Reverse Charge procedure
September 3, 2009 | 30,00 EUR | answered by Irmingard Huber-Stempfel
A domestic entrepreneur hires a Ukrainian or Russian entrepreneur to program for the company. How should these invoices look? Can they be written in English and must the currency be stated in EURO? Is proof required that the foreign entrepreneur is registered with the tax office in the respective country? Must the invoice include a reference to the "Reverse Charge procedure"?
Dear questioner,
According to § 13b para. 1 No. 1 UStG, the recipient of the service (domestic entrepreneur) is liable for German VAT. The foreign entrepreneur provides a taxable service in Germany according to § 1 para. 1 No.1, § 3a para. 3 UStG. To ensure VAT compliance, the reverse charge procedure was introduced, meaning that VAT is collected from the domestic recipient of the service.
The foreign entrepreneur issues an invoice stating "The recipient of the service is liable for tax according to § 13b para. 1 No. 1 UStG". According to § 14a para. 5 UStG, the foreign entrepreneur must issue an invoice in German (official language). The invoice must include the full name/address of the providing entrepreneur and the recipient, date of issue, invoice number, tax number (to be obtained from the BZfSt), type of service, timing of service, consideration, and a note regarding the recipient's tax liability.
The recipient of the service is liable for VAT and can also claim input tax deduction, unless there are any obstacles to input tax deduction (e.g. recipient makes tax-exempt supplies). This is a zero-sum game - but the formalities must be complied with.
The providing entrepreneur and the recipient must retain a copy of the invoice for 10 years. The retention period starts from the end of the calendar year in which the invoice was issued (§ 14b para. 1 UStG).
This advice is provided as part of the initial consultation based on the presented facts. If you wish to clarify your question or have further inquiries, please use the follow-up function.
Best regards,
I. Huber-Stempfel
- Tax advisor and lawyer -
