Company … can they foreclose?
26 March 2010
24. John says:

Hi,
I am a non vat registered UK recruitment company who has placed a German candidate to a German based company. Does the invoice I am about to raise need to include VAT? I am guessing I don’t, is this correct.
31 March 2010
25. admin says:

From the information you have given, that appears to be correct.
31 March 2010
26. Chris says:

Hi,
I am a sole trader in the UK and am interested in buying goods direct from Germany. I am not vat registered so am confused about who i would pay vat to? Would i be charged vat on my purchase by my German supplier, and if so would i be charged the German rate or the Uk rate? Thankyou!
12 May 2010
27. admin says:

You would pay VAT at the German rate to the German supplier.
12 May 2010

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