What special rules apply to value-added tax for services provided abroad?
May 11, 2023 | 50,00 EUR | answered by Lina Sauer
Dear tax consultant,
My name is Wolfgang Schneider and I run a small business that offers IT consulting services. Lately, we have been receiving more requests from customers abroad and are now faced with the question of what special rules apply to VAT for services provided abroad.
Currently, we only have customers in Germany and are therefore familiar with the local VAT regulations. However, we now want to expand and offer our services internationally. This raises questions for us regarding VAT, as we are unsure how to correctly invoice it and what tax rates apply in each country.
Our concern is that we might make mistakes in calculating VAT, which could lead to legal problems and financial losses. Therefore, we would like to fully understand everything in advance and ensure that we handle VAT correctly.
Could you please explain to us what special rules apply to VAT for services provided abroad and what steps we need to take to correctly invoice VAT? Are there any ways to minimize VAT burden and what documents do we need to prepare for tax returns abroad?
Thank you in advance for your help and support.
Sincerely,
Wolfgang Schneider
Dear Mr. Schneider,
Thank you for your inquiry regarding the value-added tax for services provided abroad. It is understandable that you are concerned about how to correctly calculate the VAT and avoid potential errors to prevent legal issues and financial losses. Therefore, I will be happy to explain the specifics of VAT for services provided abroad and provide you with steps to follow in order to correctly invoice the VAT.
When providing services abroad, the reverse charge mechanism generally applies. This means that the tax liability shifts to the recipient of the service. This means that you do not have to remit the VAT to the foreign tax authority, but the customer in the respective country is responsible for the taxation. However, you must indicate the reverse charge mechanism on your invoice and show the VAT accordingly.
It is important that you are aware of the VAT rates in the countries where you offer your services. VAT rates may vary in different countries, and it is crucial that you apply the correct rates to avoid potential errors.
To minimize the VAT burden, you may be able to take advantage of the small business exemption under certain conditions. This exemption allows you to be exempt from VAT under certain turnover thresholds. However, it is important to note that this exemption may not apply in all countries, so you should inform yourself about the specific regulations.
For filing taxes abroad, you need to prepare appropriate documents, such as invoices, contracts, and evidence of your services. It is crucial that these documents are accurate and complete to prevent any inquiries from tax authorities.
I hope that this information has been helpful to you. If you have any further questions or need assistance, please feel free to contact me.
Best regards,
Lina Sauer
