Freelance work and the 6th European Directive

Hi Guys,

So yet more questions on the theme of setting up as a freelance consultant, I managed to get a contract in Munich, unfortunately it was via an agency which is setup in London. According to the contract in my invoice I will charge them my fee + VAT. I asked them to confirm this and this is what they said:


Here is a link to the Directive: 6th Directive

Now, I'm no lawyer but I cannot for the life of me see how they expect me not to charge the VAT here. Does anyone see this differently?

Cheers,

Allan.

Hi Al,
read the paragraph about the supply of services. It says (roughly): when the one to whom the service is supplied is a business AND he is not in the same country as the one that supplies the service (you) AND you are f.ex. a consultant,THEN the services are treated as being supplied in the receiver's country of residence. So, if you (in Germany) are a consultant, supplying consulting services to a company in Britain, then the services are being treated as if they were supplied in Britain, which means, that German VAT does not apply. So you don't have to charge VAT. If, however you accidentally do charge VAT, you will have to pay it.
IF IN DOUBT, CONTACT YOUR STEUERBERATER OR YOUR FINANZAMT (who will both be happy to help you and charge you accordingly)
Cheers
Chris

Hi Chris,

Thanks for the feedback, I guess this is so, I'll ask my Taxman about it...

Cheers,

Allan.

What this means though is that you're supposed to declare this to the local (German) authorities. Not everyone does this though...

Ah yes, to be sure. You've got to hand in your VAT-report nevertheless, and you will want to do so because of the tax refund on things you purchase for your business. The recipient of your services will hand in his VAT report in Britain and declare the services received from you. He will pay VAT on them.

The difference between declaring things and not declaring them is, plainly speaking: (threat-modus on) if you do declare things that are tax-free, tax-exempt, non taxable, the Finanzamt will probably visit you and have a look at your books after notifying you and during normal working hours. If you do not declare them the Finanzamt may find out anyway and visit you without notice during the small hours and have a look at your books, your socks-drawer, your magazines, your wife in her nighty, your mattress... (threat-modus off)

I don't think the UK company will pay VAT on the services received from you. That would upset the whole VAT chain if you didnt charge it and they paid it. I believe some non-VAT items need to be declared by receipient or provider but not all


sure, but as far as I'm aware the provider of services doesnt need to state it - maybe it is different in germany though

Correct. All this basically works on an honor system, so it's basically something you can get away with every so often, but you shouldn't make it a habit as these things will catch up with you when you get audited.

true, you'd have to keep undeclared things exteremely separate for it not to be noticed somewhere I should think.

Ok,

I just spoke to a tax man, yes, it's correct, I charge no VAT as I am in a different country, which is nice...

Cheers,

Allan.

OK, but that makes sense, just remember that you have to declare the income in the country in which you pay your taxes. Good luck.

In Germany, at least, the recipient of services by a foreign provider has to declare and pay the VAT under § 13b UStG - he can then claim the same amount as refund. This is called the reverse charge system. I think, it may be the same in Britain under the EU Directive. In effect nobody pays anything, as long as only businesspeople are involved. I am pretty sure, thet there is some place in the German VAT-return-paper for these things, probably in "Anlage UR", but this going to turn academic anyhow.

interesting if this is true (I don't doubt you particularly) as I didn't realise such VAT had to be paid (and reclaimed) - thats means non-declaration mentioned by JW would thus be somewhat iffy/easy to detect I would guess?

Well, strictly speaking, these services are not tax-free. The point is, that the place, where the service is rendered is defined by law. The German VAT-law says: the place of the service is the place of residence of the recipient (for some kinds of service like consulting). As § 1 of the VAT-law says, that services rendered in Germany are taxable, this means, that these services supplied by a business in Germany to a business abroad are non-taxable in Germany. Still services rendered by a business abroad to a business in Germany are taxable in Germany, the place of service being considered as Germany in this system. And § 13b says: the recipient of services by a supplier, resident in another country owes the tax for these services. Still § 15 says: the VAT owed can be reclaimed. I agree that this may sound purely academic and in effect, no money is being moved at all, but still it must be declared and Finanzamt can check it, if they get their hands on any invoice within this system. I am pretty sure, that the same rules apply in the UK, as no member state will treat anything as non-taxable unilaterally, the EU VAT system being a closed system after all.

Isn't VAT a funny thing? Better than Douglas Adams. I could go on for hours...

Chris

May help out..

EU: VAT/MwSt for Private persons / business w/o VAT/MwSt ID
EU: No VAT/MwSt for business if VAT/MwSt ID is valid.

• Check VAT/MwSt ID www.bmf.de
• IF customer picks up from you. Documents or declartion of shipping. even grab copies of Passports as the TAX man will run to you first... if the buyer is found to still be in the country 6 months later.
• ( ALL ) USt-frei gem. § 6a UStG i.V.m. § 4 (1) Nr.1b) UStG and USt-IdNr.: ... ( must be ) on the Rechnung/Invoice

EU25 Member States:

* Austria
* Belgium
* Cyprus
* Czech Republic
* Denmark
* Estonia
* Finland
* France
* Germany
* Greece
* Hungary
* Ireland
* Italy
* Latvia

* Lithuania
* Luxembourg
* Malta
* The Netherlands
* Poland
* Portugal
* Slovakia
* Slovenia
* Spain
* Sweden
* United Kingdom

NON EU: No VAT/MwSt if:

• IF customer picks up from you. Shipping abroad
• IF customer picks up from you. Proof of shipping abroad.. or proof like air tickets dated to leave soon.
• Here is the special sentence for delivery for Outside the EU Union Countries:
• ( ALL ) USt-frei gem. § 4 Nr. 1 a) UStG i.V.m. § 6 UStG and USt-IdNr.: ... ( must be ) on the Rechnung/Invoice

if there is something missing please edit it in, and please Re-post it up !!
Cheers.

I found this thread, being in a similar position. Having worked recently from Berlin as a consultant for a UK firm.
In such a case, does the supplier have any responsibility at all re vat? Or does it all lie with the customer?
I thought I just didn't have to worry about it (or so the finanzamt told me - my income was over the vat threshold, but all for services to the UK).
Now I'm hearing things about needing to be vat registered anyway, putting the customer's vat number on invoices etc..