LOCAL VAT MEASURES FOR FOREIGN COMPANIES IN GERMANY
Germany had simplification measures applicable for call-off stock arrangements up to 31/12/2019. If conditions were met, foreign companies were not required to register for VAT purpose locally. The German Federal Ministry of Finance published a decree introducing a simplified regime for call-off stocks, which can thus be regarded as giving rise to direct intra-EU supplies from the Member State of dispatch. According to the decree, the goods must already be paid for or there must be a binding order. Furthermore, the customer must have unlimited access to the goods. This new decree actually follows a decision of the German Federal Court (BFH 20/10/2016, V R 31/15; see our VAT News No 2/2017). No simplification measures were however available for consignment stock. Foreign taxpayers were therefore required to be registered for VAT purposes in Germany. Special rules were however applicable for commissionaire agreement.
Since 01/01/2020, the European simplification regime for call-off stock arrangements ("2020 Quick Fixes") entered into force and is to be applied by all Member States. This implies that all other possible national arrangements regarding call-off stock arrangements are mute and, if they provide for divergent rules, should be viewed as not in line with EU Law.
Simplification measures applicable for call-off-stock arrangements in Germany up to 31/12/2019 have been withdrawn and replaced by the new European simplification VAT regime in respect of call-off stock accordingly.
Triangulation can be applied when the middleman (B) is VAT registered for others supplies in the 3rd country (Member State of destination)?
Yes
Triangulation regime can be applied even if the middleman B is VAT registered as a non-established company in Germany [Member State C].
Triangulation can be applied when the chain transaction involves four or even more parties?
Yes
The special regime is also applicable if more than three parties are involved, provided the last three parties in the chain fulfill the requirements for the triangulation scheme.
See also our Newsletter "Germany : Allocation of transport in supply chain"
Chain transactions refer to successive supplies of goods which are subject to a single intra-Community transport. The intra-Community movement of the goods should only be ascribed to one of the supplies, and only that supply should benefit from the VAT exemption provided for the intra-Community supplies. The other supplies in the chain should be taxed and may require the VAT identification of the supplier in the Member State of supply.
However, the divergent approach amongst Member States in the application of these exemptions for cross-border transactions has created difficulties and legal uncertainty for businesses.
Optional reverse charge for supply of goods?
No
Reverse charge mechanism is not applicable to major domestic supplies of goods (except for specific supplies of goods with installation and some other specific items).
The reverse charge applies to work supplies (“Werklieferungen”). According to the German Tax Authorities, a work supply means that the supplier processes goods which do not belong to him and also uses goods procured by himself for this purpose.
If the supplier only processes his own goods, the operation rather qualifies an assembly delivery (“Montagelieferung”) and the reverse charge does not apply.
Optional reverse charge for supply of services
Yes
Reverse charge mechanism is applicable to major domestic supplies of services (except for admission to trade fairs, exhibitions and conferences and other specific items).
Reverse charge on supplies with installation – Be careful!
In Germany, the reverse charge mechanism applies to work supplies by a non-established taxable person to another taxable person, even if that operation actually qualifies as a supply of goods from a German VAT perspective. There is however a distinction to be made between such work supplies (“Werklieferungen”) and assembly deliveries (“Montagelieferungen”), although both operations include an installation and are therefore deemed to take place in Germany from a VAT perspective.
On October 1st, 2020, the German Authorities issued clarifications in that respect, implying clearer definitions of these concepts.
VAT Warehousing implemented in Germany?
Yes
Germany has introduced VAT warehousing regime applicable under specific conditions.
VAT Directive
Member States may exempt the importation of goods and the supply of goods which are intended to be placed under warehousing arrangements other than customs warehousing.
Is it possible for a company to pay the import VAT via the periodical VAT return?
No
Postponed accounting via the VAT return is not possible in Germany. Import VAT needs to be paid to the customs authorities upon importation [immediate payment]. A deferred payment for VAT and customs [similar delay] is however possible under specific conditions.
VAT DIrective
Member States may provide that VAT on importation does not need to be paid at the time of importation on condition that it is entered as such in the VAT return to be submitted.
- Deferred payment means that the payment of the import VAT to customs is deferred for a nationally determined period. This is covered by Article 211, §1 of the VAT Directive which provides that Member States shall lay down the detailed rules for payment of the import VAT;
- Postponed accounting means that import VAT is accounted for and paid with other VAT obligations in the periodic VAT return. This is covered by Article 211, second paragraph, of the VAT Directive.
VAT OBLIGATIONS IN GERMANY
How is the tax period determined in Germany?
Monthly/Quarterly
Your company has to report its VAT position by filing preliminary VAT returns on a monthly basis where [net] VAT due in previous calendar year exceeds the amount of € 7.500 [and also within the first two years for newly incorporated companies].Preliminary VAT return has to be filed quarterly if [net] VAT due in previous calendar year is lower than € 7.500. If the net VAT due in the previous calendar year did not exceed € 1.000, no preliminary VAT returns have to be filed but only the annual VAT return.
When should periodical VAT return be filed?
Preliminary VAT returns must be filed by electronic means via "Elster" to German VAT authorities before the 10th day of the month [10 of N+1] following the tax period [month/quarter] to which it relates. It is possible to apply for a permanent time prolongation of one month which requires a special prepayment. The amount is calculated as 1/11 of the VAT due in the previous year and is set off against the VAT liability of December.
VAT Directive
The tax period shall be set by each Member State at one month, two months or three months. Member States may, however, set different tax periods provided those ones do not exceed one year. The VAT return shall be submitted by a deadline to be determined by Member States. That deadline may not be more than two months after the end of each tax period.
Is this requirement laid down in the country and what is the filing deadline?
Your company has to file an annual summary return [Umsatzsteuererklärung] in Germany. The Statement should be filed by electronic means before May 31st of the next calendar year. As from 2018, this deadline will be extended to July 31st of the following year (i.e. the annual VAT return for 2018 will have to be filed by July 31st 2019) . A filing extension [up to December 31st] can be obtained upon request.
VAT Directive
Member State may require taxable persons to submit a return in respect to all transactions carried out in the preceding year. That return shall provide all the information necessary for any adjustments.
Are quarterly filings allowed by the country and what is the filing deadline?
The recapitulative Statement [ESL] must be filed on a quarterly basis provided the intra-Community of goods do not exceed € 50.000 in the current calendar quarter and the past four calendar quarters. If the above threshold is exceeded, the Statement must be filed on a monthly basis. The Statement must be filed by the 25th of the month following reporting period [month/quarter].
VAT Directive
The recapitulative statement shall be drawn up for each calendar month. However, Member States, in accordance with the conditions and limits which they may lay down, may allow taxable persons to submit the recapitulative statement on each calendar quarter where the total quarterly amount of intra-EU supplies of goods does not exceed either in respect of the quarter concerned or of any of the previous four quarters the sum of € 50.000 or its equivalent in national currency. The recapitulative statement shall be submitted within a period not exceeding one month.
What is the payment deadline?
The VAT due should be paid by filing deadline for the preliminary VAT return no later than the 10th day of the month after the end of the tax period [month/quarter] to which it relates. If the tax due on the basis of the annual VAT return exceeds the interim payments or no provisional returns were submitted, the balance due must be paid within one month following submission of the annual VAT return to the tax office. Late payment causes surcharges of 1% of the net tax payable.
Are interim payments required?
The payment made on the basis of the monthly or quarterly provisonal returns are actually interim payments.
VAT Directive
Any taxable person liable for the payment of the VAT must pay the net amount of the VAT when submitting the VAT return. Member States may, however, set a different date for payment of that amount. Member States may require interim payment to be made.
Is any VAT credit automatically carried forward or refunded?
No carry-forward mechanism. Refund is done immediately [generally within one month from the deadline for submission of the annual VAT return].
EU Commission requests Germany to align its VAT refund system with EU rules
The EU Commission has decided to send a letter of formal notice to Germanyfor violating the rules related to VAT refunds. Under national rules, a taxable person established in Germany applying for a VAT refund from another Member State via the German web portal can lose the right to a refund because Germany does not follow up on potential error messages from the Member State of refund. The EU Commission considers that Germany is also violating administrative cooperation rules. If Germany does not act within the next two months, the Commission may send a reasoned opinion to the German authorities.
9th Directive VAT Refund - Stricter Approach of formal requirements
As of 20/07/2017, legal changes must be obeyed by foreign claimants. The amendments are already applicable to the refund applications regarding VAT incurred in 2016 and to be filed by 30 September 2017. Accordingly, invoices and import documents are only accepted, if they are filed completely. Otherwise, the refund application could be considered as invalid and/or void by the German Tax Authorities.
VAT Directive
Where, for a given tax period, the amount of deductions exceeds the amount of VAT due, the Member States may, in accordance with conditions which they shall determine, either make a refund or carry the excess forward to the following period. However, Member States may refuse to refund or carry forward if the amount of excess is insignificant.
VAT OVERVIEW IN GERMANY
What is the local name of the tax?
German VAT is known as "Umsatzsteuer" [Ust] or "Mehrwertsteuer" [MwSt]
What is the structure of the VAT number?
There are two VAT numbers in Germany: the general tax number and the so-called EU VAT number [Ust-ldNr.] used for intra-EU transactions. German VAT numbers have 11 characters [DE + 9 digits]. The last 2 digits constitute a control number.
VAT Directive
Member States must apply a standard VAT rate [not lower than 15%] which must be the same for the supply of goods and for the supply of services. Member States may apply either one or two reduced rates [not lower than 5%] only to supplies of goods or services as listed in the Annex III of the VAT Directive.
VAT rates
Germany applies a standard VAT rate of 19% and one reduced rate of 7%.
If suppliers charge the incorrect (higher) VAT rate in their invoice, they will owe the excess VAT amount (i.e. 3%) to the tax office until the invoice has been duly corrected and the excess VAT has been paid back to the customer. The customer will not be entitled to claim the excess VAT (i.e. 3%) incorrectly invoiced by the supplier.
€ 100,000
see various thresholds applied in the EU
Any VAT question for Germanyt?
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