Reverse charge and customers in other EU countries

For certain services to businesses in other EU countries, the customer owes the VAT. You invoice the net amount, Folnaro adds the note and lists the sale in the EC sales list.

Prepare the customer

Open the customer under Customers or create one with File > New > Customer.
Set Type to Business and enter the Country under Address.
In the Tax section, enter the VAT ID with its country code, for example FR12345678901.
Click Check. Folnaro asks the EU service VIES and shows the result with its date and the registered name.
Leave Tax Treatment on Automatic. Folnaro then picks the treatment from country, type and VAT ID.

Without a VAT ID, invoices to an EU business can’t use reverse charge.

A customer’s Tax section with a VAT ID confirmed by VIES

What the VIES check returns

Valid, checked …: VIES confirms the number. Folnaro keeps the date and the registered name with the customer. If the name differs a lot from your customer, ask.
Invalid, checked …: VIES does not know the number. Clear it up with your customer before you apply reverse charge.
VIES did not answer. You can save anyway and check again later.: the member state’s service cannot be reached at the moment.
VIES only checks VAT IDs from EU member states.: there is no VIES check for customers outside the EU.

For the check, Folnaro sends only the VAT ID to the European Commission’s service, no other data about your customer.

What Automatic picks

Customer	Suggestion
You are a small business	Small business (§ 19 UStG), whatever the customer
Germany or no country	Standard taxation
Other EU country, business with VAT ID	EU reverse charge (§ 3a UStG)
Other EU country, private individual or no VAT ID	Standard taxation
Outside the EU, business	Service to a third country (not taxable in Germany)

You can still change the treatment on each document. In a document, the Tax Treatment field is in the inspector’s Tax and Payment section, with the suggestion for the customer below it. Further options there: domestic reverse charge (§ 13b UStG), intra-Community supply (§ 4 No. 1b UStG), export of goods to a third country and the zero rate for photovoltaics.

Write a reverse charge invoice

Create the invoice as usual, for example with ⌘N, and choose the customer.
In the inspector under Tax and Payment, check that Tax Treatment is EU reverse charge (§ 3a UStG).
Finalize it with Document > Finalize and Send….

The invoice shows no VAT and carries the reverse charge note in the document’s language. Your VAT ID and the customer’s appear on it. For domestic reverse charge, the note names § 13b UStG.

The Tax and Payment section in the inspector with EU reverse charge

Before finalizing, Folnaro checks:

If the customer’s VAT ID or your own is missing, the invoice cannot be finalized. You enter yours in Settings > Taxes under Tax identification.
EU reverse charge does not fit a customer in Germany. Folnaro asks you to choose another treatment or check the customer’s country.
If the customer is in the EU, has a VAT ID and the invoice is still taxed normally, Folnaro points out that reverse charge usually applies.
The Confirmed VAT ID check in Settings > Checks reports reverse charge invoices and intra-Community supplies whose VAT ID VIES has not checked yet or reported as invalid.

Legal background For services to businesses, the place of supply under § 3a (2) UStG is where the customer is. The customer owes the VAT under the law of their country (Art. 196 of the VAT Directive). You invoice the net amount with the reverse charge note and both VAT IDs (§ 14a Abs. 1 UStG) and report the sale in the EC sales list (§ 18a UStG). For certain services within Germany, such as construction work, the customer owes the VAT as well under § 13b UStG. Whether reverse charge applies depends on the kind and place of the service. Folnaro only suggests based on country and VAT ID; you make the decision, with your tax advisor when in doubt.

EC sales list

Invoices with EU reverse charge and intra-Community supplies appear under Reports in the EC sales list (ZM) section, per customer with their VAT ID. You set the reporting period in Settings > Taxes under EC sales list period. Quarterly is allowed while your intra-Community supplies of goods do not exceed €50,000 per quarter. With services only, quarterly is always enough. The EC sales list is due on the 25th day after the end of the reporting period (§ 18a UStG) and goes to the Federal Central Tax Office. More under EC sales list.

Buy services from abroad

When you buy a service under the reverse charge procedure yourself, for example software from a company in Ireland, you owe the VAT (§ 13b Abs. 1, 2 and 5 UStG), even as a small business.

Open the expense under Expenses.
Under Reverse charge, choose the kind: Reverse charge EU, Reverse charge non-EU, § 13b domestic (construction etc.) or Intra-community acquisition.
Folnaro shows the amount under VAT you owe and deduct, as a small business under VAT you owe.

An expense for software from Ireland with EU reverse charge

With regular taxation you owe the VAT and deduct it again as input tax in the same return (§ 15 Abs. 1 Satz 1 Nr. 4 UStG). As a small business you owe it as well but deduct nothing, and you file a VAT return for that period. Reports points this out.

Note Whether a service falls under reverse charge depends on the kind and place of the service. Folnaro only suggests based on country and VAT ID. When in doubt, ask your tax advisor.

Common problems

The invoice cannot be finalized because a VAT ID is missing.: Reverse charge needs your VAT ID and the customer’s. Enter yours in Settings > Taxes under Tax identification and the customer’s in their Tax section. Then finalize the invoice again.
Automatic suggests standard taxation although the customer is in the EU.: The customer has no VAT ID, is set up as a private individual or has no country. Add the details in the customer. The suggestion then adjusts.
VIES reports the VAT ID as invalid.: Often a typo or a missing country code. Ask your customer for the exact number, enter it and click Check again.
VIES does not answer.: The member state’s service is down for a while. Save the customer and check the number again later, before you finalize the invoice.
An invoice is missing from the EC sales list.: Only finalized invoices with EU reverse charge or intra-Community supply count, and only in the matching reporting period. Check the tax treatment, the invoice date and the EC sales list period.