What are reverse charge benefits?
Section 13b (1) UStG states: “For other services subject to taxation in Germany under Section 3a (2) of an entrepreneur resident in the rest of the Community, the tax arises at the end of the pre-notification period in which the services were performed.” These services are listed in Section 13 b (2) UStG.
The services that must be invoiced using the reverse charge procedure include, for example, work services, intra-Community transport services or catalog services.
Further examples are listed below under “Areas of application of the reverse charge process”.
Who pays which taxes in the reverse charge procedure and when?
All important information can be found in §§ 13 ff. UstG
- the origin of the tax liability (i.e. from when the tax must be paid (§ 13 UStG)
- to the tax debtor (§ 13a UStG)
- to the recipient of the service (§ 13b UStG)
- on liability issues (§ 13c UStG)
Thereafter, the tax liability according to § 13 (1) arises depending on the delivery / service / object at different times. Mainly at the end of the pre-registration period if it is a question of payment for a delivery or service. In the case of individual transport taxation, the calculation starts from the time the bus arrives in Germany. In addition, there is a count for services from the execution of the service and for invoice corrections according to § 14 c it is based on the time the invoice is issued. When buying a vehicle, the day of purchase counts.
Apart from the sales tax, § 13 UStG contains a reference to the necessary import sales tax, for which § 21 (2) UStG applies. This is a consumption tax in the sense of the tax code, which is processed according to customs regulations. This is important, for example, for companies that require active or outward processing for their products.
According to Fun-Wiki, the tax debtor is also either the entrepreneur, the purchaser, the buyer, the invoice issuer, the last buyer or the outsourcing company.
The entry certificate / proof of shipment
It is important for the provision of services and the subsequent tax calculation that the goods have actually arrived at the recipient. Proof of shipment was required for this until the end of 2013. This could be created by the German forwarding agent or, when the goods were picked up by foreign forwarding agents, the acceptance of the freight could be acknowledged.
The rules have been tightened since 2014 when the entry certificate became necessary. Since then it has to be proven that the goods actually arrived at the recipient. The recipient must confirm that he has received the delivery.
Theoretically, the proof can be provided by receipt, proof of delivery, signed duplicate invoice or electronic shipment tracking. Section 17a of the UStDVO regulates which options apply in which case:
- Duplicate invoice (§ 17a (2) No. 1 UStDVO)
- Confirmation by the customer that the delivery item has reached the rest of the Union (Section 17a (2) No. 2 UStDVO)
Examples for other EU countries and a third country
A simple example would be the purchase of a product in another EU country, for example Spain. The goods then come to Germany together with an invoice.
The net invoice is booked here (booking software usually has its own control key for correct booking). The correct tax rate is taken into account (19%, possibly 7%). This means that the sales tax and input tax are automatically taken into account in the booking program. Depending on the goods or services and the chart of accounts used, the posting is made to an account with the reference “company based in another EU country.”
When buying a product that is imported from a third country such as America, the goods also arrive here with the net invoice. Here, the sales tax must be shown separately in the sales tax return, as it relates to a different country. The booking must therefore be made via an account with the reference “companies domiciled abroad”.
Requirements for the incoming invoice (Section 14 Paragraph 4 in conjunction with Section 14a Paragraph 5 UStG)
For invoices from other EU countries, the same mandatory information applies as for us in Germany. It is also important:
- That the invoice specifically mentions the reverse charge procedure
- That the invoice contains the sales tax identification number (VAT ID) of the buyer and seller, i.e. the invoice issuer and the service recipient .
For the invoice from the third country, it is also important that no sales tax is shown and that there is a reference to the use of the reverse charge procedure. For example, with the sentence “tax liability of the service recipient”.
In order for the recipient to successfully claim input tax in Germany, the following information on the invoice is essential:
- Name and address of the biller (seller) abroad
- Name and address of the recipient of the invoice (customer) in Germany
- VAT ID or tax number of the supplying company
- VAT ID of the service recipient
- Invoice date (= performance date)
- A consecutive invoice number
- Type and scope of the service
- Performance date or performance period
- Reference to the reverse charge procedure
Requirement for reverse charge
The reverse charge procedure is to be used if a domestic taxable turnover is carried out by one company to another company and the turnover can, for example, be subordinated to one of the following facts:
- A company based in another EU country provides a basic B2B service.
- There is a work delivery or other service from a company located abroad.
- Sales that fall under the Land Transfer Tax Act.
- Supply of gas via the natural gas network or of electricity by companies located abroad.
Contracts with companies based abroad
If German companies conclude contracts with foreign companies, the obligation to assume tax liability for works deliveries and other services in Germany applies. (The service is provided by the foreign company here.)
This means, for example, that the tax liability for the construction of halls or buildings on the client’s property (in Germany) by a Polish construction team must be borne by the German company.
Contracts with domestically based companies
The reverse charge procedure has also been in effect since 2004 for domestic companies that provide construction work within the meaning of the Land Transfer Tax Act. In other words, all companies that carry out factory deliveries or maintenance that they have subcontracted take care of. In addition, since 2011, domestic companies have also had to bear the tax for services / supplies of heat, scrap metals, industrial scrap and building cleaning.
As an indication, it must be noted on the invoice for the building cleaning service that the tax liability according to § 13b Paragraph 2 No. 8 in conjunction with V. m. Para. 5 UStG or that it is a building cleaning service and the recipient of the invoice is liable for tax.
In the case of scrap deliveries, the legal basis is Section 13b Paragraph 2 No. 7 in conjunction with Paragraph 5 UStG.
The informative pages of the IHK and chambers of commerce offer helpful further information.