Reverse Charge – reversing the tax debt on cross-border B2B services
With Reverse Charge – it concerns a special regulation in the sales tax law, according to which not the service provider, but the recipient of the service must pay the sales tax. If you have been wondering for a while what exactly this special regulation is about, then you should not miss this post.
The reversal of the tax debt
The applicable VAT law states that the service provider must pay the sales tax to the tax office. The recipient of the service, in turn, can claim the VAT paid as input tax (if the recipient of the service himself is an entrepreneur). On the other hand, if the tax debt is reversed, the tax liability is transferred to the recipient for certain services. Although this may initially sound somewhat complicated to laypeople in tax law, this provision also brings benefits. Simplified, the whole thing works as follows:
The performing entrepreneur owes VAT to the tax office
The recipient of the service owes the sales tax
Why reverse charge?
The reversal of the tax debt should primarily serve the simplification of the tax procedure, but also the fight against VAT fraud, such as the so-called carousel fraud. Carousel fraud involves the use of cross-border supplies which are tax-free for the payer. Experts believe that it will lose billions of euros every year, which will eventually have to be paid by taxpayers.
Conditions and Scope
The reversal of the tax liability is regulated in § 13b UStG, according to which the tax liability is transferred to the recipient of the service, if this is within the meaning of the value added tax law.
In these business areas, Reverse Charge applies:
- Deliveries of works in Germany carried out by an entrepreneur resident abroad (§ 13 b As. 2 No. 1 UStG)
- Deliveries of objects assigned as collateral outside the insolvency proceedings (§ 13b As. 2 No. 2 UStG)
- Turnover which falls under the Real Estate Transfer Tax Law (§ 13b (2) no. 3 UStG)
- construction works (§ 13b Asb. 2 No. 4 UStG)
- Cleaning of buildings or parts of buildings (§ 13b (2) No. 8 UStG)
- Deliveries of gold (§ 13b (2) No. 9 UStG)
- Electronic goods deliveries of mobile phones, tablet computers, game consoles, circuits, etc. (§ 13b (2) No. 10 UStG)
Reverse charge for construction works
There are special requirements for the reverse charge procedure for construction works:
- For construction projects to property developers, the reverse charge procedure is out of the question
- Reverse charge is mandatory if the recipient of the service provides sustainable construction work himself
- A certificate is issued by the tax office for the provision of sustainable construction work if the entrepreneur earns 10% of his turnover from construction work
The 3 most common mistakes with reverse charge
- The invoice shows sales tax
- The reference to the reversal of the tax debt is missing
- The VAT identification numbers are missing
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