VAT between the UK and Germany
As Germany and the UK are both in the European Union VAT Area, 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.
The UK comprises England, Wales, Scotland, Northern Ireland, and (generally for VAT purposes) the Isle of Man but not the Channel Islands.
German VAT is called Mehrwertsteuer (MwSt). It is also sometimes known as Umsatzsteuer (UST, or UmSt). The standard rate of German VAT is 19%, but a reduced rate of 7% may apply to some supplies.
Exporting goods to Germany
A VAT-registered UK business does not need to charge VAT on goods it is sending to Germany, provided it keeps documentary proof of export. It must also obtain the German customer’s MwSt registration number and show it on the invoice (including the DE prefix).
For VAT purposes it is physical movement of goods that is relevant, rather than the invoicing name or address. An invoice to a German customer when the goods are not leaving the UK will not normally be classed as an export, and UK VAT would be chargeable. However, goods being sent to Germany on behalf of a UK customer without a German VAT number are still subject to UK VAT at the usual rate (even if the customer is registered for VAT in the UK).
Even where VAT is not being charged, the net value of the sale must still be reported on the UK VAT return, in boxes 6 and 8. It should also be included on the EC Sales List, and the Intrastat return if the business is required to make one.
The UK business is 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. In this case, the sale is included in box 1 and box 6 of the UK VAT return, but not box 8. It does not get included on the EC Sales List, but is liable to be reported on Intrastat. 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).
Any compulsory extra charges for freight, shipping, postage or delivery should be charged at the same rate of VAT as the rest of the items in that shipment, being either 0% if all the conditions are met, or the usual UK rate applicable to those items if not.
Regardless of whether or not VAT was charged on the sale, if the UK business accounts for VAT on the Flat Rate Scheme, it must include the value of the export in the turnover on which the Flat Rate VAT is paid. This may mean that the business is better off not being on the Flat Rate Scheme.
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. All such sales would then be outside the scope of UK VAT, but still reportable in boxes 6 and 8 of the UK VAT return. They would not get included on the EC Sales List, but are liable to be reported on Intrastat. Overseas registration is also optional at lower levels of sales, and as the standard rate of German MwSt is currently slightly lower than the UK VAT equivalent, this is worth considering.
Importing goods from Germany
A VAT-registered UK business importing goods from Germany should give the German supplier its UK VAT registration number (including the GB prefix) 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. The best that the UK business can do in these circumstances is to confirm its VAT registration number to the German supplier, then ask for a full credit note and for the goods to be re-invoiced without MwSt.
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 from HMRC by including it as input VAT in box 4 of the same VAT return, subject to the normal rules about recovering input tax. The reason for this apparently circular exercise is to avoid VAT distortions between buying goods in the UK and importing them from Germany. The net value of the import should be included in boxes 7 and 9 of the UK VAT return. Imports do not get shown on EC Sales Lists, but are liable to be reported on Intrastat.
If the UK business accounts for VAT on the Flat Rate Scheme, it must still pay the full UK rate of VAT (rather than the reduced Flat Rate of VAT) on imports by including them in box 2 as above. As with other expenses under the Flat Rate Scheme, the right to reclaim that VAT in box 4 is very limited.
Special VAT rules for the movement of goods
Different rules may apply in certain less-common situations:
Goods sent for testing;
Triangular business transactions;
Installed or assembled goods;
Movements of goods for process, repair etc;
Supplies to privileged persons in other EC states;
Goods supplied on sale or return;
Transfers of own goods between the UK and Germany within the same legal entity;
Temporary movement of goods;
Mobile phones and computer chips.
VAT on services provided in or to Germany
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, and there are specific rules for the following services:
Services relating to land or property
Services of short-term hire of means of transport
Services involving physical performance and events. For example artistic, cultural, education and training, sporting, entertainment services, exhibitions, conferences, meetings
Supplies of admission to artistic, cultural, education and training, sporting, entertainment events, exhibitions, conferences and meetings and services related to admissions
Ancillary transport, valuation of/work on goods
Restaurant and catering services
Intermediary services (generally agencies or brokers working for a commission)
Training services supplied to overseas governments
Everything else is covered by a general rule. 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.
Under the general rule, if the service is being supplied to a consumer (rather than a business) in Germany, it will be subject to UK VAT. This means that UK VAT must be charged at the usual UK rate, either standard rate, reduced rate, zero-rated or exempt. The UK business will account for VAT in the usual way.
If the service under the general rule is being supplied to a business customer in Germany, it will be within the scope of German VAT (UK VAT is not charged). The customer does not need to be registered for MwSt for the service to qualify as being for business purposes, but some evidence of the business purpose should be obtained.
Most services are then covered by the German reverse-charge procedure. This means that the German customer has the responsibility for dealing with most of the VAT issues. If not, the UK business may need 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.
If the reverse-charge applies, the UK business needs to:
- Include an appropriate statement on the invoice, such as “This supply is subject to the reverse charge”
- Include the net value of the service in box 6 of the UK VAT return
- From January 2010, include the service on the EC Sales List
If the UK business accounts for VAT on the Flat Rate Scheme, it does not need to pay Flat Rate VAT on the value of services which are not subject to UK VAT due to them being performed in Germany or to a customer based in Germany.
If the German customer also has a branch or premises in the UK, it is necessary to look at the whole picture to decide which location is the most direct user of the service. This should reflect commercial reality, and may be different from the contractual position. For example, if the customer has their headquarters in Berlin, and all invoices are sent there, but most contact is with their office in London, it is likely that the service will be treated as supplied in the UK and subject to UK VAT.
Services relating to land or property include estate agency, conveyancing, architects, surveying, construction, property maintenance and repair work, hotel accommodation (unless a tour operator), defined exhibition stands, and property management services. If the property is in the UK, the service is liable to UK VAT regardless of the status or location of the customer. If the property is in Germany, the service is outside the scope of UK VAT regardless of the status or location of the customer. The service may be chargeable to German VAT, and the business may need to register for MwSt.
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.
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.
VAT on services received from a German supplier
If a VAT-registered UK business receives a service from a German supplier (whether registered for MwSt or not), 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. This is a simplification measure whereby the UK business accounts for UK VAT on the service as part of its regular VAT returns, to save the German business from having to do so.
It is easily put into practice by the UK business working out what the UK VAT would normally be on the charge for that service, and then including it in box 1 of its VAT return. 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 tax. The net value of the service should be included in boxes 6 and 7 of the same UK VAT return. Where the business can reclaim all of its input VAT, there is no net cost in making the reverse-charge entries.
If the UK business accounts for VAT on the Flat Rate Scheme, it does not need to pay Flat Rate VAT on the value of the reverse-charged service, or include it on its VAT return.
The reverse-charge does not apply to services which are normally exempt or zero-rated in the UK, for example, some financial or education services.
If, exceptionally, one of the following services is charged to a UK business, but the service is effectively used and enjoyed outside the EC (for example, in Jersey), the reverse-charge does not need to be applied in the UK. The services are:
- Supplies of the letting on hire of goods (other than means of transport);
- Telecommunications services;
- Radio and television broadcasting services; or
- Electronically supplied services.
If the UK business is not registered for VAT, and the service falls under the general rule for VAT on overseas services, the value of that service will be included in the turnover of that business in determining whether it needs to register for UK VAT.
Reclaiming German MwSt
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.
From January 2010, claims for refunds of German VAT under this scheme will need to be made online. More about reclaiming German VAT
The main contact office for information about German MwSt is:
Bundesministerium der Finanzen