VAT | 10. November 2021

The reverse charge procedure and its areas of application

The reverse charge procedure results in a shift of tax liability. As result, the VAT is paid by the recipient. by

As a rule, the company supplying the product or service issues an invoice to its customer with the value-added tax and subsequently forwards the VAT amount to the tax office. However, in the B2B sector, there is a special mechanism that can be used in certain cases. In the reverse charge procedure (hereafter RCP for short), the tax liability is shifted from the supplier to the recipient of the service. Accordingly, the recipient must also meet declaratory obligations. It is therefore important for businesses to be familiar with the various case scenarios so that VAT requirements can be correctly fulfilled without negatively affecting a company’s cashflow.

What is the reverse charge procedure?

Normally, the supplier issues an invoice showing the VAT and pays this amount to the tax office. The customer/recipient pays the invoice and claims input tax (as far as authorized). This is a standard VAT process.

The RCP results in a shifting of the tax liability. The recipient of the product or service pays the VAT to the tax office but can also claim input tax (as far as entitled to do so). The supplier, on the other hand, does not show any tax and is not required to pay the VAT. The invoice therefore only shows a net amount.

Which cases lead to a change of tax liability

The reverse charge procedure applies in certain cases. A legal definition can be found in § 13b of the German Value Added Tax Act (UStG). Accordingly, the RCV is applied in particular in the case of:

  • Deliveries of work and materials and other services of a merchant located abroad
  • Deliveries of goods provided as security by the guarantor to the secured party outside insolvency proceedings
  • Revenues covered by the Real Estate Transfer Tax Act
  • Construction work
  • Supplies of gas, electricity, heat or refrigeration
  • Transfer of authorizations in emissions trading
  • Supplies of the items listed in Annex 3 to the German Value Added Tax Act (for example, granulated slag, waste and lead scrap, etc.)
  • Cleaning of buildings and parts thereof
  • Certain supplies of gold
  • Supplies of mobile devices, tablet computers and games consoles or integrated circuits after exceeding a threshold
  • Supplies of the items specified in Annex 4 of the German Value Added Tax Act (e.g. precious metals) after exceeding a threshold
  • Other telecommunications services

Services and the reverse charge procedure

In the case of cross-border supplies, services – referred to as other supplies in the VAT Act – are particularly relevant: The RCP is also applicable to other supplies from a company established in a different part of the Community territory or third country that are taxable in Germany pursuant to § 3a (2).

Services that are provided electronically also fall under § 3a (2) of the German Value Added Tax Act. Consequently, many e-commerce businesses often find it necessary to apply the reverse charge procedure.

Article 7 of the Implementing Regulation to the VAT System Directive defines in more detail what electronically supplied services are. They include the provision of digital products (e.g. software) or services that arrange or support a presence on electronic networks for business or personal purposes, e.g. a website or webpage. Many companies based in Germany make use of such services.

Example: Good-choice, a company based in Germany, uses a paid Google Suite Business account. In Europe, Google is based in Ireland. Google does not indicate VAT on the invoice (VAT (0%) EUR 0.00), but includes a statement regarding the reverse charge (“Services subject to the reverse charge – VAT to be accounted for by the recipient as per Article 196 of Council Directive 2006/112/EC”). Good-choice must calculate the VAT on the invoiced amount and take it into account in its advance VAT return (and VAT declaration). The VAT will be paid by Good-choice in Germany.

What invoice issuers must pay attention to

Many e-commerce companies in Germany regularly issue invoices for their provided services to companies based in foreign countries. If there is a case in which the RCP applies, the service provider must make certain that VAT is not shown on the invoice. It is not critical if the VAT is stated at the rate of 0% and EUR 0.00. However, if the seller does show VAT on the invoice by mistake, the amount must be paid to the tax office in accordance to the strict liability in § 14c of the German Value Added Tax Act.

Mistakes in this case are annoying for all parties involved. This is because the recipient of the service also owes the amount of VAT shown on the incoming invoice but cannot claim an input tax deduction for it as this tax is not legally owed. Civil law questions can also arise if he remits the erroneously stated VAT to the issuer of the invoice. This can also lead to a cashflow disadvantage for the recipient – at least temporarily till the preparation of the invoice.

„The verification of incoming invoices is important, especially against the background of a possible shift of tax liability. This also applies in particular if tax is shown on the invoice despite the reverse charge. So if German companies receive invoices from companies based in another EU member state, then increased attention is required.“

Annett Schaberich – VP Tax Compliance at eClear AG

Reverse charge procedure: What must be shown on the invoice?

Pursuant to § 13b of the German Value Added Tax Act, the supplying merchant must issue an invoice containing certain mandatory information. This includes (according to § 14 (4) in conjunction with § 14a (5), if no credit note is issued) the following:

  • Name and address of both the supplier and recipient
  • Tax number and/or VAT identification number of the supplier and recipient of the service
  • Invoice date
  • Sequential invoice number
  • Quantity and nature of the goods supplied or scope and nature of other services provided
  • Time/date of delivery/provision of service
  • Amount due
  • Pursuant to § 14b (1) sentence 5: reference to the duty of the recipient to retain records
  • Note: “The recipient is liable for VAT”

Important: No VAT may be shown on the invoice. However, there must be a reference to the RCP. According to § 14a para. 1 UStG, this also applies if the service is provided to a recipient resident in the rest of the EU. The wording can be, for example, read: ” The recipient is responsible for taxation of the service/goods “. As a rule, an invoice for a service to a recipient in a third country is not subject to the German regulations for a proper invoice.

Check VAT identification number

The issuer of the invoice must also ensure that his valid VAT identification number and a valid VAT identification number of the recipient of the service are shown on the invoice if the recipient is located in other community territory of the EU. The validity can be checked via the Federal Central Tax Office website. It is also possible to integrate the query into the company’s software system via an interface. The VAT identification numbers can then be queried automatically. This procedure can significantly reduce manual effort, especially for e-commerce companies.

Tip: Companies should document the query. Anyone making an individual enquiry via the Federal Central Tax Office website should also document and retain the enquiry.

Reverse charge procedure in the advance VAT return

Recipients of services must declare the tax they owe in accordance with § 13b German Value Added Tax Act. This also applies if the recipient of the service is, for example, a small business or only handles tax-exempt sales. The sales pursuant to § 13b must be declared accordingly in an advance VAT return. However, if the service provider is a small business, transfer of tax liability does not apply.

Example: advance VAT return for 2022

  • The service recipient must make appropriate entries on lines 40 till 42
  • The supplying merchant must make entriess on line 49 and 50. The supplying company must submit a recapitulative statement to the Federal Central Tax Office for services supplied to the rest of the Community.

Advantages and risks of the reverse charge procedure

Service providers benefit from the RCP because they do not have to declare or pay VAT to the tax office. However, they must submit a recapitulative statement for services in the community territory and declare the “non-taxable services pursuant to § 18b sentence 1 (2) of the German Value Added Tax Act” in the advance VAT return.

In cross-border situations, the RCP can help reduce bureaucracy: after all, in these cases the service provider does not have to register in the other state in order to pay sales tax there. And tax authorities are not faced with the problem of collecting taxes from companies based in foreign countries.

However, the RCP can also entail risks. The service recipient must know when a change of tax liability applies and the VAT must be paid to the tax office. A lack of information on the invoice does not release the service recipient from these obligations. Even if the invoice incorrectly shows VAT, the service recipient must still pay the VAT to the tax office.


The reverse charge procedure can reduce bureaucracy – especially for the service provider. However, the prerequisite is that companies take special care when issuing and checking invoices. For e-commerce merchants in particular, it may be a good idea to use technological options to automate the process.


More on the subject: Cross Border E-Commerce