VAT between the UK and Germany


Germany flagAs 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;
Samples;
Triangular business transactions;
Call-off stocks;
Installed or assembled goods;
Movements of goods for process, repair etc;
Excise goods;
Consignment stocks;
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
Passenger transport
Freight transport
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

German sausagesA 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
Referat Burgerangelegenheiten
11016 Berlin
Deutschland

Please note that are not taking on any new overseas clients, and we do not give free advice by email or telephone.




27 Comments (oldest first)

  1. vincent barker

    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

    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

    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

    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

    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

    Hi.

    I am a uk vat registered company, about to be located in Frankfurt, 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

    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

    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

    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

    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

    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

    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

    Hi,

    We are a VAT registered UK company, we supplied legal services from the UK to a German based VAT registered company near Hamburg 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

    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

    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

    No, you will not need to charge VAT.

    4 November 2009

  17. Ian

    Does a UK registered organisation holding its annual conference in Germany have to register for VAT in Germany?

    2 December 2009

  18. admin

    It depends on exactly what is happening at the annual conference. Are any supplies being made?

    19 December 2009

  19. Ray Wood

    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

    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

    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

    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

    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

    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

    From the information you have given, that appears to be correct.

    31 March 2010

  26. Chris

    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

    You would pay VAT at the German rate to the German supplier.

    12 May 2010