To qualify for VAT exemptions on intra-community supplies (deliveries within the EU) and exports to non-EU countries, businesses must comply with specific requirements outlined in the German VAT Act (Umsatzsteuergesetz, UStG). Below is a detailed guide on these requirements and the consequences of non-compliance.
Requirements for Tax-Free Intra-Community Supplies (EU Deliveries)
- Valid VAT Identification Numbers (Section 6a UStG)
- The supplier must have a valid German VAT identification number.
- The recipient must provide a valid VAT identification number from another EU member state.
- Transport Documentation (Section 17c UStDV)
- Proof of transport to the destination in another EU member state is required. This can be achieved through:
- CMR waybills
- Bill of lading
- Tracking information for postal and courier services
- A signed confirmation of receipt by the customer
- Proof of transport to the destination in another EU member state is required. This can be achieved through:
- Proper Invoicing (Section 14a UStG)
- Invoices must include both the supplier’s and the recipient’s VAT identification numbers.
- The invoice should state that the supply is tax-exempt as an intra-community supply (e.g., “steuerfreie innergemeinschaftliche Lieferung”).
- Correct Declaration (Section 18a UStG)
- The supplier must report the intra-community supply in the Recapitulative Statement (Zusammenfassende Meldung) and the regular VAT return.
- Verification of Recipient’s VAT Status (Section 18e UStG)
- Suppliers should verify the validity of the recipient’s VAT identification number using the VIES (VAT Information Exchange System) or a similar verification tool.
Requirements for Tax-Free Exports to Third Countries (Non-EU Countries)
- Proof of Export (Section 6 UStG)
- Proof that the goods have left the EU is required. Acceptable documents include:
- Export declarations
- Exit certification from customs (Ausgangsvermerk)
- Transport documents (e.g., airway bill, bill of lading)
- Proof that the goods have left the EU is required. Acceptable documents include:
- Proper Invoicing (Section 14 UStG)
- The invoice must clearly indicate that the transaction is an export and is therefore tax-exempt (e.g., “steuerfreier Export”).
- Correct Declaration (Section 18 UStG)
- Exports must be declared correctly in the VAT return.
- Customs Clearance (Section 6 UStG)
- The goods must go through proper customs procedures, and the necessary documentation must be obtained and retained.
Consequences of Non-Compliance
- Loss of Tax Exemption (Section 6a, Section 6 UStG)
- Failure to comply with the documentation and procedural requirements may result in the loss of the tax exemption, leading to the supplier being liable for VAT on the supply.
- Penalties and Interest (Section 26b UStG)
- Non-compliance can lead to penalties and interest on the unpaid VAT. The standard penalty is typically 10% of the unpaid VAT amount, plus interest.
- Additional Administrative Burden
- Inaccurate or incomplete documentation may result in additional administrative burdens, including audits and further scrutiny from tax authorities.
- Potential Legal Actions
- Severe non-compliance might lead to legal actions, including fines or other sanctions as determined by the tax authorities.
Practical Steps for Compliance
- Implement Robust Documentation Processes
- Ensure that all required documentation is collected, verified, and stored systematically.
- Regularly Verify VAT Identification Numbers
- Use tools like VIES to regularly check and verify the VAT status of your EU trading partners.
- Train Staff and Update Systems
- Train your accounting and logistics staff on the requirements for tax-free intra-community supplies and exports.
- Update your invoicing and record-keeping systems to ensure compliance.
- Consult with Tax Professionals
- Regularly consult with tax professionals or advisors to stay updated on any changes in VAT regulations and to ensure ongoing compliance.
For detailed guidance and assistance with VAT compliance, you can reach out to us at WW+KN, a Baker Tilly Company. We offer professional consulting services to help you navigate the complexities of VAT regulations. Contact us at info@vat-germany.com for more information.