VAT rules of distance selling in Germany

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In today’s world mail order selling has of course increased significantly through the Internet explosion. Mail order companies have to be aware of the fact that they might become subject to Value Added Tax in other EU-member states if they deliver goods to certain customers resident in those states. The rules for distance selling exist in every EU-member state. In the past it was difficult for national tax authorities to identify foreign mail order companies who became liable to VAT abroad. However, since online trade became a major trading factor things got much easier for tax authorities. They screen internet platforms like eBay or Amazon to detect potential foreign mail order traders who might be subject to VAT. Furthermore platform operators started to submit data of customers to tax authorities. Deliberate or accidental negligence of VAT regulations in other EU member states may be detected quite easily in the future by the tax authorities due to the following …

The term Distant Selling describes supplies to a person who is not VAT-registered in another EU-member states. It does not apply for supplies to VAT-registered businesses in other EU-member states.

Mail order companies become liable to foreign VAT if the following applies:

  • The regulations cover private individuals, small business, tax-exempt businesses, specially taxed farmers, public bodies and charities. Supplies to before mentioned businesses and organisations are only concerned if certain additional criteria are fulfilled.
  • The distance selling regulations are only applicable if the company delivers the goods or arranges the transport by a transport company or by a mail delivery service. If customers collect goods or arrange for the transport abroad distance selling regulations are not applicable.
  • The regulations do not apply to exports or imports to or from non-EU-member states.
  • There are special rules for new vehicles such as cars, boats or aircrafts and for tobacco products or alcohol.
  • A company becomes VAT-liable if sales to an EU-member state exceeds the distance selling threshold of this country. In Germany the yearly threshold is € 100,000. Foreign mail order companies become liable to German VAT if sales go over the limit for the first time. From then on Invoices have to be issued with German VAT and all VAT regulations including proper bookkeeping have to be followed. In the following year mail order sales to Germany are subject to German VAT.
  • Mail order companies may choose voluntarily to register for German VAT without exceeding the limit of € 100,000. This might be advisable if German tax rates are lower than the rate in the company’s resident state. Mail order companies should be aware of the fact the standard tax rate in Germany is the third lowest in the European Union (19%) At this stage only Luxembourg and Malta have lower standard rates.

Mail order companies who exceed the limit have to consider the following:

  • It has to VAT-register in Germany.
  • It has to observe German VAT-procedures.
  • The right tax rate has to be used (standard rate: 19%, reduced rate: 7%).
  • Invoices have to follow formal requirements of German law.
  • VAT-returns have to be send to the respective German tax office.
  • Proper VAT-records have to be kept and other German VAT-rules have to be observed.
  • In Germany foreign companies are not obliged to appoint a fiscal representative. However, it is advisable to appoint a tax representative to deal with the company’s German VAT affairs.

Note:

(1) Mail order companies have to observe the VAT-threshold in every respective member state. Please note that in some state limits are as low as € 35,000.

(2) If mail order companies do not fulfil their obligations in Germany and German tax authorities discover this later, the company might not only be subject to German VAT but also to interests and penalties as well.

Authors: Peter Scheller, German Tax Advisers – Master of International Taxation, www.scheller-international.com  / Alexander Wangerowski, German Tax Adviser, www.aw-stb.de

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