Reverse charge in Germany: who owes the VAT – in both directions

What does reverse charge mean?

Normally the supplying business charges VAT (Umsatzsteuer), collects it from the customer and pays it to its tax office (Finanzamt). With the reverse charge procedure this tax liability is reversed: the recipient of the service – i.e. the customer – owes the VAT and declares it themselves. This is regulated in § 13b UStG under the term „Steuerschuldnerschaft des Leistungsempfängers“ (tax liability of the recipient).

The purpose: a business from Ireland should not have to register in Germany just because it sells an advertising service to a German business – and vice versa. The procedure also rules out fraud schemes in which a supplier collects the tax and disappears. Reverse charge therefore affects you in two directions: as a seller (you write an invoice without VAT) and as a buyer (you declare someone else’s VAT).

Important for understanding: reverse charge only applies between businesses (B2B). If you sell to private individuals abroad, other rules apply – for digital services to consumers in the EU, for example, the €10,000 threshold and the One-Stop-Shop (OSS).

Services to businesses in the EU: place of supply under § 3a Abs. 2 UStG

Whether German VAT applies at all depends on the place of supply. For most services to businesses, the basic rule of § 3a Abs. 2 UStG applies: the service is supplied where the customer runs its business. If you program for an agency in Amsterdam, the place of supply is in the Netherlands – the sale is not taxable in Germany, and the Dutch agency pays tax on it under the reverse charge procedure in its own country.

Exceptions to the basic rule mainly apply to services connected with land (place: where the property is located), short-term vehicle hire, restaurant services and admission to events such as trade fairs or conferences (place: where the event takes place). For these cases you check separately where the tax arises.

Additional obligations apply to your invoice to an EU business:

• Do not show German VAT; the net amount is the invoice amount.
• State your own VAT ID (USt-IdNr.) and the customer’s VAT ID (your tax number is not enough here).
• Include the note „Steuerschuldnerschaft des Leistungsempfängers“; an English addition such as “Reverse charge” is common.
• Issue the invoice by the 15th day of the month following the service (§ 14a Abs. 1 UStG).
• Report the sale in the advance VAT return (Umsatzsteuer-Voranmeldung) in Kennzahl 21 (non-taxable other services under § 18b Satz 1 Nr. 2 UStG).
• Also report the sale in the EC sales list (Zusammenfassende Meldung, ZM) per customer VAT ID to the Federal Central Tax Office (Bundeszentralamt für Steuern, BZSt).

Checking the customer’s VAT ID: simple and qualified confirmation

The tax-exempt or non-taxable treatment depends on your customer actually being a business. The most important evidence is a valid VAT ID from another EU country. You get it from the customer and have it confirmed by the Federal Central Tax Office (BZSt) (§ 18e UStG).

The simple confirmation only says whether the number is valid. The qualified confirmation also compares the name, town, postcode and street with the data of the other country. For you, the qualified check is what counts, because it proves that the number really belongs to exactly this customer. Keep the result with the date and repeat the check for new customers and at regular intervals for existing customers.

If your customer does not (yet) have a VAT ID, the risk is high: if it later turns out that they are not a business, you owe the German VAT out of the invoice amount. With a net amount of €4,000, that would be €638.66 (19/119 of €4,000), which you pay out of your own pocket. If in doubt, only issue the invoice once the number has been confirmed.

Services to customers in non-EU countries: USA, Switzerland, United Kingdom

§ 3a Abs. 2 UStG also applies to businesses outside the EU: if you advise a start-up in New York, a bank in Zurich or an agency in London, the sale is not taxable in Germany. You write a net invoice, and in the advance return the amount goes in Kennzahl 45 („übrige nicht steuerbare Umsätze“, other non-taxable sales). You do not file an EC sales list for it – that only applies to EU customers.

As proof that the customer is a business, there is no VAT ID check at the BZSt outside the EU. Suitable evidence includes a registration number (e.g. the British VAT Registration Number or the Swiss UID number), an extract from the commercial register or a certificate of business status. There is no mandatory wording for the invoice here; a note such as „Nicht im Inland steuerbare Leistung“ (service not taxable in Germany) nevertheless makes the invoice traceable for you, the customer and any later audit.

Whether the customer has to pay tax in their country is governed by local law: the United Kingdom and Switzerland also have a reverse charge system, and the USA has no nationwide sales tax. This plays no role for your German return.

Services bought from abroad: Google Ads, Meta, software and cloud

The second direction affects almost every self-employed person: you buy services from businesses not established in Germany. Typical examples are advertising on Google Ads or Meta (Facebook, Instagram), whose invoices to German businesses usually come from Ireland, software subscriptions, cloud hosting, stock photos, platform fees or freelancers from abroad. Because the place of supply is with you in Germany, the sale is taxable in Germany – and you owe the tax.

Here is how to proceed: first check on the invoice which country the provider is billing from. If it already shows German VAT (some providers are registered in Germany), this is a normal purchase with input VAT (Vorsteuer) – not reverse charge. If there is no VAT and a note on reverse charge, you calculate 19 % on the net amount and report both in the advance return.

For invoices in a foreign currency, such as US dollars, you convert using the monthly VAT exchange rate of the Federal Ministry of Finance or the daily rate. For services from the EU, the tax arises at the end of the return period in which the service was performed (§ 13b Abs. 1 UStG); for services from non-EU countries, when the invoice is issued, at the latest at the end of the following month (§ 13b Abs. 2 UStG).

• Provider from another EU country (e.g. Ireland, Luxembourg, Netherlands): tax base in Kz 46, tax in Kz 47.
• Provider from a non-EU country (e.g. USA, United Kingdom, Switzerland): tax base in Kz 84, tax in Kz 85.
• If you may deduct input VAT, you enter the same tax amount in Kz 67 (input VAT from services under § 13b UStG).
• Give the provider your VAT ID so that it invoices correctly without foreign VAT.

Worked example: one month with clients and purchases abroad

Lena is a web designer in Leipzig, subject to standard VAT, and files her advance return monthly. In March she has these transactions: an invoice for €4,000 to an agency in Amsterdam, an invoice for €2,500 to a start-up in Boston, Google Ads costs of €600 (invoice from Ireland, without VAT) and a design tool subscription of €100 from a US provider (also without VAT).

Result: the two outgoing invoices do not increase the tax she has to pay. For the purchases she owes €114 + €19 = €133 VAT and deducts the same €133 as input VAT – €0 in the end. It is still important that she reports everything: if the Kennzahlen are missing, this will be noticed at the latest when matched against the Irish provider’s EC sales list or in a tax audit.

Kleinunternehmer and reverse charge: the tax is still due

Many small businesses overlook this: the small business scheme (Kleinunternehmerregelung) only exempts your own sales. As the recipient of a service you owe the tax under § 13b UStG just like a business subject to standard VAT. As a Kleinunternehmer, however, you have no input VAT deduction – so for you the tax is a real cost.

In the example above, Lena as a Kleinunternehmer would pay €133 to the tax office. If she spends 12 × €600 a year on advertising with a provider from Ireland, that is €1,368 of VAT she bears on top. For this she files an advance VAT return for exactly those periods in which such services occurred (§ 18 Abs. 4a UStG) – with Kz 46/47 or 84/85, but without Kz 67. The tax paid is a business expense in the EÜR.

Even as a Kleinunternehmer you therefore often need a VAT ID: without one, many EU providers charge the VAT of their own country, for example 23 % Irish VAT, which you cannot reclaim anywhere. With a VAT ID the provider invoices net, and you pay the German 19 %. Your own services to businesses abroad are also not taxable in Germany as a Kleinunternehmer; as a Kleinunternehmer you do not file an EC sales list (§ 18a Abs. 4 UStG).

Domestic reverse charge: construction services, building cleaning and more

Reverse charge does not only exist across borders. § 13b Abs. 2 UStG also shifts the tax liability to the customer for certain sales between German businesses – in sectors where a particularly large amount of VAT used to be evaded. The supplier then writes a net invoice with the note „Steuerschuldnerschaft des Leistungsempfängers“ and reports the sale in Kz 60; the customer reports it in Kz 84/85 and deducts the input VAT in Kz 67.

For construction services and building cleaning, this only applies if the customer itself provides such services on a sustained basis. The customer usually proves this with the certificate USt 1 TG from its tax office. If, as a craftsperson, you paint a private individual’s flat, normal VAT applies.

• Construction services to construction businesses (§ 13b Abs. 2 Nr. 4) and building cleaning to cleaning businesses (Nr. 8).
• Supplies of electricity and gas to resellers, emission allowances (Nr. 5 and 6).
• Supplies of scrap and waste metals under Anlage 3 and certain metals under Anlage 4 (Nr. 7 and 11).
• Mobile phones, tablets, games consoles and integrated circuits from €5,000 per supply (Nr. 10).
• Property transactions covered by the Real Estate Transfer Tax Act (Grunderwerbsteuergesetz), gold and telecommunications services to resellers (Nr. 3, 9 and 12).

Common mistakes and how to avoid them

Most problems arise not in calculating the tax but in formalities and forgotten reports. You should tick off these points every month or quarter:

• Reverse charge invoice without the customer’s VAT ID or without the mandatory note – correct it with an invoice correction or cancellation invoice.
• Kz 21 in the advance return and the total of the ZM do not match – the BZSt compares the values.
• Purchase invoices from Google, Meta or software providers only booked as an expense, but not reported in Kz 46/47 or 84/85.
• Customer in a non-EU country reported in the ZM – non-EU sales only belong in Kz 45.
• As a Kleinunternehmer, forgetting the advance return for § 13b services.
• Invoice with German VAT issued to an EU business – the customer cannot deduct this tax as input VAT and will ask for a new invoice.

Reverse charge with Kontelio

Kontelio classifies every customer by country, type and VAT ID – for example “Business in the EU” or “Consumer outside the EU” – and suggests the right tax code for the invoice based on this. You can have a customer’s VAT ID checked with the BZSt directly in the customer view, including a comparison of name and address. If the number is missing for an EU business, Kontelio warns you and treats the customer like a consumer with German VAT.

For expenses from a supplier in another EU country without VAT, Kontelio suggests the tax treatment for the reverse charge procedure. The amounts flow automatically into the advance VAT return, the annual VAT return (Umsatzsteuer-Jahreserklärung) and the ZM. More on the page invoicing software.

Frequently asked questions