VAT Exemption for Supplies and Services to NATO Forces in Germany

The VAT exemption for supplies and services to NATO troops and their civilian personnel stationed in Germany follows specific rules under Article 67(3) of the Supplementary Agreement to the NATO Status of Forces Agreement (NATO-SOFA). Here is a detailed overview based on the regulations and practical applications outlined in the provided PDF.

Purpose and Scope of the VAT Exemption

1. Objective:
   • The VAT exemption aims to ensure that expenditures by NATO sending states for their troops stationed in Germany are not burdened with German VAT. This exemption applies to supplies and services provided to NATO troops and their civilian personnel.
   • Reference: Article 67(3) of the Supplementary Agreement to the NATO Status of Forces Agreement (NATO-SOFA).
2. Scope:
   • The exemption applies to supplies and services for both military and official purposes, as well as for personal use by NATO troops, their civilian personnel, and their dependents.
   • Reference: § 4 Nr. 7 Satz 1 Buchstabe d of the German VAT Act (UStG).

Eligibility and Documentation Requirements

1. Eligible Transactions:
   • The VAT exemption is granted for supplies and services to NATO troops and civilian personnel stationed in Germany, but not for those stationed abroad or for non-military NATO organizations.
   • Reference: BMF letter from December 22, 2004 (IV A 6 – S 7492 – 13/04).
2. Full Input Tax Deduction:
   • Despite the VAT exemption on the sales (output transactions), businesses can fully deduct the input tax on their purchases related to these sales, ensuring complete VAT relief for both seller and purchaser.
   • Reference: § 15 Abs. 3 Nr. 1 Buchstabe a UStG.
3. Required Documentation:
   • A properly completed procurement form (Abwicklungsschein) is essential to validate the VAT exemption. This form should include:
     • Details of the vendor and the nature of the goods or services.
     • The price and certification by the official procurement office.
   • Reference: § 73 Abs. 1 Nr. 1 UStDV.

Invoicing and Payment Procedures

1. Invoice Requirements:
   • Invoices must be issued to the official procurement office, not directly to individual troop members, even if they are the end users.
   • The invoice should clearly state the VAT exemption under Article 67(3) NATO-SOFA.
   • Reference: § 14 Abs. 2 S. 1 Nr. 2 UStG.
2. Payment Methods:
   • Payments for VAT-exempt transactions should be made through non-cash methods, such as checks or bank transfers, from the paying office’s account to prevent misuse.
   • Reference: BMF letter from December 22, 2004 (IV A 6 – S 7492 – 13/04).

Compliance and Record-Keeping

1. Proof of VAT Exemption:
   • Businesses must maintain proper records of all VAT-exempt transactions. This includes a correctly completed procurement form (Abwicklungsschein) and any additional documentation that proves the exemption.
   • Records should be kept separately from other taxable and tax-exempt transactions to ensure clear compliance with German VAT regulations.
   • Reference: § 4 Nr. 7 Satz 1 Buchstabe d UStG.
2. Audit and Verification:
   • The Bundesfinanzministerium (BMF) regularly updates the list of official procurement offices authorized to place orders under the VAT exemption. Businesses should ensure that their transactions involve these authorized offices.
   • Proper bookkeeping and document management are essential to provide clear evidence of VAT-exempt transactions during audits.
   • Reference: BMF letter from January 25, 2022 (III C 3 – S 7493/19/10001 :002).

Special Considerations

1. Specific Rules for Vehicle Transactions:
   • If a NATO member trades in a used vehicle as part of purchasing a new vehicle, the VAT exemption applies only if the procurement office handles the entire payment process.
   • The seller must pay the procurement office the price of the used vehicle first, and then the procurement office will pay the total price of the new vehicle.
   • Reference: BMF letter from December 22, 2004 (IV A 6 – S 7492 – 13/04).

Conclusion

By adhering to these detailed guidelines, businesses can ensure compliance and optimize the benefits of VAT exemptions under the NATO agreements, facilitating smoother operations when supplying to NATO forces in Germany. Proper documentation, compliance with invoicing requirements, and adherence to payment procedures are critical to maintaining the integrity of VAT-exempt transactions.

For further questions, please contact us at info@vat-germany.com.