Value Added Tax – goods trading in the EU

The taxation border controls were removed at the internal borders between the member states of the European Union (EU) in 1993. For intra-Community trading operations between businesses, which must have a VAT Registration Number (VAT Reg. No.; called "Umsatzsteuer-Identifikationsnummer" in German, abbreviated Ust-IdNr.) for this purpose, a "Transitional VAT System" has been valid since then, whereby the goods are moved across the Community internal borders in principle free of VAT of the country of origin, and VAT becomes payable only in the destination country.
While intra-Community deliveries to businesses are in principle exempt from tax, and are to be subject to payment of tax by the recipient in the destination country, deliveries to private individuals are subject to different regulations, because private individuals are normally excluded from acquisition taxes. Thus businesses in Germany normally have to charge German VAT on goods supplied to private individuals in other EU member states.
This document gives explanations of VAT Registration Number, of invoicing (with specimen invoice), of record keeping duties and of declaration and reporting duties – summary report and Intrastat report.

Contents

1. Conditions for tax-free intra-Community supply
2. Role of the VAT Registration Number (VAT Reg. No.)
2.1. How does a business get a VAT Reg. No.?
2.2. Liability risk and confirmation of validity of VAT Reg. Nos. allocated abroad
2.3. VAT Reg. Nos. in the EU member states
3. Invoicing
3.1. Specimen invoice
4. Duties of proof for tax-free intra-Community deliveries
4.1. Overview of duties of proof
5. Other declaration and notification duties
5.1. Summary Report (Zusammenfassende Meldung, ZM)
5.2. Intrastat Report

1.0 Conditions for tax-free intra-Community supply

Intra-Community supply (of goods) is defined in Art. 6a Value Added Tax Act (Umsatzsteuergesetz - UStG). Intra-Community supply means that the supplying company or the purchaser transports or dispatches goods into another territory of the Community (NOTE: Territory-specific VAT regulations in some of the member states have to be observed) and the recipient is a business which has acquired the object for its business purposes, and acquisition of the object is subject to VAT with the recipient in another member state.

A German business which supplies goods from Germany to a business in another member state of the European Union is thus normally exempt from Value Added Tax. The following conditions must be met in detail:

• The goods supplied are delivered to another EU member state; and
• The acquiror is a business (this condition is documented by use of a VAT Registration Number (VAT Reg. No.) of another member state); and
• The acquiror has acquired the object for his business purposes; and
• The acquisition of the object of supply is subject to VAT regulation in another member state, i.e. the acquiror is obliged to make acquisition tax declaration in another EU state (this obligation of the acquiror is documented by use of the VAT Reg. No. of another member state).

In order to ensure the correct application of this VAT regulation, the member states are obliged to allocate a VAT Registration Number (VAT Reg. No.) to all participants concerned.

Thus all taxable persons (companies) which participate in intra-Community trading receive their own VAT Reg. No. in addition to their tax number allocated by the responsible tax office. Since 1 January 2006 the allocation of such VAT Registration Numbers in Germany has been the responsibility of the Federal Central Tax Office (BZSt), the head office of which is in Saarlouis.

NOTE: Deliveries of goods by companies in Germany to private individuals in other EU member states are normally subject to German VAT. However, the delivery thresholds are to be observed for this purpose.

2.0 Role of the VAT Registration Number (VAT Reg. No.)

Unlike the tax numbers used by the tax offices at the present time, the VAT Registration Number (VAT Reg. No.) is not just a classification number. It is significant for taxation of intra-Community trading. The Federal Central Tax Office can therefore allocate a VAT Reg. No. only to persons or groups of persons who are registered with the responsible state finance authorities as being subject to VAT. The VAT Reg. No. serves mainly as an indicator that the holder is required to declare for tax purposes acquisitions received from other member states of the European Union (EU) as intra-Community acquisition, in the member state which allocated the VAT Reg. No. to it. Germany companies need to have the VAT Reg. No. (USt-IdNr.) of the recipient of their supplies, among other things in order to determine that they are entitled to deliver to that recipient free of tax. They also require their VAT Reg. No. and that of the recipient of the supplies because they have to indicate these in their invoices in cases of intra-Community supply, in order to meet their obligations for proper invoicing under Art. 14a Value Added Tax Act (UStG). Finally, they have to indicate tax-free intra-Community supply to the recipient of goods under the latter's VAT Reg. No. in their Summary Reports. The VAT Reg. No. of the recipient is also relevant as a factual criterion under Art. 3a para. 2 No. 3 (c) and No. 4 UStG and of Art. 3b paras. 3 to 6 UStG for the place of provision of certain other services. The VAT Reg. No. serves as an ordering criterion under which German companies have to make their summary report to the Federal Central Tax Office. In addition, the company can indicate the VAT Reg. No. in its invoices instead of the tax office related Tax Number. Information on this is given in our information sheet "Required indications in Invoices" (Pflichtangaben in Rechnungen).

2.1 How does a business get a VAT Reg. No.?

A VAT Registration Number (VAT Reg. No., German abbreviation USt-IdNr.) can be obtained by written application to the responsible tax office (Finanzamt). On first taking up commercial activity (business start-up), allocation of a VAT Reg. No. can be accelerated if the Federal Central Tax Office (Bundeszentralamt für Steuern, BZSt), based in Saarlouis, is given written confirmation by the tax office that the applicant is registered with it for VAT purposes. In urgent cases, it is advisable to phone the BZSt in advance and then make the application for the VAT Reg. No. in writing (by post, fax, or e-mail).

Address:

Bundeszentralamt für Steuern (BZSt)

Dienstsitz Saarlouis

Ahornweg 1-3

66740 Saarlouis

Referat Q 6

Tel.: +49-(0)228-406-1222

Fax: +49-(0)228-406-3801, 3753

No particular form is required for the application. It must indicate the name and address of the applicant, the tax number under which the applicant is registered for VAT purposes, and the tax office responsible for VAT (Art. 27a para. 1 sentences 5 and 6 UStG).

On first taking up of commercial activity, a VAT Reg. No. cannot be allocated until the start of business activity has been notified to the responsible tax office, informing it that a VAT Reg. No. is required for participation in intra-Community trading. The business must therefore first contact the responsible tax office. When starting up business activity for tax purposes, it can simultaneously apply for allocation of a VAT Reg. No. These data are automatically forwarded to the Central Tax Office (BZSt). At present the application procedure may take up to two months. To accelerate the process, a business start-up should in urgent cases get confirmation in a letter by its responsible tax office of name, address and current tax number for VAT purposes, and apply by fax (0228/406-3801) to the Federal Central Tax Office (Saarlouis Office) for allocation of a VAT Reg. No. It should then receive the VAT Reg. No. from the Central Tax Office within three days at the latest.

It is also possible to apply to the BZSt online for a VAT Registration Number. An Internet form for this purpose is available via the Form Management System (FMS) of the Federal Government, for fully automated application. Depending on the legal form of the company, the applicant has to enter various identification characteristics in the form. These are compared with the existing database of the BZSt after transfer, and checked for compliance. The result is that a justified applicant will immediately and without change of media receive a corresponding online notification with respect to automated processing.

Communication of a newly allocated or existing valid VAT Reg. No. is effected by post to the address of the business concerned, as entered in the data available to the BZSt. That is to prevent misuse of the VAT Reg. No., which could arise as a result of notification to an unauthorised applicant. Tax representatives may apply for the VAT Reg. No. on behalf of their clients. However, in these cases too, written notification of the allocated VAT Reg. No. is made only direct to the company owner or the company itself. NOTE: this online service is not available from 23:00 to 05:00 hours. The following data have to be entered for online application (please have these data ready):

• Tax office responsible for VAT taxation of the company;
• Tax number under which the company is registered for VAT purposes (Corporation Tax Number in the case of controlled subsidiary companies);
• For sole proprietors the family name, first name and date of birth of the taxable company owner are to be indicated;
• For all other company forms, the name of the company (company name without indication of company form), postcode and town/city (head office of company) are to be indicated.

Please note that the Central Tax Office (BZSt) is required to compare the data entered in the form with the existing address data in its database, in order to prevent misuse in applications for VAT Registration Numbers. Pursuant to Art. 27a para. 2 of the VAT Act, the Central Tax Office receives from the responsible State Tax Office (Finanzamt) the data required for allocation of the VAT Reg. No. on the physical persons and legal entities and groups of persons registered with it for VAT purposes. To ensure successful completion of the conformity check, you should therefore take your last tax notification or tax number communication from the responsible tax office and compare the address data shown there.

2.2 Liability risk and confirmation of validity of VAT Reg. Nos. allocated abroad

If a company with a VAT Reg. No. allocated in another EU member state orders goods from a company in Germany, it is thereby indicating that it

• Is subject to acquisition tax obligation in another EU member state, and thus has a right to tax-free delivery; and
• It is acquiring the goods in the framework of its business operations.

The company supplying in Germany can use the evidence of its VAT Reg. No. to prove its status (taxable person within the meaning of acquisition tax) and the use of the object in the framework of its business operations. The supplying company is obliged under Art. 6a para. 4 UStG to check its customer's data "with the diligence of a prudent businessman". If the supplying company fails to meet this obligation of diligently checking the correctness of the VAT Reg. No., and if it is found later that the indicated VAT Reg. No. of the recipient of the goods was not correct, the supplying company is liable to substantial back payments of tax. In order to avoid this risk, and to comply with the requirement for "diligence of a prudent businessman", it is advisable to check the VAT Reg. No. of the recipient of the goods. This can be done at the

Bundeszentralamt für Steuern
Dienstsitz Saarlouis
Ahornweg 1-3
66740 Saarlouis
Referat St I 3
Tel.: +49-(0)228-4061222
Fax: +49-(0)228-4063801

Telephone information and confirmation process: Monday-Friday, 7:00-18:00 hours
Internet confirmation process: daily from 5:00 to 23:00 hours.

There is now a facility available to companies from 5:00 to 23:00 hours to check at the website of the Central Tax Office at www.bzst.de, for qualified confirmation of the validity of a foreign VAT Reg. No. Previously they could only submit a simple confirmation question as to validity of a foreign VAT Reg. No. in this way.

However, a simple confirmation question is not sufficient to meet the duty of diligence required by Art. 6a para. 4 UStG.

A qualified inquiry on correctness of the address data and their conformity with the VAT Reg. No. can still be submitted in writing (to the address indicated in section 1.2), or by telephone, or online to the Central Tax Office. The company must thereby indicate its own VAT Reg. No. to the Central Tax Office (of if applicable tax number under which its is registered for VAT purposes) and indicate the VAT Reg. No. of another member state that is to be checked. The Central Tax Office then gives information on whether or not the indicated VAT Reg. No. to be checked is valid in the member state which issued it (simple confirmation procedure). The business submitting the inquiry can also request, additionally to check of validity of VAT Reg. No., for a check on the name and address of the holder of the foreign VAT Reg. No. (qualified confirmation process).

2.3 VAT Reg. Nos. in the EU member states

A VAT Reg. No. comprises the country code and further characters. A country overview by the Central Tax Office is given here .

Bulgaria and Romania became member states of the EU on 1 January 2007. At the beginning of 2007 there were problems with the confirmation of Bulgarian and Romanian VAT Registration Numbers. The Federal Finance Ministry (BMF) issued a statement on the VAT aspects of the accession of Bulgaria and Romania in its letter of 26/1/2007 .

The VAT Reg. No. is entered in the VAT Information Exchange System (VIES), an EU database for VAT-registered companies in the EU, and may be accessed and checked by any person from the EU. VIES is a system for electronic communication of data on VAT registration (= validity of VAT Registration Numbers) of companies registered in the EU. The tax authorities of the member states also exchange information on (exempted) intra-Community deliveries via the VIES.

Note:
Unlike the situation in Germany, where companies are allocated their VAT Reg. No. as an additional specific number in a specific procedure, the VAT Registration Number in a number of EU member states is made up of the tax number under which a company is registered with the tax office for VAT purposes, simply prefaced by the relevant country code. In these EU member states it may be necessary for a company which needs a VAT Reg. No. to make an application to the VAT authority (equivalent to the BZSt in Germany) in order for its data and its VAT Reg. No. to be included in the database for the VAT Registration Numbers of its country. Only then can the BZSt give German companies on request information on a company domiciled in another EU member state, by way of the confirmation procedure in accordance with Art. 18e UStG.

3.0 Invoicing

The supplying company is required under Art. 14a UStG to draw up an invoice, which must include not only the general requirements under Art. 14 para. 4 UStG, but also the following details:

• The VAT Reg. No. of the company supplying the goods or services (invoice issuer) and the VAT Reg. No. of the recipient of the goods or services (invoice addressee) and
• An indication of the tax exemption of the delivery, e.g. "tax-free intra-Community supply" or "tax-free in accordance with Art. 4 No.1b in conjunction with Art. 6a UStG". Under VAT Tax Guideline 185 para. 20 UStR it is not mandatory in the required indication of tax exemption (cf. Art. 14 para. 4 No. 8 UStG) to cite the exact articles of the law. It is sufficient to refer in everyday language to the reason for tax exemption, e.g. "intra-Community delivery", "export", "tax-free letting", "transport of hospital patient".

A duplicate of all invoices must be kept for 10 years (Art. 14 para. 1 UStG).
For details of invoice requirements, see our information sheet on Data required in invoices.

3.1 Specimen invoice

Under German law it is not necessary to translate the German indication "steuerfreie innergemeinschaftliche Lieferung" (meaning "tax-free intra-Community delivery) into the local language of the recipient of the goods or services. However, companies are often interested in including a corresponding indication in the relevant EU languages.

4.0 Duties of proof for tax-free intra-Community deliveries

The EU internal market and the associated removal of border and customs controls does not reduce the obligation of companies to provide documentary proof vis-à-vis the tax authorities. The law requires in Art. 6a UStG that the conditions for tax exemption of an intra-Community delivery (see overview below) have to be proved by the company. Details of this are regulated in Arts. 17a - 17c VAT Implementing Ordinance (UStDV). Art. 17a para. 1 UStDV specifies that the company located in Germany has to provide documentary proof in the event of intra-Community deliveries that it or the recipient transported or dispatched the object of delivery into another country of the Community. This must also be clear from the documents (see 6. Overview) and easily verifiable.

• Dispatch means that the goods are taken by a supplier or an independent third party on behalf of the customer (e.g. forwarding agent, haulier, courier service) to the member state in question.
• Transport means the goods are carried by the supplier or by the customer himself to the other EU member state.

Apart from documentary proof, the company is also required to keep proofs in the accounts, in accordance with Art. 17c UStDV. His accounts must permit clear and easy validation of the conditions for VAT-exempt intra-Community deliveries. For the special-treatment areas under VAT or customs law in some of the EU member states, there are also special requirements for proof, for example the preference dispatch paper T2LF or T2F for the Canary Islands. Further information on these points is available from our International Business Department.

4.1 Overview of duties of proof

5.0 Other declaration and notification duties

The supplier must indicate the calculation basis for his tax-free intra-Community supply, separately in the VAT preliminary notice and in the VAT return. For intra-Community supply, a Summary Report is also to be prepared (see Art. 18a VAT Act), serving for monitoring of VAT taxation in intra-Community trading.

5.1 Summary Report

Submission of the Summary Report ("Zusammenfassende Meldung", ZM) must be effected electronically, as specified in Art. 18a para. 1 UStG, for reporting periods from 1/1/2007 onwards. Electronic transmission is to be effected in accordance with the Tax Data Transmission Ordinance (Steuerdatenübermittlungsverordnung, StDÜV) in the version of 20/12/2006. The previous simplified procedure for electronic submission of Summary Reports was limited by the law to the period ending on 31/12/2005. That transmission path was closed down at the beginning of 2006.

Information on electronic transmission of the Summary Report is given at the website www.bzst.bund.de

To avoid unreasonable hardship, the responsible Tax Office can, on application, grant exception from electronic transmission. If the Tax Office has waived the requirement for electronic transmission of the preliminary notice under Art. 18 para. 1 sentence 1 UStG, this also applies to the Summary Report (ZM). The Summary Report in paper form is to be sent as an original (not via fax or e-mail) to the Central VAT Office, address: Bundeszentralamt für Steuern (BZSt), Dienstsitz Saarlouis, 66738 Saarlouis. If you have any questions on procedure, you can also contact the BZSt, Saarlouis office, on Tel. 0228-4061222 or Fax 0228/4063801.

In the Summary Report, the supplier gives a quarterly report to the Central Tax Office (Bundeszentralamt für Steuern - Dienststelle Saarlouis), for each customer separately, all intra-Community deliveries, indicating the VAT Reg. No. of the client and the value of the goods in euros, on the official form. The Central Tax Office collects the reports submitted by the companies and stores them in a database, from which they can be called up at any time by the responsible central authorities of the member states. Thus it can be checked in the country of destination whether the acquiror has fulfilled his duty of paying tax.

5.2 Intrastat Declaration

The Company is required to submit a report of its intra-Community deliveries monthly by means of Intrastat Declarations ("Intrastat-Meldungen"), to the Federal Statistics Office in Wiesbaden, where the value of the deliveries or acquisitions exceeded 300,000 euros in the previous year. If this value threshold is exceeded in the ongoing calendar year, statistical reports must be given in the month following the month when the threshold was first exceeded. The purpose of the Intrastat Declarations is to record the flows of goods for statistical purposes.

Details on the statistical declaration duties for intra-Community goods movements are given in our Information Sheet on Intrastat Declarations.

The Intrastat Declarations must be submitted to the Federal Statistics Office. This can be done as follows:

• Online report via IDEV (Internet Data Network of the Statistical Offices of the Federation and the Laender)

¡ Intrahandel form reporting (direct entry in the Internet)

¡ Intrahandel data report (file upload of reporting files)

• Reporting on electronic data media
• Reports in paper form on the official form N.

The reports are to be submitted at the latest on the 10^th working day after the end of the reference month, directly to the Federal Statistics Office. Extension of the period beyond the 10^th working day is not possible, even if for example a standing extension of the period for monthly VAT returns was granted by the Tax Office.

For further information, please contact your responsible Chamber of Industry and Commerce.

Despite careful checking of the information given above, we can give no guarantee that the data are correct. In case of doubt, please contact the Tax Office (Finanzamt) responsible for you.

Status: October 2008