What is the reverse charge procedure?
The reverse charge procedure is a sales tax regulation in which the buyer, not the seller, is liable for the sales tax. This means that the buyer pays the tax directly to the tax office.
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Reverse charge procedure for companies that sell digital products and digital services
In the reverse charge procedure, the selling company does not pay the value added tax (VAT) to the customer, but directly to the tax office. The customer receives a tax certificate from the seller stating the amount of VAT to be paid.
Advantages of the reverse charge procedure
1. Simplification of tax processing: the seller does not have to declare the VAT separately to the tax office.
2. Simplification of cross-border transactions: Foreign companies no longer have to have direct contact with the German tax office.
3. Input tax deduction: the buyer can deduct the VAT paid as input tax, which reduces the financial burden and prevents fraud.
Who can use the reverse charge procedure?
To use the reverse charge procedure, the buyer must be either a company or a legal entity under public law. The most important conditions are:
The service is provided in another EU country.
The buyer has a valid VAT ID.
This procedure is particularly useful for cross-border transactions within the EU, as the buyer pays the VAT directly in their own country.
Reverse charge procedure for B2B transactions
For B2B (business-to-business) transactions, the reverse charge procedure is implemented as follows:
1. Data matching: the data entered is matched with the tax data.
2. Responsibility for the tax: the buyer takes responsibility for paying the VAT, not the seller.
3. Smooth processing: the procedure ensures correct VAT processing for cross-border transactions.
Limitations of the reverse charge procedure
The reverse charge mechanism applies to digital products and certain digital services, such as software licenses and online courses. It does not apply to all services, so it is important to check the exact nature of the digital service.
Legal basis
§ Section 13b para. 2 no. 1 UStG (D)
§ Section 3a para. 2 UStG (D)
Example + sample invoice
The company "ABC Software Solutions" in Germany purchases a license for project management software and an online course for using the software from "XYZ Tech Services" in France via CopeCart. Both companies are registered as entrepreneurs and have a valid VAT ID.
In accordance with the regulations of the reverse charge procedure, "ABC Software Solutions" is responsible for paying the VAT. This means that "XYZ Tech Services" does not charge VAT. Instead, "ABC Software Solutions" pays the VAT directly to the German tax office and can claim it as input tax at the same time.
Sample invoice with marked reference to the application of the reverse charge procedure:
Summary
The reverse charge procedure simplifies the processing of VAT for cross-border transactions within the EU by transferring the tax burden from the seller to the buyer. This simplifies tax administration, reduces the administrative burden and prevents tax fraud.