When reverse charge applies
Reverse charge means the customer, not you, accounts for the VAT. German law calls it Steuerschuldnerschaft des Leistungsempfängers. For freelancers the most common case is a service to a business in another EU country: consulting, design, programming, writing, translation.
For such services to businesses, the place of supply is where the customer runs their business (§ 3a (2) UStG). The service is therefore not taxable in Germany but in the customer’s country, where the customer pays the tax themselves. You invoice the net amount.
Three conditions should be met:
- Your customer is a business and buys the service for that business.
- They are established in another EU country.
- They have a valid VAT ID, which you ask for and check.
The EU Commission’s VIES service confirms whether a VAT ID is valid. Keep the result with its date.
Not every service follows the basic rule. Services connected with real estate, certain events or vehicle hire have their own place of supply rules. Whether yours is one of them is a question for your tax advisor if in doubt.
What goes on the invoice
Under § 14a (1) UStG, a service under § 3a (2) UStG to a business in another EU country needs:
- the note “Steuerschuldnerschaft des Leistungsempfängers”. Many add “reverse charge” so the customer abroad understands it at once.
- your VAT ID and your customer’s. Your tax number alone is not enough here.
- no tax amount. The invoice shows only the net amount.
- every other mandatory detail under § 14 (4) UStG, see invoice requirements.
You have to issue the invoice by the 15th day of the month after the service (§ 14a (1) UStG).
Domestic reverse charge under § 13b UStG
§ 13b UStG lists further cases where the customer owes the tax, within Germany too. They include work and services by foreign businesses, construction services, building cleaning and certain supplies of mobile phones, tablets or integrated circuits from €5,000. The invoice again carries the note “Steuerschuldnerschaft des Leistungsempfängers” (§ 14a (5) UStG). The simplified small-amount invoice is not available for these supplies (§ 33 sentence 3 UStDV).
For most freelancers in creative and IT work the domestic case rarely matters. It becomes relevant when you buy services from foreign businesses yourself.
Reporting: VAT return and EC sales list
Even though no German VAT is due, you report the sale twice.
In the VAT return you declare services under § 3a (2) UStG to businesses in other EU countries separately (§ 18b UStG). On the form they appear as non-taxable other services in field 21. More in the guide to the VAT return.
In the EC sales list you report each customer’s VAT ID and the total of your services to them. For services the reporting period is the calendar quarter (§ 18a (2) UStG). The list goes electronically to the Federal Central Tax Office and is due by the 25th day after the end of the period.
When you buy from abroad
When you buy a service from a business in another EU country, such as software or advertising, the roles flip. You then owe the German VAT (§ 13b (1) and (5) UStG). Under standard taxation you report the tax in the VAT return and usually deduct it as input tax in the same period. On balance you pay nothing, but you still have to report it.
As a small business you owe the tax as well, but you cannot deduct it as input tax. You then file a VAT return for that period and pay the tax. More in the guide to the small business rule.
Customers outside the EU
For businesses outside the EU the place of supply under § 3a (2) UStG is also with the customer. The service is not taxable in Germany and there is no EC sales list entry. Which tax applies in the customer’s country, and which note belongs on the invoice, depends on that country’s law. This is worth asking your tax advisor.
